I hope you find my writing and business tips and observations useful. My business and blog are dedicated to helping businesses communicate clearly and reach their potential.
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Is your business prepared for 2012-13?
With one week to go in this financial year, I thought it a good time to remind you of some changes that come into effect on 1 July.
- the carbon tax starts – find out more about pricing impacts on the ACCC website
- minimum weekly wages increase by 2.9% so if you employ anyone at minimum rates (including apprentices, trainees and juniors) make sure you are meeting the Fair Work Australia requirements
- new individual PAYG tax rates change – namely the tax-free threshold is increasingly significantly. Make sure your payroll software has been updated with the new rates before your first pay run
- the flood levy finishes on 30 June so if you have been deducting this from employees’ pays, remember to stop!
- the superannuation co-contribution rate is halving to $0.50 per $1 you contribute, so if you qualify this year, you have a few days left to make a personal contribution to get this
- concessional superannuation contributions (those from your employer, salary sacrifice or that you claim a tax deduction on) will be capped at $25,000 regardless of your age or situation. Check your contribution rates for 2012-13 so you don’t get any nasty tax surprises…
Have you implemented all of the relevant changes for your business?
If you’re looking for some tips for the end of financial year, some of my previous posts may help:
Preparing for the end of financial year
Maximise your 30 June position
Keeping your accounting issues under control
Understanding profit and paying yourself
Remember the flood levy…
For the coming financial year (and only that year we are told), a flood levy will apply to many Australians. The levy is to help rebuild the infrastructure for the communities hurt in the floods, fires and Yassi earlier this year.
Everyone with a taxable income over $50,000 will pay the levy – unless you are exempt because you are receiving a Government Disaster Recovery Payment for a 2010-11 natural disaster. You can find out how much the levy will be for you on the Treasury’s flood rebuilding site.
If you are self-employed, you probably pay tax via the PAYG system rather than regular deductions from your pay. Your annual letter outlining your PAYG instalments for the year will include the levy in those calculations. If you are an employee then your employer will deduct the levy along with your normal tax. You need to inform your employer or the ATO if you are exempt but earning over the threshold.
If you also employ people, you will need to add the levy to your usual deduction schedule. That is, for employees earning over $50,000, you will need to deduct an extra 0.5% or 1.0% with their tax – starting with the first pay after 1 July 2011. Businesses do not pay the levy, it is only for individuals.
So are you prepared for this levy? CE2DTMFHHKHT
End of financial year
It’s getting very close to 30 June, but there’s still time to prepare your finances for it. Some things I have been thinking about (and doing in some instances) are
- to get a tax deduction as a self -employed person, you need to make a personal contribution and submit a Deduction for personal super contributions form to your Fund
- the super co-contribution only applies if you make a personal contribution by 30 June (and meet certain criteria like income levels)
- the small business 50% tax break has been legislated, but it doesn’t run out til Dec 2009 so purchases don’t have to be made this week
- individual tax rates are reducing from 1 July so increasing your deductions this year may decrease your tax more than making the same deductions next year
- sending out invoices now rather than after 1 July may affect your income levels (depending on how your accounts are set up) and may help your customers with their tax preparation and budgeting
- organising your invoices and receipts now could mean getting your tax return done sooner, which is great if you’re getting a refund!
How much do you do to prepare for the end/start of financial years? Is this when you do budgets and analysis or do you base that on the calendar year instead?
Small business tax break
The 50% tax deduction for small businesses (turnover under $2 million) announced in the Federal Budget has now been given royal assent so it is law. That means, eligible purchases over $1,000 can be added to your tax return as a 50% deduction.
Note that this is a bonus as you can still claim any depreciation and deductions you would otherwise be entitled to.
So if a purchase was already something you had planned this year (the deadline is 31 December 2009) it’s great news; if a purchase was a possibility or planned for early next year, considering buying it now is now more affordable. However, if cashflow is a problem and/or you don’t really need any $1,000 purchases, forget the tax break and spend your money elsewhere!
Is this tax deduction affecting your spending?
I am about ready to upgrade my computer so this tax break could be well timed for me – yes I could buy a computer for under $1,000 anyway but I want reliability, a large screen and various features (such as mobility, i.e. a laptop) that will make life easier for me.
Stimulus bonus
Assuming you qualify, you may get (or already have) a bonus from the Government as part of the stimulus package. Remembering this is a tax free payment (how many hours would you have to work to get that much after tax?) have you seriously thought about how to use that money?
I think there are two useful ways to spend your bonus – pay off debt (credit cards or mortgage) or investing it (shares, property, etc, or to your super or in your business.) Either way, the bonus can then go towards your financial future. Of course, the aim of the stimulus package is to get us spending rather than saving which is why I think the bonus could be well used for your business…
- spending on your business is an investment that can increase your long term profits – which means you can spend more later!
- whatever you purchase will help another business and stimulate the economy!
- this tax free money can buy you things that are tax deductible – and I suspect your accountant will approve of that!
- depending on what you buy, it may also be eligible for the extra tax deductions available at the moment – this can make bigger things much more affordable for tight budgets
Given we’re potentially talking about $600 or $900, I don’t mean buying a few pens and a ream of paper! Investing in your business could include some of the following expenditures:
- upgrade your computer or some software
- update your website – think about a CMS, shopping cart, design, content, new photos and graphics
- attend some training – seminars and conferences can pay back their price and time many times over through information, ideas and people met
- get some professional help – a trademark lawyer, accountant, coach, writer, image consultant and so on can make a long term difference for your business
- hire some help, whether it is a cleaner, VA, packer or letterbox deliverer
- buy a good chair – your comfort is worth it especially if you sit for hours to run your business, and it will increase your productivity
- buy some resources – books, DVDs, videos, business guides, magazines
- get some flyers or postcards printed or some promo items made to spread the word of your business
- look for some sponsorship or prize opportunities to help others and build exposure and publicity for your business
Government help for small business…
“Businesses in Australia – especially small businesses – are the engine of the Australian economy and deserve direct support during a global recession.”
I agree with the Treasurer that Australian business are a crucial part of our economy – and helping those businesses will therefore help the economy.
Yesterday, the Rudd Government announced a huge package to help prevent or reduce the recession for Australia. Part of the package is aimed at business, whilst the remainder is aimed at creating jobs and increasing spending.
The small business and general business tax break is described in the Treasurer’s media release and fact sheet. For most small businesses, it makes the purchase of a new computer or other eligible assets (excluding cars and trading stock) more affordable.
Great news if you need a new computer – or you sell computers!
There are of course conditions to qualify for these deductions, such as having a turnover under $2 million to qualify as a small business.
The 30% tax deduction only applies for assets greater than $1,000 which may exclude many micro businesses. For example, an additional $300 deduction applies if you buy a $1,000 computer before the end of June 2009 – how many micro businesses would be buying a $1,000 computer unless in that industry?
However, if you are considering buying a new sewing machine, desk, computer, printer, camera, or similar, maybe the tax deduction will make it feasible for you to buy a larger and more expensive model.
How valuable do you think this tax break will be for your business? Will it impact on your buying decisions in the next few months?
Small business tax help
As part of the Government’s attempt to reduce the impact of the global financial situation on Australia, they announced some cashflow relief for small businesses. It was announced in December but applies to payments due, in the main, at the end of February (or late January for some.)
In short, if you have a PAYG installment due for the October to December quarter, you only have to pay 80% of the amount requested by the ATO.
However, it is very important to note that the 20% discount only applies to payments due now – the actual amount of tax you need to pay for the year is not being reduced. If you pay less now, you will have to pay the remaining 20% as part of your annual tax return.
So in choosing whether or not to take the discount this month, remember
- it is 20% off your Oct-Dec quarter IAS/BAS
- it is not a tax cut so you will have to pay it eventually
- it may help your cashflow
If you are very organised and will not overspend, you could take the discount and keep the 20% earning interest or paying off loans. If there is a risk you will forget to put aside money for a larger tax bill later this year, consider carefully before taking up this opportunity.
What do you think – are you likely to take up this offer? Do you need help with your cash flow at this time of year?
P.S. Your business must turnover less than $2million p.a. to qualify for the reduction. And you have a couple of extra days to pay, too – it is due on 28 February but as that is a weekend, you have until 2 March.
Bookkeeping
Unless you have an accounting/bookkeeping background or interest, one aspect of business that many small business people find hard to manage is their accounts. And June and July are obvious times for getting your accounts sorted – in Australia anyway!
A lot of the time it is simple – if you have systems set up and the time and energy to sit and concentrate on it. You simply record all the expenses you have (copying information from invoices and receipts) in one place and all your income in another place – whether the different places are separate sections of your system or just different columns.
Lots of elements go into business accounts – it’s nice when they all fit!
But what happens when those unusual situations arise? Personally, I ask my accountant how to record something – although now days my bookkeeper manages it and usually knows how to deal with details anyway. How do you deal with the trickier accounting tasks?
But I did come across Tilda Virtual’s advice on how to include barter arrangements in your accounts – and she made it easy to do.
Of course, some people would ask why would you bother – bartering is just between two people and doesn’t have to be entered into business accounts. However, if you have purchased materials, how do you account for their use in a bartering relationship? Many businesses find it is necessary to record barter transactions to keep everything in order.
More importantly, barter arrangements are still counted as part of your income as far as the Tax Office is concerned. So with Kylie’s accounting tip and this new knowledge, you can record any bartering you do in your accounts.
Preparing for 30 June…
It is now June and the end of financial year is rapidly approaching – are you ready for it?
Here are some of the things I am considering at the moment to maximise my position at 30 June. Is there anything else you do at this time of year?
- send out all pending invoices and statements as soon as possible – not only does it increase your cash flow this month, many other businesses will appreciate being able to pay (and claim a tax deduction) this financial year
- pay off all outstanding invoices if possible – you may as well claim deductions now rather than in 13 months time! And the new tax rates may mean deductions this year will help your tax position anyway
- consider making a contribution to your super fund – this is tax deductible for the self-employed now
- if you or your business supports a charity and you haven’t made a donation yet, now is a good time to do so as it can then count as a tax deduction this financial year – I wonder how much their donations go up in June each year!
- if you are eligible for a Government Co-contribution, your personal contributions of up to $1,000 must be made to your super fund by 30 June – and changes from the budget or an increased income next year may mean you aren’t eligible next year so get in while you can!
- consider making business purchases that will be needed soon. Not only can you claim it as a tax deduction, it may save you stress when you do actually need the item – printers notoriously run out of ink the day your proposal is due!
- get your accounts sorted and in order – the more organised they are, the quicker you (or your accountant/tax agent) can get the return completed and submitted
- collate related information, such as a travel log or noting the distances travelled, home office bills, private health insurance policy details, bank statements and PAYG statements
- if you run a service business, check the proportion of income from each client as tax rules can change if more than 80% of your income is from one source. There’s not a lot of time to adjust that, but if you’re on 81 or 82% a few quick projects may make a difference
- consider taking out health insurance if you are a higher income earner ($50,000 for a single or $100,00 for a couple/family) – the higher income brackets come into effect from 1 July 2008
- check if there are any expenses you can (and will benefit from) pay now rather than later in the year – for example, insurance premiums and interest on investment loans can be paid in advance to be claimed as a tax deduction now, and are sometimes cheaper paid as a lump sum. Obviously, this affects cash flow and other factors so is not always the best plan, but it never hurts to research your options!
By preparing now, you may decrease your tax liability and be ready to start the new financial year with a clean slate.
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