Small business CGT concessions

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Businesses receive four different types of concessions on top of CGT exemptions and rollovers which are available to everyone. These allow businesses to disregard or defer some or all of the capital gains from an active asset which is used in the business.

The four additional concessions include:

  • 15-year exemption: If the business has owned an asset for 15 consecutive years and you are 55 years or over and are retiring or permanently incapacitated, then the capital gain won’t be assessable when you sell the asset.
  • 50% active asset reduction: Being a small business, ATO permits reduction of the capital gain on an active asset by 50%. This is in addition to the 50% CGT discount if ownership of the asset extends over a year. 
  • Retirement exemption: Capital gains incurred from the sale of active assets are exempt up to a lifetime limit of $500,000. However, you must pay the exempt amount into an appropriate super fund or retirement savings account if you are under 55 years of age.
  • Rollover: You may defer all or part of a capital gain for two years upon selling an active asset. Your deferral period can be longer than two years if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset. 

Note that these concessions are only available upon disposal of an active asset and either of the following:

  • Small business with an aggregated annual turnover of less than $2 million
  • Asset used in closely connected small business
  • Net assets have a value of no more than $6 million (this excludes personal assets e.g home, as long as these have not been used to produce income)

There are also other criteria and conditions that the business will need to meet but you can apply to as many concessions that are applicable to you. Importantly, you can only apply to these in a certain order so be wary of this.  

Small Business Benefits or Taxable Concerns?

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As an employee in a business, often there are perks that can come with the job. A company car, fuel money, perhaps some technology to help make things easier. Small business owners however have to be a lot more mindful of how they use the money from their business.

Any money or assets that a business has earned or possesses, is solely the property of that business. That means that there are numerous issues that can arise from dipping into these company funds.

As a business owner, it’s important to keep records and correctly report transactions if using company money or assets (e.g, company car). These can include instances such as

  • taking money out of your company for yourself or your family
  • receiving money from it (for example, as a director, shareholder or an associate)
  • using your company’s assets for private purposes.

For small businesses, this can be easily done through:

  • Salary, wages or director’s fees
  • Repayments of a loan you have previously made to the company
  • A fringe benefit, such as an employee using a company car
  • Dividends (formal distribution of the profits)
  • A loan from the company

If a business does not report correctly or keep appropriate records for transactions, an unfranked deemed dividend could be included in their assessable income (this is a bad thing) during tax time.

Here are some easy ways to avoid being put into this situation:

  • Always ensure that any company money issued is accounted for as per the previous categories.
  • Have a separate bank account for the company to pay for company expenses (not private ones!)
  • Keep proper records of all company transactions
  • Repay any loans from the company before the tax return date to avoid unwanted income tax

https://iorder.com.au/publication/Download.aspx?ProdID=75273-07.2020

Simple Super Information For The Self-Employed

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If you’re self-employed, you aren’t required to pay yourself super guarantee payments. It is however a recommended way to save for your retirement, and making personal super contributions could be beneficial for you in the long run.

As a self-employed individual, you can make regular or lump-sum payments to your super, potentially claim a tax deduction on contributions, and may be able to save tax later on. 

If you’re looking to start paying contributions to a super fund you already have, always check that you can make those contributions to it if you are self-employed. Your fund will also need your tax file number (TFN) to accept those contributions. If you don’t provide your fund with your TFN: 

  • Your super contributions will be taxed an additional 34%
  • Any personal contributions that you try to include in your fund will not be accepted, which may mean you miss out on super co-contributions you’re eligible for.
  • It will be harder for you to keep track of your super. 

There are two ways to make contributions to your fund if you are self-employed, depending on how you pay yourself. If you receive a wage, you can set up a regular transfer into super from your before-tax income, or if you receive income from business revenue, you can transfer a lump sum when you have enough cash flow. 

Employers contribute at least 9.5% of their employee’s earnings to their super fund. As a self-employed person, bear in mind that there are limits to how much you can contribute each financial year. These are:

  • Up to $25, 000 in concessional contributions (from pre-tax income, which you can claim a deduction on).
  • Up to $100, 000 in non-concessional contributions (from your after-tax income or savings). 

You may also be eligible for co-contributions to your super from the government if you are considered low-income. Discussing your options for your super with an accountant or financial advisor is highly encouraged and will ensure that you don’t miss out on that potential capital growth.

Signs of unauthorised and mistaken transactions

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When checking through your transactions, you might come across a transaction that doesn’t look right. If this is the case, you should get into contact with your bank as soon as possible. 

An unauthorised transaction: Money transferred from your account without your permission

A mistaken transaction: Paying the wrong person by using the wrong details

Here are the signs to look out for to identify unauthorised or mistaken transactions:

  • Persons or companies whose names you do not know
  • Cash withdrawal from a place you have never been 
  • Transaction date you don’t recognise
  • Payment that has doubled up

But keep in mind:

  • Transactions can take days to show up – they are not always immediate
  • Name of a shop or restaurant might not match the bank statement (they may have a different trading name which you can verify online)

Should you work with family and friends?

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One place small business employers often fail to search for new job applicants is the families and friends of their best employees.

Before rushing headlong into hiring family or friends, consider the people and all areas of business that will be affected. Hiring friends and relatives can be a balancing act. If not handled well, it can sour the working environment. But hiring friends and family can have great benefits too, as long as you proceed carefully with these following points:

Business is not a charity:
Don’t hire an employee’s relative just because they ‘need’ a job. If someone has trouble holding down a job, you don’t want them either. Make it clear that if the relative or friend doesn’t perform as expected, he or she will have to go. Hire on a probationary basis, establishing a two-week or month-long period to see how things work out.

Hire for the right reasons:
People rarely see their own relatives clearly and are therefore likely to make general and positive statements that don’t tell you if they have relevant work experience or training, rather than analysing their capabilities. With this in mind, ask specific, detailed questions about their qualifications before you agree to interview them.

Be aware of spouses:
Spouses or domestic partners working together can present a number of difficulties. There are logistical issues that can arise, such as holidays or family emergencies, which could leave you doubly short-handed. There are behavioural issues to consider as well, a terrific, eager worker may change dramatically with a spouse around. The dynamics of a couple’s relationship is stronger and usually more emotive than an employer/employee relationship.

Never play favourites.
Be toughest on your own relatives. Before you hire a relative, make it clear to them that they are going to have to prove themselves, and they will be held to the highest standards. Make sure all the rules apply to all employees. Everyone has to be qualified and they have to do their jobs well. Otherwise, they’re not hired.

Should you consider using visual search technology?

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Using visual search technology for your business is a great way to increase customer engagement. When presented with a paragraph of black and white text, it is unlikely that customers will remember much of it. However, studies have shown that the average person can recall 65% of the visual content they see up to three days later, meaning that using visual elements in your marketing increase customer retention.

isual search technology uses images to conduct an internet search rather than keywords. This is particularly useful for businesses dealing with tangible products such as fashion items, decor, food, artworks and furniture. Visual search is expected to significantly impact the eCommerce world, with the rise of the image-based culture evident through social media platforms such as Instagram and Pinterest.

Online shoppers today have higher expectations on the quality of websites. If a retailer website has no images for their products, they are likely to look somewhere else. One study found that 69% of young consumers preferred to shop based on visual-oriented searches. This is mainly because visual search allows customers to find what they’re looking for five times faster than text-based searches.

Another reason why you should consider using visual search for your business is that it goes hand in hand with social influencer marketing. Influencers are the target for many brands due to their large, established follower base. They generally share image-based posts which can be used by consumers to search for the items in the picture.

Implementing visual search also makes SEO easier on your part. Visual search technology has an image-to-text feature that tags image automatically, without you having to put individual tags for each post. This way, your images are SEO ready with tags you might not have thought about yourself to be discovered by customers.

Short-term vs long-term financing

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Maintaining healthy cash flow can be challenging; between ongoing expenses and bills, poor cash flow can severely impact your customers, staff and bottom line. Business owners need to understand the differences between short and long-term financing when developing a cash flow strategy.

There are various sources of financing available, with each being useful for different situations. Choosing the right source and mix is key for good cash flow, with financing options often being classified into two categories based on time period: short-term and long-term. To find the right plan for you, determine your needs and then match a financing option to meet those needs.

Short-term financing:
Short term financing, or working capital financing, looks at needs that arise in relation to financing current assets – for a period of less than one year. Working capital is the funds that are used in the day-to-day trading operations of a business. Short-term financing can help you to pay suppliers, increase inventory and cover expenses when you do not have sufficient cash on hand. Depending on your business’ requirements you might consider using one of the following options;

  • Overdraft – extends your cash resources and protects your business’ credit rating.
  • Line of credit – funding when you need it that is then paid back when you have surplus cash, offering flexibility, value and control.
  • Business credit card – a convenient, fast payment method.

Long-term financing:
Long-term financing options can help you invest in overall improvements to your business, for a period of more than 5 years. Capital expenditures, such as upgrading equipment, buying additional vehicles and renovating are funded using long-term sources of finance. Businesses can consider using the following options;

  • Leasing – structuring a lease to match the useful life of the asset. This will help to preserve your cash and working capital for other uses.
  • Term loans – from financial institutions, government and commercial banks. These allow you to accurately forecast your monthly cash flow through regular payments.

SG Payments & Your Employees – What You Need To Know

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Superannuation payments need to be made to your employees, otherwise, stringent penalties can be implemented that could be financially more devastating to your business than simply paying their super.

Eligible employees must be paid their minimum superannuation of 10.5% of their ordinary time earnings (OTE). By 2025, this is predicted to increase to 12%.

This compulsory payment is called the super guarantee (SG) and is paid at least quarterly.

The current super guarantee percentage is the minimum required by law. You may pay super at a higher rate under an award or agreement.

You must pay the super guarantee charge if you don’t pay the required SG amount by the quarterly due date. This amount will be more than the super you would otherwise have had to pay to your employee and is non-tax-deductible.

To manually work out how much super to pay for a quarter, multiply your employee’s OTE, based on salary and wages paid in the quarter (before tax), by the SG rate. If you’re paying super at a higher rate, use that rate.

Employees who started during the quarter need to have their super worked out based on any salary and wages paid in the quarter.

What Are Ordinary Time Earnings (OTE)? 

Ordinary time earnings (OTE) is the gross amount your employees earn for their ordinary hours of work (before tax). It includes

  • over-award payments
  • commissions
  • shift loading
  • annual leave loading
  • allowances
  • Bonuses

Ordinary hours are the normal hours an employee works unless their hours are specified in an award or agreement.

In the case of casual employees, where determining the normal hours of work changes per week, the actual hours worked by the employee are their ordinary hours of work.

For contractors paid mainly for their labour, the SG is calculated based on the labour component of the contract.

You must pay super on back pay of OTE amounts, even if the employee no longer works for you. If you don’t, you’ll be liable for the super guarantee charge.

Is There A Cap To SG Payments? 

You don’t have to pay SG for your employee’s earnings above a certain limit, which is known as the maximum contribution base. This amount is indexed annually. For the 2022-23 income year, this is currently capped at $60,220 per quarter.

When Do I Not Have To Pay Employees The SG? 

High-Income Earners Who Opt Out Of Super

You do not have to pay super for high-income earners working for multiple employers who ask you not to pay the super guarantee to them. If this is requested, you must have an SG employer shortfall exemption certificate for the employee (sent by the ATO after the employee has applied to opt-out).

International Workers

You do not have to pay super for:

  • non-resident employees who work outside Australia
  • some foreign executives who hold certain visas or entry permits
  • employees temporarily working in Australia who are covered by a bilateral super agreement – you must keep a copy of the employee’s certificate of coverage to prove the exemption.

If you’re a non-resident employer, you do not have to pay super for resident employees for work they do outside Australia.

Self-Employed

If you’re self-employed as a sole trader or in a partnership, you do not have to pay super guarantee to yourself.

Sexual Harassment and The Workplace

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In 2021, businesses have seen greater visibility surrounding the issue of sexual harassment within the workplace, particularly within the media and the public sphere. The impact of sexual harassment within the workplace is one that can have long-lasting ramifications on employees and employers alike. Sexual harassment is prohibited in any employment situation and relationship, with both men and women often experiencing acts of it in the workplace.

The health and safety of employees (mental, physical, and emotional) is the responsibility of the employer and must be protected accordingly. New Zealand currently has the Employment Relations Act 2000 and the Human Rights Act 1993 in place to protect people from sexual harassment. 

As an employer, you may be held responsible for acts of sexual harassment committed by your employees, known as “vicarious liability”. The Employment Relations Act specifically makes the act unlawful within the workplace, but can also make you, the employer, liable in any instance involving employees. The Human Rights Act makes employers liable if one of their employees subjects anyone to sexual harassment in the workplace. 

Businesses should have in place a sexual harassment policy to ensure that employees are aware of their position, and what is and is not acceptable behaviour, and how to report it if it is not. When writing a sexual harassment policy, it is important that you make it clear that sexual harassment will not be tolerated under any circumstances, and what your organisation’s commitment is in dealing with sexual harassment. 

Employers can also take the following steps to prevent sexual harassment:

  • Get high-level management support to implement a strategy to address sexual assault in the workplace. 
  • Write and implement a sexual harassment policy.
  • Provide information and training about sexual assault and awareness of it.
  • Ensure that employees are aware that complaints will be taken seriously and employees will face disciplinary action if they engage in inappropriate behaviour.

If sexual harassment does occur, the employer must take appropriate remedial action, with appropriate procedures on dealing with grievances and complaints once they are made. 

To respond to employees who report sexual harassment, employers should: 

  • Take all reports of sexual harassment seriously.
  • Act promptly, with set timelines, and deal with reports as soon as they come in.
  • Protected all of the people involved in the report from victimisation
  • Support the people involved, and make them aware of what support and representation are available to them. 
  • Maintain confidentiality, and ensure that all details of the matter are only known to those directly concerned and those involved in investigating. 
  • Ensure all actions and decisions are documented. 
  • Treat everyone involved fairly, with unbiased investigators and decisions made based on facts and evidence. 

Employees may also decide to seek help outside of the organisation and are legally entitled to do so. These organisations could include

  • The Human Rights Commission
  • MBIE’s Employment Mediation Services
  • Employment Relations Authority

Setting up your myGovID

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If you haven’t set up your myGovID yet, you need to do it before you can lodge your next business activity statement (BAS).

AUSkey, including Manage ABN Connections, will be replaced by the ATO’s myGovID and Relationship Authorisation Manager (RAM) from 27 March 2020. After this change, you will no longer be able to access government online services through an AUSkey. Device AUSkeys will be replaced by new machine credentials.

Business owners will need to set up a myGovID soon if they haven’t already done so and link it to RAM. Your myGovID is separate from your myGov account and will allow you to prove your identity online. RAM is an authorisation service that uses your myGovID to provide you with access. When linked with your myGovID, RAM will allow you to act on behalf of your business online.

Desktop and browser-based versions of myGovID will not be supported as these devices are easily accessible. To set up your myGovID, you will need an email address (that you do not share with anyone else) and a smart device that uses iOS 10 or later on Apple devices, or Android 7.0 or later (not including devices that use Android Go operating systems). You can download the myGovID app for free through the AppStore or Google Play.

Depending on what government online services you wish to access through myGovID, you will have to provide certain identity documents to authenticate your account. You can generally have a Basic or Standard identity strength. A Basic identity strength is where you provide only one or no identity documents, aside from your personal details (such as your date of birth and email address). Only some government online services will accept a Basic identity strength, such as Bankruptcy Register Search, ACMA Lodgement Portal and Debt Agreements Online.

A Standard identity strength requires two Australian identity documents, such as:

  • A passport, no more than three years past its expiry date
  • A driver’s license, including a learner permit
  • A birth certificate
  • A Medicare card.

This will allow you to access all participating government online services, including the Business Portal where you can lodge your BAS.