Depreciation on Property
Property depreciation is the wear and tear of buildings and assets within a property over time. The Federal government allows the owners of income producing properties to claim this depreciation as a tax deduction.
To claim a tax deduction a depreciation schedule is required to be lodged with the entity's income tax return.
For the owner of a residential/investment property being able to claim legitimate depreciation deductions can make a big difference to the owner's cashflow.
The Federal government has introduced new rules affecting secondhand residential properties, however owners can still claim on these properties if they have owned the property prior to 9th May 2017. They can claim on new assets that have been installed into premises which are being rented. If you would like further information on claiming depreciation on rented properties, please contact us.
Pitfalls in Starting a Business
If you are contemplating starting a business, you will need to avoid the pitfalls by seeking advice from an accountant before signing any contracts, either to buy the business or to enter into the lease of business premises or a financing agreement.
The key items are
- obtain good advice from an accountant, solicitor and bank manager
- market analysis and verification
- a realistic business plan
- honestly review your management skills
- undertake training to overcome management deficiencies
- prompt and regular financial accounts
- regular monitoring of stock, work in progress and debtors
- closely monitor debtors
- staff training, motivation and leadership
- some knowledge of the trade or business
- a clear understanding of the hours you will have to work in the business
You need to remember that, whilst there are many potential rewards in running your own business, owning a business can be very difficult.
Challenges, hard work, anxiety, mistakes, problems, long hours and more problems are much more likely to be the story of the average small business person then a lightning path to fame and fortune!
The key challenge for all business people is how you manage the "business of the business".
Risk on Faulty Goods
These days small businesses can easily become importers. As a small business operator, you could import a container of goods and sell them through your business or by your e-commerce website to customers all over Australia.
Under the Australian Consumer Law, you are deemed to be an "importer".
The Australian Consumer Law deems importers to be the manufacturer of the goods in some circumstances. Importers may be liable for defects in the goods they import, as if they were the actual manufacturer. This could occur where the manufacturer does not have an office in Australia or the importer applies their own branding to the product.
Under Australian law the importer is responsible for product safety and liability issues and is exposed to potential claims resulting from any defects in the goods it sells.
Every business in Australia that sells goods and services to "consumers" are deemed to be covered by a warranty that the goods are free from defect and fit for their intended purpose. The Australian Consumer Law does not allow you to exclude that warranty in your terms of contract with your customers.
It is possible that claims under this deemed warranty can be passed back up the chain of supply by the importer.
In practice, an importer may encounter difficulties in enforcing those rights where the manufacturer is located overseas or can hurt your business by refusing to supply you with any further goods, if you proceed with a claim.
This highlights that importers should undertake due diligence on the manufacturers and other businesses that you are dealing with overseas to ensure that those businesses will compensate you for any claims that you may encounter relative to products that they have supplied to you.
The Role of the ABN Under Review
The Australian Business Number (ABN) was created with a central role for the role out of the Goods and Services Tax.
Since that time, almost 20 years ago, this role has not changed, but the use of an ABN has evolved with the evolution of the economy and the increasing flexibility of the workforce.
Due to the increasing number of ABNs in sham contracting situations, the Federal government has commissioned a review of the ABN and its role in the labour force and the opinion that there may be revenue leakage in this area due to unpaid taxes for GST, income taxes, superannuation, workers' compensation and payroll taxes.
At the heart of the review is the issue of sham contracting relationships, but the results of this review will affect all ABNs and businesses should be aware of some of the ideas being floated in this review which include:
- making it harder to get an ABN (without further supplying details on the "how")
- making ABNs in some or all industries register for GST from sales dollar zero. This is proposed on those industries currently subject to Taxable Payments Annual Report regime which itself appears to be growing each year
- Requiring every ABN to pay a yearly renewal fee, similar to the Annual Return Fee, with the fees being used to monitor the system, but will likely end up in general consolidated revenue without a flow on improvement in services from the user's point of view.
These deliberations, whilst seeming academic, could have long term repercussions that, if they get implemented, will likely be around for at least another 20 years until the Federal government at the time reviews the role of the ABN again.
GST - Now Applies to All Overseas Purchases
The Goods and Services Tax has operated in Australian since 1st July 1999 and this applies a 10% tax on nearly all goods and services within Australia to Australian consumers and was introduced into an economy that was still considered to be a traditional goods and services economy. Since this time however, the rise of the internet economy and online retailers has significantly affected the way people buy and interact with businesses and a significant portion of purchases are conducted online and also a large portion of these are done internationally. This has caused concern in the Australian Taxation Office which is entrusted with protecting the Revenue base but also significantly upset Australian retail businesses who are now actively competing with international businesses, often in low or no tax jurisdictions.
One of the key concerns of Australian retailers and the Australian Taxation Office is the fact that GST is not levied on importation of goods from outside Australia unless they are valued at over $1,000 which means the bulk of purchases made from overseas online ecommerce stores are exempt from GST and income tax in Australia. These are known as low value imported goods which have traditionally not had any GST applied to them when they are imported into Australia and when the GST system was implemented this was not an issue of much concern or worry. This exemption over the last 10 years and the rise in online shopping has given overseas competitors an unfair advantage against Australian businesses and was also a loss of revenue to the Australian government from the non-collection of GST from the sales.
The law has now changed and GST now applies to goods imported from overseas, regardless of the price and this change will affect anyone who imports goods or "dropships" goods from overseas into Australia from sites such as Alibaba, Amazon, eBay and the many other sites which retail into Australia. However, the difference is that the online retailer is now responsible for charging, collecting and remitting this income to the Australian Taxation Office and, if not done so, the goods imported from overseas will remain in customs until the GST is paid. This is a worldwide trend, not just in Australia and it now applies as the law was recently changed in Australia by the government to level the playing field for Australian retailers against online retailers who are not subject to GST in Australia
This law was introduced to apply from 1st July 2018, however some online retailers have changed the way they interact with Australian consumers and forcing Australians to only interact with their Australian sites, not their international sites which is a significant change in policy from what they have traditionally done. The statement released by Amazon is that these changes, which make this work by ensuring online retailers collect GST from purchasers in Australia as part of the purchase price and to remit this to the Australian government, is simply too onerous and difficult for them to enforce and apply to their site and systems as they do business around the world and the problems would be too difficult for them to implement.
This change in the application of the law is fairly simple and will not affect most Australia small businesses but should help level the playing field for Australian retail businesses against foreign competition that have been previously exempt from GST due to not being an Australian business but being able to sell to Australian consumers.