Appreciating your employees at Christmas with gifts and parties and its tax implications.

There is no better time for a business to thank the staff for their services and show appreciation for their work than Christmas. Holding Christmas parties and providing gifts has its own tax implications. Below is a summary:

NON-ENTERTAINMENT GIFTS

·         Non Entertainment gifts are gifts such as gift vouchers, hampers, flowers, alcohol, etc. Where the total value of non-entertainment gift is less than $300 (GST Inclusive), they will be exempt from Fringe Benefit Tax (FBT) and the business will be able to claim a tax deduction and GST credits.

ENTERTAINMENT GIFTS

·         Entertainment Gifts are gifts such as tickets to movies, theatre, sporting event, etc. Where the total value of entertainment gift is less than $300 (GST Inclusive), they will be exempt from Fringe Benefit Tax (FBT) but the business will NOT be able to claim a tax deduction or GST Credits.

CHRISTMAS PARTY – OFF SITE

·         When the cost for the employee and their associate is each less than $300 (GST Inclusive), the expense would be exempt from FBT but the business will not be able to claim a tax deduction and GST credits.

CHRISTMAS PARTY – ON SITE

·         When the Christmas party is held on a working day at the business premises with only employees and clients attending and only finger food or light meal and no alcohol is provided, the expense would be exempt from FBT and the business will be able to claim a tax deduction for the entire cost. GST Credits can be claimed for the entire cost too.

·         When the Christmas party is held on a working day at the business premises with only employees and alcohol is provided, the expenses are exempt from FBT for employees with no dollar value limit but no tax deduction or GST credit can be claimed. Where the employees’ associates attend and the cost attributable to each associate is more than $300 (GST Inclusive), there is FBT on the associate’s portion, and a tax deduction and GST credits can be claimed on the associate’s portion.

 BY SURESH RAJANI

Suresh Rajani is the Tax and Business Adviser at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

Is it worth paying Goodwill?

There are two ways of owning a business. You either start it from scratch or buy an existing business and continue running it or even better, improving it.

When you buy an existing business; over and above the value of the assets, the seller is likely to ask for a Goodwill amount for the non tangible value of the business. Even with small businesses, the amount of Goodwill being asked for currently is ridiculously high and can run into hundreds of thousands of dollars and for some even over the million dollar mark. The question then becomes if the Goodwill is worth paying.

My advice is simple: If you want the easy way out then pay the Goodwill or else start something from nothing and make it into a successful business.

There is an argument out there that paying Goodwill is worth it as you start earning profits from day one. But do you really? Remember if you paid Goodwill, you need to recover the  investment before you can really tell yourself you are making money. So if you invested say $500,000 as Goodwill then until you can earn it all back in a few year's time you haven't even reached your recovery stage and the longer the recovery stage the better off you would have been if you had started from scratch and even though you may have made losses at start, you may not have taken that long to recover them all back.

So don't be fooled by just following the crowd but do what really works best for you.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

5 things to consider at the start of a leasing arrangement

Most businesses need to lease commercial or industrial premises to conduct their day to day operations from. Yet so many business owners find themselves trapped into lease arrangements they either didn't understand or they thought were just standard practice and didn't pay attention to. Below are 5 things business owners need to consider when starting a lease arrangement:

1. Outgoing inclusive or rent plus outgoings. Most leases have the tenants pay the outgoings (land tax, water rates, council rates, etc) and not knowing the estimated outgoings can leave a big dent in the cash flow of a business.
2. Rent in advance plus security bond. The amount that needs to be paid upfront maybe much higher than just one months rent as the lease agreement would specify the amount of rent to be paid in advance and the security bond that needs to be paid.
3. Annual rent review. Just because you are signing a lease for x amount of years does not mean that your rent is going to be fixed for the x amount of years. Commercial leases normally have an annual rent increase percentage by which the rent is going to increase.
4. GST inclusive or plus GST. Many commercial landlords are registered for GST and that means they will have to charge you GST. Paying attention to and understanding if the rent is including GST, plus GST or owner not registered for GST is very important.
5. Set up and modifications. Most businesses would need to make certain changes to the premises to suit their business and it is highly recommend that you check what the lease says about the process of such modifications and what happens when your lease ceases.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

3 ways foreigners can invest in Australia

 

Australia has been a robust economy and having proven its resilience to the global economic downturn of 2008 and beyond it is only natural for investors world over to want to invest in our economy. Below are 3 of the many ways people can invest:

1. Loan the funds to a business and receive interest payments for the amount lent. This is ideal if the owners of the business are known to you and you trust them. The advantage of lending in this fashion is that a maximum tax of 10% is withheld from the interest before its paid to you and that is taken to be final tax under the Australian Taxation System.
2. Buy shares in the Australian company you want to invest in. Buying shares in a company (no matter how small or big your shareholding is) gives you (partial) ownership of the company. If your return (dividend) are paid out to you out of taxed profits (franked dividends) then no additional tax is payable by you as the Australian Taxation System considers the 30% tax paid by the company as final for non-residents.
3. Invest directly under your name in properties, etc. It may be more time-consuming and may get complex managing your investments directly in Australia, but there is no reason you cant invest directly in Australia under your name. The taxation implication of this is that even though you may be a non-resident for tax purposes, you still would have to pay the Australian Tax Office your share of tax as a non-resident on all Australian Sourced income at rates determined under the Australian Taxation System.

 

The importance of getting your situation specific advice cannot be emphasised enough so do make sure you consult with taxation professionals in both your country and in Australia to understand the implications of investing in Australia both in terms of risk and reward.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

 

 

 

Is your business structure right for you?

There is no such thing as "one business structure fits all or even similar businesses" and getting the business structure wrong can cost you in the long run.

Don't simply register a company and think that it is the best structure for you because everyone else is using it and you are in a hurry or to save a few dollars at the start.

There are four main types of business structures used by small and medium sized businesses in Australia and in most cases using them in a combination may work in your favour in the long run. These four are:

1. Company
2. Trust
3. Sole Trader
4. Partnership

Below are the the features/differences of the four structures:

COMPANY

• Regulation: Heavily by ASIC
• Profit distribution/ Tax effectiveness: Not flexible
• Taxation: Company tax rate
• Liability: Limited

TRUST

• Regulation: Minimal
• Profit distribution/ Tax effectiveness: Flexible
• Taxation: At beneficiary level
• Liability: Limited to trust assets

SOLE TRADER/PARTNERSHIP

• Regulation: Minimal
• Profit distribution/ Tax effectiveness: Not flexible
• Taxation: At individual's (or partner's) marginal rate
• Liability: Unlimited

Your business is probably going to be your biggest source of income so give the business structure some thought and just don't rush into it.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

www.taxfirst.com.au

 

 

7 things business owners are getting caught out on

Being a business owner may be rewarding but owning a business comes with the responsibility of making sure that the business complies with various tax office and other obligations. Below are the 7 things business' are  getting caught out on:

1. Minimum wages. The current minimum wage is $640.90 per week ($16.87 per hour) and paying employees below that either intentionally or unintentionally can result in penalties.
2. Annual Leave. All employees (except for casual employees) are entitled to annual leave. Full-time and part-time employees get 4 weeks of annual leave, based on their ordinary hours of work. The leave accumulates gradually during the year and any unused annual leave will roll over from year to year.
3. Superannuation payment. Almost all employees in Australia are entitled to a superannuation contribution, paid by their employer into a super fund. It doesn’t matter if the employee is full time, part time or casual (depending on income and hours). Even some contractors may be entitled to super contributions. Australia’s superannuation law is strict with regards to paying by the due date (28 days after end of every quarter). Even if you’re late by one day, you can be penalised.
4. Fringe Benefit Tax (FBT) on motor vehicles. If you operate your business as a company or trust, you can claim a full deduction for expenses you incur in running a motor vehicle that your company or trust leases or owns. If you, or other company or trust employees (or their associates), use the vehicle for private purposes, you may have to pay fringe benefits tax (FBT).
5. Goods taken for private use. It is a common practice in businesses such as bakers, greengrocers, convenience stores and restaurants – but business owners need to realise that accounting for goods taken out of stock for private use has tax consequences. Goods taken out of stock by a business operator for private use have to be included in the business' income.
6. Putting aside money for income tax. Unless you plan ahead for tax, it can be difficult to pay tax bills when they fall due. So it's worth making this a priority for your business. As you become more established the Australian Taxation Office (ATO) might also require you to make quarterly pay as you go (PAYG) tax instalments.
7. Getting involved in cash economy. Businesses that deliberately hide income to avoid paying the right amount of tax or superannuation are part of what is generally called the cash economy. The ATO can issue default assessments when you cannot substantiate your income or lifestyle. 

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

 

 www.taxfirst.com.au

 

 

 

 

 

Why businesses should stop providing customer service

Most of us would have received service ranging from exceptional to downright outrageous when buying big ticket items such as homes to buying everyday products and services. Poor service may be an outcome of many different things but a major problem seems to be term itself "Customer Service."

One things most business owners tell their staff is that they should service their customers well and the staff seem to take that literally. When someone walks into their store, the staff ask themselves the question "Does this look like a person who is likely to buy today and/or from us?" If yes, then they provide good service and if the person seems to be the kind that is just looking for information, then the chances of them getting proper information or service diminish as he is not likely to be a "customer" in the eyes of the staff.

In this day and age when competition is fierce in most industries and amongst most businesses and when almost all businesses claim that their prices are the lowest, one thing that can make any business stand out is providing outstanding service to one and all who walk in your stores or contact you in anyway.

Business owners and staff out there, stop providing customer service and start providing people service. Sooner or later the word about your exceptional service will get out there and your business is likely to be rewarded for that. And yes by that I mean financially too.

BY SURESH RAJANI

Suresh Rajani is the Business Leader at TAX FIRST (An accounting and business advisory firm)

 

 www.taxfirst.com.au