16th May is fast approaching for our office and the team are working hard at preparing accounts and tax returns that are due in May. For those that are still to forward their 2015 information to us, please make this a priority to ensure that your lodgement obligations are met.
Pre 3 May Budget Planning - Transition to Retirement Pensions
Transition to retirement pensions were introduced to ease the transition from full time work to retirement. They allow superannuation pensions to start before full retirement and fill the income gap when work hours are reduced. The legislation allows for anyone to commence the pension if they are over their "preservation age" regardless of whether their work life has changed. Hence, creating a great tax planning strategy as people would start a pension and use the extra income to increase their salary sacrificed superannuation contributions. Due to super funds not paying tax on the income they earn on pension accounts, the net effect is generally a tax saving. It is worth considering pre budget whether a transition to retirement pension will work for you, if over the age of 56. There is a possibility that the government will tighten the provisions around this at some stage, if not during this budget.
It is attractive to most people that have a substantial balance with the possible exception of those:
• in SMSFs that can't support the cash flow required to pay the pension, even if it uses contribution income;
• whose fund is earning little or no taxable investment income at the moment; or
• who are already absolutely maximising all their contributions.
If the budget does not change the requirements for transition to retirement pensions and a pension has been commenced, it can be switched off at anytime. All payments will need to be made for the period between commencement and finishing date. If it is in place for 2 months, the payment required would be roughly 2/12 x 4% of the balance at commencement.
The ATO now considers that any individual receiving a transition to retirement pension can elect to have some or all of the payments they receive from that pension taxed as lump sums. There is a host of really important documentation and legal subtleties here so the strategy should be put in place with help from an SMSF expert but the implications are critical. There is a limit on how much can be taken out tax free over one's lifetime but it is high – just under $200,000. Hence this pretty much rules out one of the only downsides of starting a transition to retirement pension – the fact that you have to draw out pension payments and you might pay high rates of tax on them (worst case, 30% if you are paying income tax at the top marginal rate). This is another area that may be changed on budget night, therefore if you would like to take advantage of this, please do so before then.
Government Grants for SMEs
Research and Development Registration
If your company spent more than $20,000 in the financial year ended 30th June 2015 and you wish to claim an R&D Rebate, then it's necessary for the company to finalise registration for the 2014/15 year with AusIndustry by 30th April 2016.
Tax Hot Spots
Small Business Restructure Rollover
From 1st July 2016, the Federal government has passed the Small Business Restructure Rollover. This rollover allows a small business to change structures and defer all gains or losses on Capital Gains Tax (CGT) assets, trading stock, revenue assets and depreciating assets, as part of a genuine restructure of an ongoing business. This rollover extends and improves on previous rollovers which tended to focus only on the CGT assets with additional hurdles to allow for non CGT assets and the deferral of gains and losses.
CGT Withholding Regime
The CGT Withholding Regime applies from 1st July 2016 and, whilst initially targeted at foreign residents, it applies equally to Australians. This will require all purchasers of land to withhold 10% of the purchase price on account of the vendor's potential capital gain and remit this to the ATO. This 10% withholding is required if the market value of the asset is greater than $2M so will exclude the majority of residential sales, however will have impacts on finance and cashflow for vendors and bank loans. A vendor is able to apply to the ATO beforehand for a document that will allow for the 10% to be paid to the vendor, not the ATO, if certain conditions are satisfied.
Treatment of Corporate Losses
The ability to claim tax losses is set to become easier as the "same business test" is becoming more flexible and more like a predominantly similar business test, unlike the prior test which required it to be virtually identical. For example, if a company with losses was sold to a purchaser, previously that purchaser would have to carry on business in the same fashion and same manner as the previous owners, even if carrying on business like that is the reason it was losing money. This change will now allow the purchaser to keep what is essentially the same business, but make changes and improvements to become a profitable business and also enjoy the tax losses to reduce any future taxable income. The issue is that the new rules only apply to losses made in the current and future years and consideration of when the losses incurred is essential.
Protecting Your Business From A "Time Bomb"
A real "time bomb" for businesses is undoubtedly the Personal Property Securities Act (PPSA) and the associated Personal Property Securities Register (PPSR). Businesses have lost assets through ignorance of the law. A wide range of business activities have been affected, including:
· the owner of $60M worth of electrical generating equipment
· motor vehicles and trailers
· cleaning equipment and products
· assets that have been hired
· machinery owned by one company and hired to another company within the same group
· cabinet maker caught by the preferential payment demand by liquidator and also for not registering assets in someone else's premises
· considerable losses have been incurred by hiring and renting businesses
· significant loss in excess of $400,000 to a business hirer due to the mix-up of the terminology "grantor" or "grantee"
These are just a small snapshot of some of the problems that have affected very large international businesses operating in Australia, as well as small/medium enterprises.
Whilst it's voluntary to make registrations on the PPSR, failure to do so can be very costly indeed and, in some instances, can lead to business failure.
Working On Your Business
It's a good idea to periodically review your strategies for the development of Intellectual Property (IP). IP is a major asset for many businesses however, unfortunately, it's not normally recognised in the company's Balance Sheet. Part of the IP process would be to review the protection procedures that your business has implemented, such as confidentiality agreements, assignment of IP agreements (particularly important if you're engaging contractors on R&D projects).
Would it be appropriate for a patent application to be lodged for any of your R&D?
Do you have any trade secrets? Are you using your trade secrets in your business arrangements with any customer? Have appropriate legal documents been prepared for the protection of your trade secrets?
PPSR Due Diligence
The Personal Property Securities Act (PPSA) and the Personal Property Securities Register (PPSR), introduced by the government, are procedures that can cause financial ruin to business operators. Don't be fooled by the term "personal property". This legislation applies to "business property".
"Personal property" in the legislation is described as "all forms of property, other than real estate". This means that the "personal property" includes a vast range of business property. Unfortunately, millions of dollars have been lost by businesses that didn't appropriately register their assets on the PPSR. The difficulties within this legislation can affect the big end of town as well as small/medium enterprises. In a recent court case, a major international corporation, lost $60M worth of assets in Western Australia that hadn't been registered on the PPSR.
For many businesses, debtors' management is an ongoing problem. What's your debtors' days outstanding? We would be happy to have discussions with you relative to introducing procedures that we believe will assist in reducing your debtors' days outstanding, thus improving your overall cashflow.
Another major project will be for you to articulate your vision for your business. Where do you want the business to be in 3 years? 5 years? 10 years? Why not write these visions down? Are there any problems and major obstacles you can foresee that you will have to overcome to achieve your vision? We would be happy to contribute to the discussion on identification of your business' vision.
We appreciate that it's becoming difficult to sell businesses because of the sheer volume of businesses that are on the market for sale. The development of a vision and the documentation of a strategic plan to bridge the "valuation gap" and, as such, improve the overall valuation, can be very rewarding for businesses.