Blog

Tips for individuals and businesses to help with the current COVID-19 situation

Individuals

Working from home

Many workplaces are asking employees to work from home. Working from home can be great if it is set up well. It can be frustrating and unproductive if it is not. Check out the following tips to have a productive home office.

  • Find a dedicated space away from distractions. A kitchen table is often what people default to, however if you can get yourself a desk and find space in a bedroom, garage, or quiet corner, this will make your life so much easier.
  • Set up a desk that is comfortable, check that the height is good for you and that you can sit/stand in a comfortable way. If you have a small laptop, consider getting a large screen to connect, so that you minimise eye strain at a stressful time. This is a good practice generally, but particularly important when you are tired.
  • Clear as much clutter away from your work area as possible.
  • Track your hours worked from home. On your tax you can claim a deduction for 52c per hour worked from home. Keep a record of your hours so that you can claim this later. Also keep records of your internet and phone costs associated with this work.
  • If you have kids and schools/childcare are shut down, try to dedicate time to work when you will not be distracted (good luck) and dedicate time that you will spend with the kids. This may involve shifts of you working and your partner looking after the kids and vice versa, or working during nap times or early morning. It will not be practical if kids are at home to have you both work from 9 to 5, so this flexibility will need to be discussed with your employer.

$750 Pension payment

If you receive a pension or social security payment you will be eligible to receive this one-off payment. Details of exactly who is eligible will likely be in the media and on government sites on 23 March as this is the date that it will be legislated. Payments will be made directly into your bank accounts.

ATO relief

The ATO have announced a number of measures to help cash flow, including low-interest loans and deferrals for tax payments. The important thing to note is that to be eligible, you must apply for this by contacting the ATO to request assistance. The dedicated phone line for this is 1800 806 218.

Wills, powers of attorney and personal insurance

Make sure that you have all your relevant documents and insurances in place, this makes it easier for the people around you to help if you get sick. Please contact us should you need details of advisers who can help you with this.

Businesses

Budget regularly

Most accounting systems include a budgeting tool which allows you to insert what you believe your costs will be and then compare how you perform against them. Start preparing budgets for a few different scenarios: business as usual, staff unavailable, business needs to be run from home and business shut down. Reviewing this weekly/fortnightly will help you make better decisions.

Consider how you own your cars

The government now allows you to claim the full cost of a motor vehicle up to the value of $57,581. Discuss with us the benefits of owning your car in your business’s name rather than your individual name.

Engage with your staff with regards to the plans that you have in place

This may include things such as working from home. If their regular role cannot be performed temporarily, consider other roles that they may be able to perform which will put you in a strong position when things recover. Consider that if the conditions we are currently in last for months or a year, get staff to think of and test new ways of performing their role. For example, can tasks be performed remotely such as via video conference?

Engage with your customers

Contact your customers to let them know your business is running and inform them of any new ways of doing business that you offer. For example, let them know if you are doing teleconferences rather than in-person meetings now.

The Australian Government’s stimulus package: What’s available to you?

On 12 March 2020 the Australian Government and the ATO announced their assistance through a stimulus package and administrative concessions, details of which are available on their websites:

https://www.pm.gov.au/media/economic-stimulus-package

https://www.ato.gov.au/Media-centre/Media-releases/Support-measures-to-assist-those-affected-by-COVID-19/

I have included details below of the most relevant information, for easier reading. For further details, please visit the government sites I have referenced above.

Individual assistance

A one-off $750 stimulus payment will be available to pensioners, social security, veteran and other income support recipients and eligible concession card holders. The payment will be tax-free and will not count as income for Social Security, Farm Household Allowance and Veteran payments. There will be one payment per eligible recipient. If a person qualifies for the one-off payment in multiple ways, they will only receive one payment.

Business assistance

Instant asset write-off is now $150,000

The instant asset write-off threshold will be increased from $30,000 to $150,000 and expand access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.

Accelerated depreciation deductions

A time-limited 15-month investment incentive (through to 30 June 2021) will be provided to support business investment and economic growth over the short term, by accelerating depreciation deductions. Businesses with a turnover of less than $500 million will be able to deduct an additional 50% of the asset cost in the year of purchase.

50% rebate of PAYGW up to $25,000

Cash flow for employers will be boosted by up to $25,000, with a minimum payment of $2,000 for eligible small and medium-sized businesses. The payment will provide cash flow support to businesses with a turnover of less than $50 million that employ staff, between 1 January 2020 and 30 June 2020. The payment will be tax-free. Businesses will receive payments of 50% of their Business Activity Statements or Instalment Activity Statement from 28 April with refunds to then be paid within 14 days.

Apprentice and Trainee subsidy

Small businesses will have assistance to support the jobs of around 120,000 apprentices and trainees. Eligible employers can apply for a wage subsidy of 50% of the apprentice’s or trainee’s wage for up to 9 months from 1 January 2020 to 30 September 2020. Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice.

Assistance for severely affected regions

Support for those sectors, regions and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture and education.

ATO relief

  • You will be able to defer by up to four months the payment date of amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise.
  • Businesses on a quarterly reporting cycle will be allowed to opt into monthly GST reporting in order to get quicker access to GST refunds they may be entitled to.
  • Businesses will be allowed to vary Pay As You Go (PAYG) instalment amounts to zero for the March 2020 quarter. Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters.
  • Any interest and penalties, incurred on or after 23 January 2020, that have been applied to tax liabilities can be remitted.
  • The ATO will work with affected businesses to help them pay their existing and ongoing tax liabilities by allowing them to enter into low interest payment plans.

The bit most people miss with the ATO

The ATO relief for COVID-19 is not automatic. If you wish to receive the above assistance you need to contact them directly to apply for it. They have set up a support line on 1800 806 218 which you can call to access these benefits and discuss any issues relating to COVID-19.

Single Touch Payroll (STP)

What is Single Touch Payroll (STP)?

Single touch payroll is a change in the way employers will report their employees pay to the ATO. Instead of lodging a PAYG payment summary each year, employers will now be required to report each pay electronically to the ATO.

When does Single Touch Payroll start?

All businesses are required to report via STP from 1 July 2019.

How do I get started?

If you use cloud bookkeeping software such as Xero, QBO or MYOB the payroll function of these programs allows you to report via STP. You will need to activate the STP section of the payrun, then your process will be similar to previous pay runs.

If you don’t have cloud bookkeeping software then you will need to adjust your payroll solution. There are a number of software providers who provide a payroll solution which is STP compliant for $10 per month.

Employers who have under 4 employees also have the option of reporting their wages through a BAS or Tax agent quarterly.

How does it affect my employees?

Employees will be able to log in to their My Gov accounts to view the amount of pay they have received and the amount of super which is due to them. They will no longer receive an annual PAYG payment summary from their employers, instead this information will prefill into their tax returns and be available on their My Gov account.

Can I start early?

Yes, and we recommend it. With 771,000 small businesses who employ in Australia there is likely to be a mad rush in June for everyone to be set up. By setting your STP payroll up early, if you need to ask the software provider a question you are likely to avoid the long waits which will be around in June.

Want to know more?

Contact Red Spark Consulting today

 

Testamentary trusts and tax planning

What is a Testamentary Trust

A testamentary trust is a trust that is established under a valid will. A testamentary trust functions in a similar way to a discretionary trust. This structure allows a lot more flexibility in the way profits are distributed from the estate and therefore can be a very tax-efficient way of structuring your will. Where a normal will distributes the assets of the deceased to the beneficiaries, usually within three (3) years of the death, a testamentary trust extends this period to be in line with the wishes of the deceased. For example, the deceased may not wish the children or grandchildren named in the will to have access to the capital of the estate until they are of a certain age (e.g. they receive their inheritance on their 21st birthday).

What are the advantages over a standard Will

This type of will has a few main advantages. Firstly, the deceased can guarantee that the beneficiaries will be of an age that they believe is mature enough to look after the funds. For example, if an 18-year-old received an inheritance, they might be more likely to spend the money on discretionary items, whereas a 30- or 40-year-old may be more likely to invest the funds.

The second advantage is with regards to tax. Any earnings from a deceased estate that are distributed to a minor (someone under 18) are taxed at adult marginal rates. Whereas if funds were inherited by an adult and then invested into an investment trust, distributions to the minor from an investment trust are taxed at the below rates:

Thirdly, there is flexibility in who you distribute to each year. The trustee is able to vary the pattern of distribution made each year. If the trust has a beneficiary whose income significantly reduces in a year, then more income can be distributed to that person.

It should also be noted that any capital distributed from a testamentary trust to beneficiaries under current ATO guidelines has the capital gain disregarded. For example, a property held by the trust can be distributed into a beneficiary’s name and capital gains tax would not be payable.

There are similar compliance requirements for testamentary trusts to family trusts. For example, a tax return and financial statements need to be prepared and submitted each year.

See following pages for tax rate tables and example scenarios.

Tax rate tables for 2017/18 financial year

 

Minor tax rates

Income Tax rates for 2017–18 income year
$0–$416 Nil
$417–$1,307 Nil plus 66% of the excess over $416
Over $1,307 45% of the total amount of income that is not excepted income

 

Adult tax rates

Taxable income Tax on this income
0–$18,200 Nil
$18,201–$37,000 19c for each $1 over $18,200
$37,001–$87,000 $3,572 plus 32.5c for each $1 over $37,000
$87,001–$180,000 $19,822 plus 37c for each $1 over $87,000
$180,001 and over $54,232 plus 45c for each $1 over $180,000

 

Example scenarios

Example scenario 1

John’s deceased estate consists of $1 million total funds. These funds can be invested each year at a 5% return to generate income of $50,000. John had no living spouse, but has 1 daughter who is married (earning $70,000 per year and her husband earning $90,000 per year). The daughter and her husband have 3 children (3, 7 & 9 years old). A basic will may simply distribute the estate to the daughter and these funds would then be invested in her name. This basic scenario would add $50,000 to her taxable income, increasing it to $120,000 and increasing the tax paid by $18,735. These investments would then be used for normal living costs such as school fees, mortgage etc.

In contrast to this, a testamentary trust would retain the capital of the trust and distribute the profit to the grandchildren each year. The three grandchildren would receive $16,666 of income each per year, which may be spent by the parents on similar costs to maintain the children. This distribution is received tax-free if a testamentary trust is used to best effect.

Note: Scenario 1 would work equally well if there were less assets in the deceased’s estate and there were minors involved in the remaining family.

Example scenario 2

John’s deceased estate consists of $2 million total funds. These funds can be invested each year at a 5% return to generate income of $100,000. John had no living spouse, but has 1 daughter who is married (earning $180,000 per year and her husband earning $60,000 per year). The daughter and her husband have one child (3 years old). A basic will may simply distribute the estate to the daughter and these funds would then be invested in her husband’s name because he is earning the lesser of the two incomes. This basic scenario would add $100,000 to his taxable income, increasing it to $160,000 and increasing the tax paid by $37,885.

In the second year after the death of John, the daughter is made redundant and struggles to find work, dropping her income to $20,000. Suddenly, having the funds invested in her husband’s name is not tax-efficient. A testamentary trust in this situation may change its distribution pattern so that $37,000 goes to the grandchild and $63,000 goes to the daughter. This distribution would incur $23,754 in tax, saving the family $14,131 because the daughter and granddaughter are in lower tax brackets.

Copyright © September 2018 Michael Lawry and Red Spark Consulting Pty Ltd. All rights reserved.

How to start contracting as a sole trader

When working as a contractor, you have the option of trading as a sole trader (using your own name), as a company or through a trust. A sole trader is the cheapest and easiest structure to set up, requiring only an ABN to be registered. Companies or trusts are more costly to set up and run each year, however they can be tax-effective if you are offering your services to a wide range of clients. They can also offer protection of your personal assets in the case of litigation. We would recommend speaking to your accountant regarding the best structure for your business.
In this article we discuss the key steps to starting your contracting as a sole trader. We recommend working with your accountant through this process, using them as a guide to be able help you make each step easier.

Step 1: Draw up a business plan and decide on pricing
Before beginning any business, we recommend drawing up a business plan. This should encompass things such as the starting point and vision for your business, expected expenses, profit or loss, necessary items to begin trading, marketing plan, risk management and so on. Your accountant can help with this, and there are good resources online at www.business.gov.au under the Planning section.
Do some research into pricing within your chosen industry. Your industry association may have information about this, or you may be able to make decisions based on previous experience. Decide on your pricing and how you will charge your customers. Consider whether you need an hourly or project rate, standard prices for basic services or service packages with regular instalments. Your accountant can help to model scenarios and project cash flow, according to different pricing models. They can also assist with budget preparation.

Step 2: Decide on a trading name
You have the option of trading through your own name or registering a business name. Once you have decided on a trading name, it may be a good time to investigate having a logo or brand designed for you. This can then be applied to business cards, email signatures, websites, social media and letterheads. It is not a necessity, but gives your business a professional touch that impresses potential clients.
If you are unsure of the process, your accountant can assist with business name registration.

Step 3: Register an ABN
An ABN is registered with the Australian Business Registry. A tax agent can assist with the filing of the required forms to obtain this registration. If you have decided to trade through a business name, this will be completed at the same time as your ABN application.
You will also be required to register for GST if you anticipate receiving more than $75,000 of income per financial year.

Step 4: Set up a bank account
Once you have obtained your ABN, go into a bank branch to open a business bank account. You will need to present the bank with a copy of your ABN registration details, together with the normal ID requirements for opening accounts. Most banks offer products that are similar in cost, however some offer perks such as free meeting spaces and hot desks. It is worthwhile doing your homework and investigating business bank account offers before you decide which bank offers the best deal for your business model.

Step 5: Set up cloud bookkeeping software
Cloud bookkeeping software is one of the biggest time savers that you will find as a contractor. This software receives your bank transactions on a daily basis, allowing you to keep up-to-date on your bookkeeping in a simple way. You can prepare budgets to plan for your expenses throughout the year, and it also allows you to prepare and email your invoices and track who has paid you.
There are many cloud bookkeeping products in the market; all have their strong and weak points. We believe that Xero is currently the most user-friendly product on the market, however it is also one of the most expensive. A lower-cost option is QuickBooks Online which still has a large range of features. Your accountant can assist you with training to use these programs if you wish.

Step 6: Make your bookkeeping easier by using add-ons
There are add-on products available for your bookkeeping software that automatically enter your expenses into your bookkeeping file. For example, some add-ons will download your phone bill from your provider and automatically record the details of it in your bookkeeping software. Some add-ons can provide payment options on your invoice so that clients can pay by credit card, Paypal or direct debit. There are a large range of add-ons with a huge range of features; again, this is worthwhile investigating with your accountant.
To begin with, we recommend having a look at Hubdoc or Receipt Bank to see how these products could help save you time.

Step 7: Set up insurance, industry registrations and subscriptions
Each industry is different with regards to trading restrictions. For example, some will require that you obtain a license to trade or be registered through an industry body. You should research what is necessary in your industry and make sure that you are adequately insured. As well as work-specific insurance, also consider looking into income protection and life insurance, particularly if you have a partner or dependents. We can help with contacts in this industry through our referral network.

One last step: set up a work-specific email, website and social media presence
By setting up a work-specific email address, you will keep all your work emails separate from private correspondence. You will also present a more professional face for your communications when trying to attract work.
As your reputation grows, you will have people recommend you to their friends. Often these potential new customers will search online for your business; without a website or social media presence then it will be hard to find you. This can be as simple as a page with a small blurb about your business, your basic services and contact details, or it could extend to regular social media postings or a blog.

We hope that these tips help with you take your steps into contracting. Should you have any questions please feel free to contact us at Red Spark Consulting.

Copyright © September 2018 Michael Lawry and Red Spark Consulting Pty Ltd. All rights reserved.

Federal budget for doctors

The federal budget was recently published on 8 May with a huge amount of detail; as doctors are often pressed for time, we have worked our way through this and found the key measures that will affect our medical clients.

New tax offset

There have been some minor changes to the amount of tax that all taxpayers will pay. The introduction of the Lower- and Middle-Income Tax Offset reduces the tax paid for all income earners who earn up to $125,333.

Change in tax bracket

The $37,001–$87,000 tax bracket has been adjusted to $37,001–$90,000. This change reduces the tax paid per year by $135 for anyone earning over $90,000.

Extension of $20,000 limit for deducting business assets

Small businesses (those with a turnover of less than $10 million of income) can continue to deduct the full value of an asset that is worth $20,000 in the year that they purchase the asset. So doctors setting up a new clinic or refitting an existing one can claim the majority of their equipment in the year they purchase it. If you are going to purchase a new car worth under $20,000 for yourself or a family member, you may be able to purchase this through your business entity (if you trade as a company or trust), and then be eligible to deduct the full value of this as a business asset.

Salary employees

In years gone past many doctors who work at multiple hospitals as salary employees and earned over $263,157 in a year contributed over their $25,000 superannuation contribution cap. This was because each employer would contribute the full 9.5% super for them. These rules have been changed so that if you are in this situation you can nominate employers not to pay you the full amount of super so that you do not exceed your contribution cap.

Self-managed super fund changes

If you manage your super through a self-managed super fund (SMSF) and have received unqualified audit reports for the last three years (the auditor has found no issues with your fund), you will no longer be required to have your SMSF audited every year, instead audits will be only required every three years.

The number of members allowed in a SMSF will now also be increased from four members to six.