Blogs by Stewart, Tracy & Mylon

Budgeting and cashflow forecasting

WHAT THE TAX?!!

Is budgeting and cashflow forecasting necessary for businesses?

 

It is recommended that every business prepares an annual Budget and Cashflow Forecast.

 

Analyse previous year's performance to prepare budgets

 

When preparing a budget, you should firstly analyse the previous financial year's performance. What you need to consider is whether you propose to increase turnover during the forthcoming 12 months, whether you will employ the same number of staff or increase your staff and what other events are likely to occur in the next 12 months.

 

Detailed consideration to all aspects of the business

 

This will require you to give detailed consideration to a number of separate areas, including:

• Sales

• Production Forecasts

• Labour Productivity Budgets

• Gross Profit Percentages that you believe are achievable Investments in Stock

• Investment in Debtors

• The payment of Creditors

• Key expenses such as advertising, wages and salaries, rents and superannuation contributions.

 

Cashflow forecast

 

In preparing the Cashflow Forecast you should have regard to:

• Loan Repayments

• Taxation Payments

• GST Payments

• Income tax instalments

• Any Capital Expenditure that you wish to undertake

• Any funds (dividends) that you wish to withdraw from the business.

 

Blueprint for the next twelve months

 

The whole concept of preparing a Budget and Cashflow Forecast is to prepare a blueprint for what you would like to see your business achieve during the next 12 months.

 

Budgeting should highlight potential troublespots

 

If you are realistic in your estimates, then the forecast should highlight any potential troublespots during the year, eg you may be going to experience a shortage of funds from the payment of income tax in March or from stock build-ups in November for Christmas trading. There could also be other times during the year when you anticipate problems due to seasonal conditions.

 

Measure actual performance against Budgets/Cashflow Forecast

 

You will then have Budgets and Cashflow Forecasts against which to measure your actual performance during the year, so as to determine whether you are on track in your business performance.

 

Budgets help you get a clear indication of where you are

 

No one expects you to be able to actually achieve budget estimates in every segment of the business. That is a virtual impossibility. What the budget does give you is a blueprint against which to measure your actual performance. This will give you a clear indication as to where you actually stand on current day-to-day trading as compared to your expectations at the beginning of the year when the budget was prepared.

 

Budgets give businesses a better chance of success

 

There is no doubt that the businesses which prepare Budgets and Cashflow Forecasts and compare this to their actual performance, give themselves a far greater chance of business survival.

 

Information sourced using CCH iknow

Moving overseas

WHAT THE TAX?!!

Moving overseas? You may have to pay more tax

 

A dual citizen has been declared a non-resident of Australia by the Commissioner of Taxation via a Private Binding Ruling request. As a result of this, the employer of the dual citizen is required to withhold tax on salary at the non-resident tax rate.

 

In order to be classified as a tax resident of Australia, an individual is required to meet the definition as defined in ITAA 1936 s 6(1). The definition offers four tests to use to ascertain whether an individual is a tax resident of Australia, and includes the:

• resides test

• domicile and permanent place of abode test

• 183-day test, and

• Commonwealth superannuation fund test.

 

The "resides test" is the primary test for residency. If this test is failed based on relevant factors, then the other three tests are applied.

 

Relevant facts and circumstances

 

The individual:

• was a dual citizen of Australia

• moved overseas with their spouse and children

• was employed by an Australian company to complete work serving Australian customers

• maintained an Australian bank account to receive their salary

• had no occupation in the foreign country

• was only renting in Australia before moving overseas

• shared a house with in-laws in the foreign country, and

• advised Medicare that the family had departed Australia

 

Decision

 

In the ordinary concepts (resides) test for residency, not one of the eight factors has greater weight to the others when making a determination. The weight usually becomes apparent when looking at everything as a whole.

The eight factors taken into account by the courts and tribunals are:

• physical presence in Australia

• nationality

• history of residence and movements

• habits and "mode of life"

• frequency, regularity and duration of visits to Australia

• purpose of visits to or absences from Australia

• family and business ties with Australia compared to the foreign country concerned, and

• maintenance of a place of abode.

 

Based on the relevant facts for the individual, residency pointed towards being a citizen of Australia and having all business ties related to Australia via employment. The individual had no other major income from employment or business purposes. The individual was being paid into an Australian bank account presumably in Australian dollars.

 

Non-residency pointed towards the individual's immediate family (ie spouse and children) living in the foreign country with extended family. While this could be considered usual and non-determinative because circumstances may have been fortuitous, the individual informed Medicare that they were leaving Australia indefinitely.

 

As noted, all signs generally pointed towards residency, due to all the work being Australian-sourced. Perhaps the individual was working remotely and was back in the foreign country with family for an unknown period for personal reasons.

 

The individual telling Medicare that the family was leaving indefinitely was the factor which tipped the scales to the individual being a non-resident. The individual also failed the other three tests.

 

Client application

 

As the individual is an employee non-resident, their salary is now taxed at the non-resident marginal rates. Also, this higher rate of tax is withheld from the individual's salary as part of the payroll process.

This could result in a few further issues, including:

• whether the individual is able to claim a rebate of Australian tax paid in the foreign country

• the individual no longer be eligible to receive superannuation guarantee, and

• the employer being aware that the PAYG withholding has to occur at the higher rate.

All these factors could considerably change the overall outcome for the individual salary package, including where superannuation guarantee amounts may be taxed at 37% or even higher.

 

Client opportunities

 

If applicable, the individual may look to a different structure and provide the Australian company with services under a contractor arrangement. However, this can be tricky in instances where the individual was previously employed as an employee. Payments for contracted services to a foreign contractor typically do not have withholding amounts applied.

 

The individual may want to review their options in this situation, particularly in the foreign country.

 

Information sourced using CCH iKnow

 

Fixing interest rates

To fix, or not to fix, that is the question.

 

With fixed rates as low as they are, and speculation of a rate rise in the later part of 2018, it is understandable why people may be considering fixing their loan.

If you are thinking about fixing the interest rate on part of, or your whole loan, remember that there are many things to think about before locking it in.

Here are some possible pros and cons when fixing a loan.

Pros

·         Certainty of monthly repayments for the term of the fixed-rate period

·         Insurance against rate rises, which will increase your loan repayments

·         The peace of mind that the above two outcomes provide

·         You can fix your whole loan or part of it – giving you greater flexibility

 

Cons

·         Additional repayments may attract penalties

·         If a loan is paid out during a fixed-rate term, penalties may be incurred

·         If interest rates fall, you will not receive the benefits of lower minimum repayments

·         Redraw and Offset accounts are commonly excluded from fixed rate offers

 

So ask yourself.

Are you likely to make additional repayments or sell the property in the short term?
Do you regularly use an offset or redraw facility?
Are you happy to pay a slightly higher rate to secure a stable loan repayment?
 
Deciding whether to fix or not depends upon your plans for the future.

Single Touch Payroll

WHAT THE TAX?!!

Single touch payroll for everyone?

 

Single Touch Payroll (STP) has been introduced into the Australian tax system to combat areas of taxpayer non-compliance of PAYG withholding and superannuation guarantee obligations. Past legislation has been enacted which brings this new payroll system into commencement from 1 July 2018.

Currently as it stands, only "substantial employers" will be necessary to implement STP (TAA 1953 s 389-5). However, new legislation has been tabled in parliament that will mean that every employer will be required to use and lodge STP software. On enactment, all employers will be required to use STP from 1 July 2019.

 

Headcount

 

A "substantial employer" is one who employs 20 or more employees, or is a member if a wholly-owned group, and the group has 20 or more employees in total. Contractors and other individuals that are employees under the extended meaning of "employee" in the Superannuation Guarantee (Administration) Act 1992 are excluded from the headcount if they do not meet the ordinary meaning of employee. A checklist on whether an individual is an employee is available here.

 

The headcount, which determines whether an employer is a "substantial employer", must be undertaken as at 1 April 2018.

 

Headcount, as defined by the ATO, is as follows as at 1 April 2018:

          • full-time employees

          • part-time employees

          • casual employees who are on the payroll at 1 April and worked at any time during March

          • employees based overseas

          • any employee absent or on leave (whether paid or unpaid), and

          • seasonal employees (if necessary).

 

Do not include any independent contractors or staff that is provided by a third party labour hire organisation. Also, company directors are not included unless they are also employees.

 

This reporting will continue indefinitely even if the employer goes below 20 employees during the 2018/19 income year.

 

Reporting requirements

 

Employers will need to report the following through their payroll system:

          • payments made to individuals and amounts withheld from those payments

          • payments of salary or wages and ordinary time earnings (OTE), and

          • employee superannuation contributions.

 

Also, pending the passing of new legislation, other amounts such as "sacrificed ordinary time earnings amounts" and "sacrificed salary and wages amounts" will be reportable. The objective of these additional reporting requirements ensures that superannuation guarantee is not reduced by amounts salary sacrificed. These amounts, along with ordinary time earnings and superannuation contributions can be reported either separately or combined. Either way, the ATO has stated that they will be aware of an employee's overall package from which they work out their superannuation guarantee.

 

Payments not made through the payroll system (eg contractor payments, payments of superannuation income, payments of dividends, interest and royalties, etc) are excluded.

 

Employers will not be subject to administrative penalties for the first 12 months, unless first notified by the Commissioner.

 

PAYG payment summaries

 

For employers who are required to use STP from 1 July 2018, there will no longer be a requirement to provide employees with PAYG payment summaries at year end.

Essentially, the employees will be able to see their payment summaries at year end online from myGov and also they will be available on the Tax Agent Portal.

 

Information sourced using CCH iknow

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