What you can salary package

Salary packaging allows you to create a ‘package’ of income and benefits. 

In your salary package, you can include benefits that you would usually pay for with your income after-tax. These include fringe benefits, exempt benefits, and super. What you can include in your salary package depends on your employer and there may be tax that you need to pay. 

Fringe benefits

  • Salary sacrifice for a car
  • Health insurance
  • Loans
  • School fees
  • Childcare fees
  • Other personal expenses

Exempt benefits

  • Portable electronic devices (laptops, phones, etc.)
  • Computer software
  • Protective clothing
  • Tools of the trade 

While your employer will pay fringe benefit tax (FBT) on the fringe benefits, they will not be required to do so for exempt benefits.

Super

You are able to put funds from your pre-tax income into your super fund account. This has benefits for you as well as your employer. This is because your super fund contributions will be taxed at 15% (same as employer’s contributions) which is lower than the marginal tax rate most individuals fall under. 

What You Can Negotiate For Your Employment Contract After 12 Months

Before commencing employment at a business, organisation or under an individual, an employment contract must be agreed to by both employer and employee. This employment contract may have had additional revisions, agreements or negotiated terms set out in full at signing. Still, after the past year, there may be specific issues or conditions that you’d like to amend before continuing with your employment. 

One such condition that you can negotiate with your employer is working remotely. 

Under the Fair Work Act, if you have been in your current position for longer than 12 months (and it is feasible for you to carry out your work responsibilities), you can seek to negotiate flexible working conditions. The National Employment Standards set out additional conditions for employers and employees to negotiate contract conditions and agreement.

You can make this request if you:

  • Are the parent/responsible for the care of a child who is of school age or younger.
  • Have a disability
  • Are 55 or older
  • Are currently experiencing violence from a member of their family
  • Provide care or support to a member or their immediate family/household who requires care or support because they are experiencing violence from their family.

Other flexible working conditions that can be negotiated include:

  • Changes in the hours that you work (reduction in hours worked
  • Changes in the patterns of what you work (i.e. splitting shifts, job-sharing arrangements)
  • Changes to the locations from which you work (such as working from home/another location/remotely)

Employers are not obligated to agree to these requests if there is reasonable grounds to do so. An employer may refuse these requests for more flexible working arrangements if: 

  • It is too costly for the employer to accommodate them
  • There is no capacity to change the working arrangements of other employees to accommodate the new working arrangements requested by the employee
  • It is impractical to change working arrangements of other employees, recruit new employees or accommodate the new working arrangements requested by the employee.
  • It results in a significant reduction or loss of efficiency or productivity.
  • It would have a significantly negative impact on customer service.

Employers and employees should always discuss working arrangements and reach an agreement that balances both needs if possible. Always ensure that any agreements to conditions are noted in the amended contract and put in writing. Similarly, any refusals from employers must also be done in writing within 21 days of the proposed request. 

The Fair Work Commission is able to deal with disputes about reasonable grounds for denial but always discuss with your employer first whether there could be an alternative solution.

What Voluntary Administration Can Do For Your Business

Events of the past year may have hit some businesses harder than others.

With Jobkeeper payments finishing up this month, some companies may have to reconsider their businesses, particularly if they are in distress or having financial difficulties.

 If a company is in financial difficulty or expects to be in it in the near future, it must act immediately to put insolvency procedures into place. Serious penalties can be incurred by businesses that fail to take into account their insolvency and continue to trade – directors of businesses that are insolvent can incur personal liability regarding trading while money is owed.

Insolvency procedures that can be adapted by businesses in Australia include voluntary administration, where an insolvent company is placed into the hands of an independent person known as a Voluntary Administrator. 

The role of the Voluntary Administrator is to be an independent individual who will investigate the company’s affairs, report to creditors, and recommend to creditors whether the company should enter into a Deed of Company Arrangement (‘DOCA’), Liquidation or be returned to the company’s directors. 

The primary benefits of voluntary administration for businesses include: 

  • Company creditor claims are frozen, allowing the company the ability to assess its future and financial position
  • Enables the company to continue to trade while it is being assessed as to its viability in the future
  • Is inexpensive to initiate
  • Provides creditors with an independent review of the company and its business viability
  • Provides a mechanism to compromise debts with creditors of the company

The voluntary administration process in Australia typically takes one month to complete and is designed to be a quick process.

A successful VA should result in the proposed DOCA being approved, jobs from the company that is saved as a result, and the debts of the company are compromised. 

What types of income do you need to include in your business’ tax return?

Due to changing economic circumstances, businesses may be receiving income from sources they have never received from, and may be unaware of their tax implications. In the event that they are listed below, you will need to include them in your business’ tax return.

Government payments
Due to COVID-19, many government grants and payments have been made to businesses this year. Businesses receiving the following grants will need to report them as part of their assessable income in this year’s tax return:

  • JobKeeper payments,
  • Supporting Apprentices and Trainees wage subsidy,
  • Grants under the Australian Apprenticeships Incentives Program,
  • Subsidies for carrying on a business.

Keep in mind that COVID-19 cash-flow boost payments are non-assessable and non-exempt income, meaning they do not have to be included as part of your assessable income.

Crowdfunding income
Crowdfunding refers to the usage of the internet or social media platforms, mail-order subscriptions, benefit events or other methods to find supporters and raise funds for your business’ projects and ventures. Profits made through crowdfunding are considered part of your business’ assessable income in the case that you have:

  • used crowdfunding in the course of your employment,
  • entered into a transaction with the intention of making a profit
  • received money or property in the ordinary course of your business.

Income from online activities
The current pandemic may have also forced you to move your business operations online for the first time. The ATO provides a clear distinction between online selling as a business or hobby. In the event that you meet the following circumstances while selling online, you will need to report your earnings as part of business’ assessable income:

  • Your main intention is to make a profit,
  • You sell items online on a regular basis,
  • The items or services you are selling are commonly available in a physical store, and
  • You pay for your online-selling presence.

Other basic income streams such as cash income, investment earnings and capital gains and losses also need to be reported in tax returns as usual.

What to look out for when entering a supply contract

When entering a supply contract, it is extremely important to work out all the nuisances before signing to prevent complications down the road and make sure conditions are favourable for you. Here are a few key pointers to look out for in your supply contract.

Warranties

Warranties are promises within contracts to both parties that certain matters are correct and that certain criteria must be met for the supply of goods and services. Warranties can be expressly stated in a contract, whereby the virtues of particular products from a supplier are restated as warranties in a contract, and warranties are ensured by suppliers to be limited to those specifically stated in the contract.

Guarantee

A guarantee involves a third party, where they must honour the obligations of one of the involved parties in the event that they breach the contract. This offers protection for both contracted parties, almost like insurance in the case that something goes wrong. In some instances, personal guarantees involving personal assets may also be involved.

Risk and title

“Risk” refers to the responsibility for security and safety of goods that is passed onto the customer on delivery, while “title” refers to the legal ownership of goods which is not passed onto customers until a full payment is confirmed. You need to be aware of the differences between these two types of clauses so that the type and frequency of transactions between customers and suppliers can be determined.

Indemnity

Indemnity is a promise made from one party to protect the other from specified loss or damage. For customers, this means protection from damage arising from a breach of contract or the negligence of a supplier and vice versa for suppliers. Suppliers should also an insurance broker review their contract to ensure that there is adequate coverage for suppliers against claims under the indemnity clause from customers.

Defects liability period

The defects liability period is the period of time in which a customer can oblige suppliers to rectify any defects from goods or services performed. Customers need to ensure this period is long enough for any defects to be discovered or consider including a retention amount or some form of guarantee until the end of the period to act as a safeguard. On the other hand, suppliers need to agree on the period, reinstate the definition of “defect” and iron out any exceptions that may come as a result of customer misusage or negligence.

Limitation of liability

It is standard practice for both parties involved in a supply contract to limit their exposure liability and risk wherever possible. Suppliers in particular need to ensure that their contract excludes all implied warranties (where legally possible), reduces liabilities if a customer contributes to a failure to meet warranty and if a warranty is breached, removes liability for indirect loss of profits and limits aggregate liability to a numerical figure (e.g. a percentage).

Boiler plate clauses

These are standard administrative clauses at the end of a contract which outline legal terms such as:

  • Forced Majeure ability to delay without penalty,
  • Jurisdiction and laws that govern the contract,
  • Transferrence of rights.

What to look out for in an employment contract

Reading any contract before you sign it is essential, but there are some things you should keep a special eye out for when signing an employment contract.

Award Coverage

You should always check that the salary you have agreed upon with your employer is on par with the award rates and no less. Double check what rates are associated with your position and clarify any concerns with your employer.

Restraint of trade

An employer may add a ‘restraint of trade’ clause to your contract. This may impact whether you can work in the same industry later on, so make sure that the employer hasn’t done this without first discussing the details with them first.

Changing terms of contract

Your employer may have added a clause which gives them the sole right to make any changes to the contract (such as duties, pay, seniority or location of work). Although employers should not be changing any terms and conditions in the contract without first notifying you, having this clause in the contract will make it more difficult for you to argue any changes. Check to make sure the employer doesn’t have sole ability.

Carefully read all aspects of the contract to make sure that they reflect national standards and any specific agreements you had made with your employer.

What to look for when choosing a super fund

Over the course of your life, the contributions made to your superannuation fund can often end up being your greatest asset. Because of this, selecting a super fund is an important decision, choosing a fund with the right investment strategies for you could be the difference between retiring comfortably or not. There are five different types of superannuation fund to choose from but not all options are available to everyone.

SMSFs:
Self-managed super funds (SMSFs) are those where the trustee is responsible for managing and making regular contributions to the fund. This option allows for more responsibility in terms of administration, compliance and investment decisions. A lot of work goes into the management and legal requirements of an SMSF so knowledge and understanding of obligations are vital.

Industry funds:
Industry funds generally cater to employees from a specific industry although they are open to everyone. Industry funds are not-for-profit, meaning they have historically charged lower fees on average with profits funnelled back into members’ funds.

Retail funds:
Retail funds are offered to everyone and are usually run by investment companies or banks. They were developed in the interest of those who were interested in investing and saving for their retirement. Retail super funds offer investment expertise and personal service to their clients, charging a commission for that service. A portion of the profits derived from the activities of retail super funds then goes to the shareholders.

Corporate funds:
Corporate funds are offered to specific corporations or if you are employed by a particular employer. They often return profits to their members (although they can be retail funds too), offer a wide range of investment options and are low to mid-cost funds if the business is large.

Public sector funds:
Public sector funds are offered to state and federal government employees. They generally include a wide range of benefits, lower fees and allow members to make higher super contributions.

When making comparisons between various super funds, you should look at factors, such as associated fees, benefits you will be eligible for, opportunities to invest and customer service provided by the fund. Also look for any extra benefits, such as the ability to make higher contributions, and how the fund has performed in the past five years.

What to know before you apply for a business loan

A business loan can give you the support you need to fund growth or temporarily relieve cash flow pressures. These are some things to know before applying for the loan:

  • Understand the purpose of your loan: You should be sure about why you want a loan and what you will be doing with the loan. 
  • What loan amount do you need: Realistically calculate how much money you need and how you’ll be allocating it to your needs
  • What can you afford to pay: Consider the length of the loan, payment options and other details before you apply. Think about what you can afford to pay so that you can discuss which of these features can and cannot be adjusted to suit your needs. 
  • Secured or unsecured loans: A secured loan means that you provide an asset for the loan, your interest will be lower than for an unsecured loan and the lender may be able to sell your asset if you are unable to pay the loan. An unsecured loan means that you don’t provide an asset so that the interest rate is higher. It may be difficult to get approved for an unsecured loan. 
  • Fixed or variable interest: If you are confident that you can meet the repayment requirements even if the rate increases but a fixed rate makes it easier to manage your cash flow as all your repayments are the same. 
  • Fees and charges: The true cost of any loan is only apparent when you take into account all the additional payments that are incurred. These could include early repayment fees, exit fees, valuation fees (to secure your loan), etc.
  • Paperwork: Planning your paperwork ahead of time will make it easier for the lender to approve your loan, this will also make the entire process faster.
  • Consider speaking to an expert: You may want to discuss with an advisor about whether a loan might be the best option for you and what alternatives are available if any. 

What to know about reverse mortgages

A financial dilemma that is becoming increasingly common is finding a way to fund a comfortable retirement lifestyle without having to sell the family home. One solution to this is a reverse mortgage; a loan that allows homeowners to convert part of the equity in their home into cash.

Money from a reverse mortgage can then be received as a regular income stream, line of credit, lump sum, or a combination of these options. No income is required to qualify for a reverse mortgage, which makes them ideal for those who have retired from the workforce.

However, interest is charged just like any other loan. Since no repayments are made, the interest compounds and is added to the loan balance. The loan is then repaid in full (including interest and fees) upon the sale of the house, the death of the homeowner, or in most cases when the borrower moves into aged care.

Given the nature of this type of loan, it is important that homeowners understand the risks involved and consider how they can protect themselves as much as possible. Risks associated with reverse mortgages include:

  • The interest rates are usually higher than average home loans.
  • Variable interest rates mean that there will be changes to what you are charged over time. Debt can rise quickly since the interest compounds over the loan term.
  • The loan can affect your pension eligibility.
  • Drawing funds from your property can reduce what you could potentially access later on, leaving little left for aged care or other future needs.
  • For those who fix their interest, the costs to break the agreement can be very high.
  • If you are the sole owner of the property and someone lives with you, that person may not be able to stay when you die (in some circumstances).

What to include in a business partnership agreement 

Entering into a business partnership can come with conflicts and misunderstandings between you and your new associate. This is why having a written agreement that clearly outlines your rights and responsibilities is important for maintaining a healthy business relationship between partners. Here are some key areas to include in your partnership agreement:

  • Name of partnership: agree on a name for your business. This may seem simple but many partners have different ideas for what they think the business should be called.
  • Contributions to the partnership: work out and record how much each person initially contributes to the business, whether it’s cash, property, or services, and decide what percentage each owner will have.
  • Admitting new partners: agree on a procedure for admitting new partners so that you can equally decide on a new person.
  • Distribution of profits/allocation of losses: decide how profits and losses are allocated to partner shares.
  • Partnership decision-making: to avoid conflict when it comes to making unanimous or individual decisions, set up a decision-making process that everyone is happy with.
  • Death, disability, or withdrawal: if a member of the partnership wants to withdraw from it, or is forced to due to death or disability, then a buy/sell agreement is needed to manage the situation. Consider who you trust to make decisions on your behalf, who would inherit the shares of your company etc.
  • Resolving disputes: to deal with situations where you and your partners can’t agree on something, set up a mediation clause where everyone can agree on a procedure to resolve major conflicts.
  • Management duties: work out some guidelines on how the business will be managed. This can include who is responsible for dealing with customers, supervise employees, manage bookkeeping, negotiate with suppliers, etc.
  • Partner time off: work out how leave will work, including paid and unpaid sick leave, vacations, annual leave etc.
  • Non-competition clause: if you’re concerned about a partner leaving and then competing with the partnership’s business, you can include a clause that restricts them from doing so within a defined time period.