What are the tax implications for different business structures?

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The structure of your business determines how you would pay tax and other business obligations you would need to consider. Whilst you are able to change your structure as your business develops, business owners must keep up with the changing tax responsibilities that may occur as a result. There are four major business structures in Australia that come with different tax implications.

Sole trader:
This is the cheapest and simplest business structure as it only involves a single individual running their business. They declare the business revenue as part of their personal income tax return and are taxed at the same rate as an individual. This means the more the income the business earns, the more tax the sole trader will have to pay. If their income is $18,200 or under for the 2018-19 financial year, then they are under the tax free threshold and do not have to pay tax. They can also receive a discount on Capital Gains Tax (CGT).

When more than 50% of a sole trader’s income from a contract is from their own personal labour, skills, or expertise, then they can earn personal services income (PSI). In this case, they need to complete specific questions in their tax return and the deductions they claim can be affected by this.

Partnership:
A partnership is when more than one person runs a business and distributes income or losses between themselves. Each partner must pay tax at the individual tax rate on their share of the business’ net income. They also need their own Australian Business Number (ABN) and Tax File Number (TFN) to use when lodging their annual business income tax return. An annual partnership return showing the income and deductions of the business must also be lodged. Similar to the sole trader, PSI can also be earned in which case deductions on this income may have to be treated differently.

Company:
A company is a separate legal entity with higher set-up and administration costs. They must apply for a company TFN and ABN if they are registered under the Corporations Act 2001. They must also be registered for GST if the annual GST turnover is $75,000 or more. There is no tax free threshold and no discount on CGT. Companies are responsible for paying income tax on their profits at the company tax rate, which is currently 30% under 2019-20 tax rates, or 27.5% for base rate entities. If PSI rules apply, the income earned from it will be treated as individual income for tax purposes. Deductions claimed may also be affected.

Trust:
If a business is run through a trust, they must also have their own TFN and ABN, and must register for GST if annual GST turnover is $75,000 or more. They are are not liable to pay tax because their beneficiaries who receive the trust net income are individually assessed for tax. If the trust generates net trust income and does not distribute it, they are assessed on this accumulated income at the highest individual tax rate. Each year, all the revenue earned by the trust and the income distributed to each beneficiary must be shown on their tax returns. Similar to a company structure, if a trust earns PSI, then the income from it is treated as individual income for tax purposes.

What are the different types of cashless payment methods?

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In an effort to minimise physical contact during the global pandemic, most businesses are making the switch to cashless payments. While contactless credit cards and mobile wallet applications remain the most common type of cashless payments, many other methods have emerged in recent times. In the event that your business is also looking to make the switch, here are a few cashless payment types to be aware of.

Radio-frequency identification (RFID):

RFID uses radio technology to track tags containing electronic payment and banking information. RFID tags are most commonly attached to wristbands, watches or badges and can be scanned using mobile phones and RFID system technologies.

RFID tags can also be used at business events or service-providing organisations to keep track of clients while also acting as their digital wallet.

Unstructured Supplementary Service Data (USSD):

USSD services are another real-time cashless payment method which require a mobile network. With the USSD method, clients must dial a USSD code on an interactive menu provided by the business (could be a mobile phone), which will then allow clients to make payments to chosen recipients. The USSD code is dependent on a client’s mobile network and in order to make successful payments, clients must have their bank accounts correctly linked to their mobile phone number.

Quick Response (QR) Codes:

A QR code is a two-dimensional gridded pattern of black squares and is a viable cashless payment method as long as both clients and businesses have modern image-reading and camera technologies. Payments made through QR codes require a user to scan the QR code of a merchant to complete the transaction and can be done through banking apps or third-party payment applications on mobile phones.

While it may be tempting to make an immediate switch into cashless payment methods, the technology required to support cashless transactions is a costly investment. Before jumping the gun and spending money you do not need to, take note of which cashless payment methods would best accommodate your clients’ needs and fit into your existing business operations.

What are franking credits?

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Franking credits are a kind of tax credit that allows Australian companies to pass on the tax paid at a company level to shareholders. Franking credits can reduce the income tax paid on dividends or potentially be received as a tax refund.

Where a company distributes fully franked dividends (and those dividends are included in the taxable income of the taxpayer) the taxpayer can claim a credit against their taxable income for the tax that has already been paid by the company from which the dividend was paid.

Since the 2016-17 income year, the standard formula for calculating the maximum franking credits is:

Franking credit = (dividend amount / (1-company tax rate)) – dividend amount

Franking credits are paid to investors in a 0-30% tax bracket, proportionally to the investor’s tax rate. If an individual’s top tax rate is less than the company’s tax rate, the ATO will refund the difference. Therefore, an investor with a 0% tax rate will receive the full tax payment paid by the company to the ATO as a tax credit. Franking credit payouts decrease proportionally as an investor’s tax rate increases. Investors with a tax rate above 30% do not receive franking credits with dividends and may even have had to pay additional tax.

There can be eligibility requirements that must be met before franking credits can be paid, such as that you must hold the shares ‘at risk’ for at least 45 days to receive a total franking credits entitlement of $5,000 or more. There are also rules that can apply to buying, holding and selling shares with franking credits attached.

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.

Ways you can manage your stress

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There are various causes of stress that make it difficult to have just one method of stress management. There are 4 methods you can use in response to stress:

  • Avoid: Sometimes the causes of our stress are avoidable. For example, if being around certain people makes you feel stressed because of the way they behave, then you should avoid being in the same vicinity as them where possible
  • Alter: You may not be able to avoid a situation, but try to find ways of altering it. For example, you might stress during the exam period and having other people around might make it harder for you to focus. Communicate with your roommates or family members to let them know how you feel so that you can schedule your study times better. 
  • Adapt: Certain scenarios are unavoidable so the best response might be to adapt to them. You can reframe the stressor by looking at the big picture perspective. For example, you might be stressed out by the idea of going to an interview, but thinking of it as a small step in the direction towards working in a job you like might make it easier. 
  • Accept: Although this is the last resort, you might have to accept certain things you cannot change. Save yourself the frustration of not being able to change the situation. You can try to talk to the people involved to express to them how you feel so that you have a support system. 

Ways to retain your employees

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Retaining your employees is often a harder task than you think, especially during fluctuating economic conditions and with a growingly skilled and talented workforce. Here are some tips you can implement into your workplace culture to help you retain employees and make sure they are happy working with you!

Provide quality leadership, management and supervision:

Employees more often than not leave jobs because of their managers, bosses and supervisors rather than the job itself. To make sure your employees have a good experience working for you, provide them with educational and warm leadership. Here are a few things to keep in mind when leading and teaching your employees:

  • Be clear about your expectations
  • Be clear about each employee’s earning potential and update them whenever possible
  • Provide concise and constructive feedback on their performance

Allow employees to grow their talents and skills:

Learn about your employees and allow them to utilise their skill sets and talents within the work delegated to them in your business. As an employee, what’s even worse than a bad manager is the inability to grow their skills and be challenged at work. Never box your employees into rigid work procedures and allow a degree of freedom and room for growth for your employees.

Reward your employees:

Keep employees happy to work for you and give you their all by constantly incentivising them with rewards. Whether your rewards are monetary or speak to their emotional needs, employees need to be motivated to keep working for you while also remaining productive and doing their best for you. Consider making your rewards personalised to each employee to make them more effective.

Respect and appreciate your employees:

Tied in with the previous point of employees leaving their positions as a result of their bosses, showing your appreciation and respecting your employees goes a long way in influencing your best employees to stay with your business. A positive and amicable work culture often makes or breaks a business and not only should you respect your employees, all of your employees should be respectful and appreciative of each other. Building a respectful community in your workplace is certainly a plus when considering how to retain employees.

Using your tax return wisely

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Getting your tax refund back is exciting, but as tempting as it is to splurge, consider other ways you can put that money to good use. It is easy to get caught treating your return as extra money when you shouldn’t see it any differently than your regular paycheck. Give the money a purpose by thinking about your personal financial situation and determining your needs.

Emergency fund:
An emergency fund can make all the difference if a difficult financial situation comes up, acting as a backup in the case of an emergency such as losing your job or medical costs. Building an emergency fund with enough money to cover at least three months worth of expenses is a good starting point. Make sure the money is added to a high-interest savings account to utilise compound interest. If you are contributing regularly to this fund, adding money from your tax return can boost it above schedule.

Increase your nest egg:
Boost your super by making an after-tax contribution. For eligible low-income earners, the Government will match your after-tax super contributions with a maximum co-contribution of up to $500. It is important to note that caps apply to contributions made to your super in any tax year. These can depend on your age and whether you contribute before or after tax, so make sure you don’t exceed these caps.

Make debt repayments:
With a bit more money at your disposal, now is the time to make repayments on debts you may have. Start with the higher interest debts and work down, as your interest repayments will drop when you lower your outstanding balance. These debts can be things like credit cards, personal loans, outstanding bills or mortgage repayments.

Treat yourself:
After being responsible and using your tax return to better your future, spending some of that money on yourself isn’t something to feel guilty about. As long as you remember to live within your means and don’t overspend, you should enjoy the rest of your money.

Using Website Design To Promote Your Business

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Online websites are a great way to reach the digital audience and promote a business’ products and services in one place. With easy to understand website builders just a click away, a well-designed website can pull an audience in from just a glance. Bear these simple tips in mind when designing or updating a business’ website.

The site is mobile friendly

Mobile phones are essentially tiny computers in people’s pockets – it makes sense that your business’ landing page for the website (and all other pages besides) should be just as easy to read on the screen of a phone as it is on a laptop or computer screen.

The Layout

Limit the navigation menu of the website to five clearly labelled tabs with related content below them. There should always be a clear way for the user to navigate back to the landing page of the website, and a search bar is always a useful feature for users to have  to sift through content. Keep content uncluttered and accessible for users to see, and ensure that the overall layout design does not alienate the user.

Easily identifiable

Ensure that the website url (domain name) either describes the business or is the business name. Any contact information that the user might require for the business should be easily found and displayed.

Get Personal 

Online businesses need to create a user experience that resonates with their customers while keeping in touch with their brand perception. Use team photos on the about page, get personal about the business’ story and market to the audience the business as a product.

Using technology to improve workplace safety

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Ensuring the safety of employees in the workplace should be one of the top priorities for managers and business owners. This will not only improve your employees’ health and wellbeing but will help you avoid any arduous paperwork and legal obligations that can arise from even the smallest of injuries. Here are some technological tools you can use to improve the safety of your workplace:

Mobile devices:
Mobile devices such as smartphones, tablets, laptops and hand-held monitoring devices are convenient, easy to use tools that offer a range of workplace safety functions. They can be used to conduct inspections, record hazards, report accidents and communicate information instantly. These allow employees to keep up to date with on safety and health risks and ensure that everyone is aware of what is happening in the workplace. Safety apps offer functions like health and safety checklists, hazard identifications, and notifications to keep workers updated.

3D visualisation technology:
This software produces realistic images that allow you to easily recreate and imagine new or existing workplace sites. This can help employees become more closely aware of their surroundings and allow them to see any potential dangers or risks in advance. They are then able to prepare for the dangers before even being physically present on the site.

Equipment monitoring:
Internet-connected sensors can be installed on machinery used in the workplace to monitor its operation by measuring the machine’s temperature, vibrations, and noise. This helps detect any fault in the equipment, which is then sent to the manager/employer in real-time through the internet. This ensures equipment is kept in good repair and prevents employees getting injured from malfunctioning equipment.

Drones:
These are small aircraft directed by remote control and are fast and easy to use. Drones act as a safety measure as they are able to travel almost anywhere, meaning that they can inspect areas that are potentially dangerous or hard to safely access. Sending a drone to check the area prior to physically going to the site can inform workers of risks without endangering them.

Wearable technology:
These are devices that can be worn on workers’ bodies or accessories such as tool belts, watch bands, or clothing. Wearables often have sensors that can monitor the vital signs of employees (heart rate, skin temperature, blood oxygen level etc) which can be valuable for detecting health failures quickly. Some wearables can track workers’ movements and activity and send alerts to managers/employers if a worker falls or becomes unconscious. Other wearables can monitor the environment of the workplace, measuring elements such as extreme temperature, smoke, moving objects and dust.

Using Market Research To Boost Your Business

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Market research is an effective tool that can be used to boost your business in terms of sales, customer engagement and how your competitors may be performing. It allows you to make well-informed decisions that can potentially add value to your business.

When conducting market research, ensure that you are covering all of the potential areas that may affect how your business has been performing. This may include:

  • Customers
  • Competitors
  • Products or services
  • Suppliers
  • Business location and local area
  • Industry

Products & Services

Researching what your customer is looking for when it comes to your business’ products, services and interactions with them can be a simple way to get ahead of your competition. It can also provide you with an understanding of where you fit into the market for your customers, and how you differentiate from what your competitors are offering.

Market research can also assist in figuring out where you are positioned in the market in terms of your products or services being considered as high-end, competitive or a low-cost alternative to what your competition is offering. It can also aid in determining the anticipated demand of products by customers, so that you can adjust accordingly.

Suppliers

Conducting market research on suppliers can assist you in working out pricing of your products, whether or not you are getting the right price from your suppliers with regard to your orders and the overall quality of what suppliers deliver.

Customers

Collecting customer data through feedback, be it online (such as email, surveys) or analog (talking with customers, feedback forms), can be an invaluable insight into what your customers want from you. This style of direct customer research can assist in learning about what their needs are, what they’re willing to pay and the anticipated demand for your products. It can also assist in giving more information that you can use to better target your marketing efforts.

Competitors

Investigating your competitors in business can assist you in understanding your position in the marketplace in comparison to them. This can assist in developing your marketing plan by understanding your strengths and weaknesses, opportunities and threats and planning for how you can better use them. You can obtain this data through observation of your competitors marketing practices, networking with your competitors and through researching their presence on the internet (via websites, blogs or other social media).

Market research, when used effectively, can be a turning point in a business’s marketing plans, and assist them in planning their business’s future direction.