Monthly Archives: May 2015

Small business CGT concessions

One of the pleasing announcements within the 2015 Budget was the proposal that a small business be able to restructure itself without any Capital Gains Tax (CGT) implications.

This is particularly important for start-up businesses.  Even with the best made plans, the performance of new business can prove to be way above or way below expectations.  It is therefore quite common to find that the initial structure is no longer beneficial.  This new proposal gives the option to ensure that the initial structure does not prove to be detrimental.  Please note though that stamp duty and other charges may be incurred in a restructure.

Budgets are notoriously thin on detail; this one in particular.  There are many definitions of a small business within the Tax Act and we await to see how a small business will be defined for this proposal.  That said, we expect that it will follow the most common definition being turnover of $2 million in the current or previous financial year.

What most people don’t know though is that there are already four Small Business CGT concessions which can be used where a business is being sold.  These concessions, either defer, reduce or eliminate any tax liability.  They can also be used to restructure.  These four concessions can be used by businesses with turnover in excess of $2 million provided the net asset value of the entity concerned, and anything else connected with it, is less than $6 million.

The Small Business CGT concession laws are quite complex.  Furthermore, they are a key ATO audit area.  It is therefore essential to ensure that all the T’s are crossed and the I’s are dotted when using any of these concessions.

Does your existing structure work for you?

We welcome the opportunity to discuss what you may be able to do in an obligation free first meeting.  Why not give us a call today to make an appointment.

At MRS, we will spend today planning for your success tomorrow.

Dividends v wages – a new ball game

We often recommend to our small and medium sized business clients with largish retained profits to cease paying wages and to pay dividends instead.

To pick some round numbers, a $7,000 net salary will require say $3,000 of tax to be paid thereon AND WorkCover AND may be Pay-roll Tax as well.  Of course, there is also 9.5% SG super but that is not a bad thing.  So the cost of getting $7,000 into a working shareholder’s hands is often close to or even exceeds $12,000.

This is a costly way of remunerating oneself when a company has large retained profits.  In Victoria, there is no WorkCover or Pay-roll Tax on dividends.  And as a franked dividend is using the credits from tax already paid, the cost of getting $7,000 into a shareholder’s name is just $7,000.

It is important to note though that whilst the company can save up to $5,000 in immediate cash flow by paying a dividend instead of a wage, the company will have a greater profit in the current year as it has less deductible wages.  It will therefore pay more income tax in arrears.  For someone approaching retirement this can lead to other tax and cash flow advantages.

In the 2015 Federal Budget, it was not only announced that the Company tax rate will fall to 28.5% but that the dividend franking credits would remain at 30%.  So in my example above, you can add another $150 saving to receiving dividends over wages.

So what’s best for you?  Ask us.

At MRS, we will spend today planning for your success tomorrow.

Budget – a word of warning

You have to be careful as to what you think you have heard on Budget night.

You have to mindful of three things:-

  1. They announcement are not law, they are only announcements.  It may be some time before the legislation passes, it may not ever pass or may be slightly or even substantially different.
  2. No matter who is in power, the good news items always tend to have a delayed start date; whereas the bad news items start seemingly straight away.
  3. Some of what is reported is not true or over simplified.  What seems to be an opportunity turns out not to be available or only relevant to certain groups.

At MRS, we will spend the next few days pouring through the detail before releasing our detailed analysis of the Budget and what it means to our clients.  That briefing appear will be filled with tips and traps and will be written in plain English.

Please let is know if you would like a copy e-mailed to you.

Travel expenses


Travel expenses area tax auditor’s delight.  So what do you need to do?  The basics are:-

  • One must keep written or scanned evidence of all expenses when away from home for more than one night.
  • If one is travelling overseas or away for more than six nights within Australia, then a travel diary must be keep. Note the word must; it is not an optional requirement.  No diary, no claim.
  • Travel diaries can be bought at most newsagents. The simplest things to say is fill in each column to each row, but it is worth noting that one must record:-  – the nature of the activity.  – the day and time that the business activity commenced.  – how long the business activity lasted.  – the name of the place where you engaged in the business activity.
  • Collect as many business cards and brochures as you can. Photos are also great proof of what you did.

What if the trip is partly private and how might costs be split?  These are my views as the ATO provides surprising little clarity on this matter:-

  • If one goes for a conference to say Europe, then such a long haul means that it is unreasonable to expect one to fly in the day before and then spend say four days sitting in a darkened room. Arriving say two days early does not in my view change the purpose of the trip.  Consequently, the cost of the whole flight remains fully deductible.
  • In my view, if one stays on for a day and/or it coincides with a weekend, the trip remains fully deductible.
  • The costs incurred on the work/conference days are deductible such as accommodation and food (but not excessive alcohol).
  • Sight seeing trips are not deductible.
  • What if one attends a week long conference but enjoys a week’s holiday beforehand or afterwards? Clearly the holiday is not deductible.  However, it also raises a question as to whether the whole air fare can be claimed.  Unless there is some compelling counter argument, the air fare would need to be apportioned on a proportional days basis.
  • What if one’s partner comes along to the conference or business trip. One method is to only claim half of the accommodation costs.  Another method which I subscribe to is to find out the single rate and claim that – as that is what would have been incurred but not for the partner.  In some cases, it is the same rate.  Make sure you keep the evidence of the alternative room rate.

A common problem is obtaining receipts in some countries.  Thankfully, the ATO provides relief to this problem by allowing employers to pay their employees (which can includes the directors of a company) a daily travel allowance.  The ATO annually sets out daily rates that employers can pay employees to cover their daily travel costs of food, travel and other incidental expenses.  There are rates for Australia (which include accommodation) and overseas (which do not include accommodation costs as they must be fully substantiated).  Please ask us if you would like a copy of the current year rates.  There are differing rates for different areas with higher rates applying to higher costs centres and levels of salary.  Moreover, an employee is exempt from substantiation if they do not claim more than the allowance paid to them.

As it is an allowance, it must be treated as such in your payroll system, be reported within W1 on the next BAS and shown as an allowance on the end of year PAYG Payment Summary.  Please ask us if you would like help in setting this up correctly.

Please remember that as it is an allowance, this method can’t be used by those running a business in their own name or by partners in a partnership.

AT MRS, we will spend today planning for your success tomorrow.

Choice of super fund

Offering employees choice of super fund has been compulsory for most employers since July 2005.  It was introduced for two major reasons:-

  • To enable employees to dictate where their super savings where invested, and
  • Overcome the problem of departing employees not being able to continue their existing life insurance – not ideal for one over 45 years of age.

An employer not excluded from the choice system must provide an employee with a Standard Choice Form within 28 days:-

  • To a new employee.
  • To an existing employee who requests to make another nomination.
  • Where you change the default fund.
  • You are unable to contribute to the nominated employee’s fund.
  • The employee’s fund becomes a non-complying fund.

The form must offer a default fund into which contributions will be made if the employee doesn’t nominate a different complying super fund (which can be the employee’s own self managed super fund).  If the employee exercises choice, they must complete the form and return it with certain information as set out on the form.  You can obtain a copy of the form by clicking on the following link:-

Once an employee exercises choice by nominating a fund, an employer has 2 months to arrange for contributions to be made into the nominated fund.

Which funds can an employer use a default fund?  It must:-

  • Be a complying fund,
  • Be registered by APRA to offer a MySuper product,
  • Provide a minimum level of life insurance as set out in the regulations.

If you would like to know more, please call us or ask for a copy of the last edition of our Tips and Traps newsletter which explored this area in more detail.