Month: May 2023

Which Structure Would Suit Your Business?

Posted on by Adam_Admin

One of the most important decisions you must make before starting a business is in what structure your business will be operating under. This will be reflected in all facets of your business, so you should spend time understanding the implications of each structure before making a decision.

Sole Proprietorship

A sole proprietorship business structure is a type of business with only one owner. However, that owner has complete authority and control over every aspect of the business. Sole proprietors are generally easy to set up as they do not need to be registered as a business, but you may need a license to operate (depending on the field).

There are liabilities that you need to be aware of when it comes to undertaking a sole proprietorship. A sole proprietor’s income through the business is treated as personal income. However, if the business runs into debt & bankruptcy, your personal and business assets will be at risk as the owner is accountable.

In summary, with a sole proprietorship:

  • You have complete control of your business
  • The owner and the business are not separate legal entities
  • Your business assets and liabilities are not separate from your personal assets and liabilities
  • You are personally liable for debts and obligations of the business
  • Generally a low-cost structure to set up

Partnership

A partnership is a business structure comprising 2 or more people who distribute income or losses between themselves.

There are 3 main types of partnerships:

  • A general partnership (GP) – is where all partners are equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur.
  • A limited partnership (LP) – is comprised of general partners whose liability is limited to the amount of money they have contributed to the partnership. Limited partners are usually passive investors who don’t play any role in the day-to-day management of the business.
  • Incorporated Limited Partnership (ILP) – is where partners in an ILP can have limited liability for the business’s debts. However, under an ILP there must be at least one general partner with unlimited liability. If the business cannot meet its obligations, the general partner (or partners) becomes personally liable for the shortfall.

Individual states and territories have different laws regarding partnerships. Following these according to what is set out for your state is essential.

In a partnership:

  • Partners share control and management of business
  • An ABN must be obtained and used for all business proceedings
  • Each partner pays tax on the share of net partnership income each receives
  • Each partner needs to provide separate tax file numbers and are responsible for their own superannuation arrangements
  • Minimal reporting requirements and inexpensive to set up
  • Must register for GST if turnover exceeds $75,000.

Company

A company as a business structure is a separate legal entity, unlike a sole trader or a partnership structure. This means the company has the same rights as a natural person and can incur debt, sue and be sued. All directors of a company must have a Director ID. 

As a member, you’re not liable (in your capacity as a member) for the company’s debts. Your only financial obligation is to pay the company any amount unpaid on your shares if you are called on to do so. However, directors of the company may be held personally liable if found to be in breach of their legal obligations.

Companies can be expensive and complicated to set up and generally suit people who expect their business income to be highly variable and want the option to use losses to offset future profits.

Companies and directors have key legal and reporting obligations they must comply with. Some of the more common obligations include:

  • update Australian Securities and Investments Commission (ASIC) within 28 days of key changes to company details
  • keep financial records
  • understand and comply with all your obligations as a director

A company, in summary:

  • Is a separate legal entity from its owners
    • All profit, tax, and legal liability are direct to the corporation
  • requires you to understand and comply with all obligations under the Corporations Act 2001
  • requires an annual company tax return to be lodged with the Australian Taxation Office (ATO)
  • requires you to complete an annual review and pay an annual review fee
  • directors are required to have a director ID.
  • Members are not liable for the company’s debt (only liable if you breach legal obligations)
  • Complex business structure plus extensive documentation and record-keeping
  • Wider access to capital

Trust

In a trust structure, a trustee holds your business for the benefit of others (the beneficiaries).

A trustee can be a person or a company an is responsible for everything in the trust, including income and losses. They are the ones legally responsible for its operations.

Trust structures are expensive and complicated to set up, and are generally used to protect the business assets for beneficiaries. The trustee decides how business profits should be distributed to the beneficiaries.

In summary, trusts:

  • Have an expensive set-up and operation
  • Require a formal trust deed outlining the operation required
  • Trustee responsible for yearly administrative tasks
  • Assets are protected
  • Difficult to dissolve or make changes once established.

Setting up a trust is best done with a licensed professional to assist with the registrations and documentation.

It is best to consult with a professional business adviser before deciding on a structure for your business, as they can provide more information based on your specific needs and circumstances.

Why not start that conversation with us today?

What Does Payday Super Actually Mean?

Posted on by Adam_Admin

There’s been a lot of buzz around superannuation since the 2023-24 Federal Budget was announced. One such buzz involves the concept of ‘payday super’.

Payday super has been introduced by the government to avoid the discrepancies that those in lower-paid, casual and insecure work often encounter with their superannuation compared to others in more secure positions due to less-frequently paid super.

Employers are currently required to pay the superannuation guarantee of 10.5% on top of employee wages every quarter, even if workers are paid more frequently in fortnightly or monthly pay cycles.

The idea behind payday super is that rather than employers pay their employees their superannuation quarterly, they will be expected to pay it to employees when their pay cycles are run (on ‘payday’). This reform is to come into effect from July 2026.

Aligning the payment of superannuation with wages and salaries will increase retirement incomes through greater compounding returns.

For example – a 25-year-old on an average income who currently receives their super quarterly and their wages fortnightly could be up to $6000 or 1.5% better off at retirement.

More frequent super payments could also help employers by making payrolls smoother, with fewer liabilities building up on their books and making it harder for employees to be exploited by disreputable employers.

Unpaid super is a key issue afflicting the current superannuation system, with an estimated $5 billion missing from Australian employees.

Currently, Australian employees are vulnerable to exploitation if their employer fails to make the required superannuation contributions.

These workers often rely on ATO intervention to recover lost super. However, the ATO can only generally recover up to 15% of owed superannuation.

Could This Assist In Bridging The Gender Gap? 

Another issue for which this may lead to some form of amendment is the gender gap in superannuation.

Women are often victims of this exploitation of unpaid or missing super due to gaps in employment that may occur, affecting how their superannuation compounds and/or stagnates. This could be from taking time off work for caregiving reasons, the overall pay from their job, or even just taking maternity leave. Women are also more likely to be employed in certain areas and industry jobs where they are at risk of unpaid super.

It is believed that women will likely earn $135,000 less than their male counterparts over their working lives as a result. Payday super could potentially lead to further action regarding improving the retirement outcomes for women who take time out of the workforce, such as paying super on paid parental leave.

What Risks Are There To My Business?

Some employers may face cashflow issues when paying superannuation at the same time as payroll. However, three years of notice has been given to those who may have these issues to adjust their cashflow practices and make arrangements. To avoid compliance issues with the requirements to be instated in 2026, it’s best to update payroll systems beforehand.

Not sure where to start? Speak with your trusted business adviser today. We’re here to help with the complexities that can arise with payroll.

The Instant Asset Write-Off Returns

Posted on by Adam_Admin

The Federal Budget has reintroduced the $20,000 Instant Asset Write Off to benefit small businesses amidst the myriad of measures announced by the government. 

The instant asset write-off will return for the 2023-24 financial year (1 July 2023 to 30 June 2024). If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is available for each asset that costs less than $20,000.

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for:

  • multiple assets if the cost of each individual asset is less than the relevant threshold
  • new and second-hand assets.

If you are a small business, you must apply the simplified depreciation rules to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.

The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed, ready for use.

Eligibility to use instant asset write-off on an asset generally depends on the following:

  • your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
  • the date you purchased the asset
  • when it was first used or installed ready for use
  • the cost of the asset being less than the threshold.

You are not eligible to use instant asset write-off on an asset if your aggregated turnover is $500 million or more.

The instant asset write-off does not apply for assets you start to hold and first use (or have installed ready for use) for a taxable purpose from 7:30pm (AEDT) on 6 October 2020 to 30 June 2023. You must immediately deduct the business portion of the asset’s cost under temporary full expensing. If temporary full expensing applies to the asset, you do not apply instant asset write-off.

The Temporary Full Expensing Measure Ceases 30 June 2023

Temporary full expensing was introduced to support businesses and encourage investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.

The deadline for the expanded Temporary Full-Expensing measure has not been extended by the Federal Budget 2023-24, meaning that it will cease on 1 July 2023, and the write-off will revert to $1,000 from that date.

If you attempt to use the Temporary Full-Expensing measure after 1 July 2023 for an asset over $20,000, you cannot claim anything in the 2023-24 tax return using it.

Businesses will likely feel a cashflow impact, as they will now need to spread depreciation deductions for assets more than $20,000 out over a number of years rather than claim them back up front.

Looking towards the future and want to ensure you’re doing the right thing regarding your tax? Come start a conversation with us so we can assist you with your tax planning needs.

Time For A Business Health Check Up

Posted on by Adam_Admin

With the end of the financial year approaching, now is the perfect time to conduct a business ‘health check’ so that you can come out at the start of the new financial year greatly improved and ready to go.

Clients And Customers

Client and customer loyalty is something all businesses should aim for, but if your clients’ values are misaligned with yours, conflict is inevitable. Hence, now is the time to re-evaluate which clients you want to keep loyal and which ones you can see a co-operative future with.

Re-assessing your target audience and deepening your understanding of the wants and needs of your clients would help improve your marketing and sales strategies. If you have clients who frequently struggle to pay you on time or are rude to your employees, assess whether your attention is worthwhile and if you would like to continue to work with them when the economic situation improves.

Employees

Your employees are another stakeholder to check up on during this downtime. Your employees will always be your business’ representatives, so make sure they are up to standard and help them improve their skills. Teach your employees more about your business goals.

Conducting a business health check and strategies and improving the team atmosphere by introducing team recreational activities. Your relationship with your employees now during a global crisis will dictate how they feel about you as a leader and if they can rely on you in the future. Foster respectful, strong and healthy bonds between you and your employees; only good things will come your way.

Suppliers

The critical question to ask when reviewing your suppliers is whether or not you are getting what you need from them at a reasonable cost. If you feel that your suppliers are asking too much from you or letting you down with their product quality, take the time now to look for other options. As businesses struggle through current economic conditions, suppliers are becoming competitive, and more options are needed. Do your research and decide on the suppliers you want to work with for the long term.

Financing

Managing your finances is always difficult but is now more important than ever. Your budget and profit predictions for this year are likely going rogue, so reevaluate your finances and research other funding options such as commercial rent, interest rates and banking services.

Consider how you can minimise cost while maximising efficiency and productivity, save as much money as possible during these downtimes, and review your investments in detail to determine whether or not they are worthwhile.

Want to know more about strategising your business’s plans for the next financial year? Speak with your friendly business advisers, and let us help you work out the best trajectory for your aims and objectives for the next 12 months.