HLB Mann Judd Financial Times Spring 2015

Great people, great results 1

Issue #121 Spring 2015 TimesFinancial

A newsletter for clients of HLB Mann Judd firms

In this IssueBudgeting: the key to happiness? 2

Is crowd-funding an option? 3

Appointments 4

How much is your business worth? 5

Tax consideration when selling 6

Selling a business not a ‘DIY’ job 7

Succession planning: make it work 8

Attracting Asian investors 9

Changes to share schemes benefits 10

Super strategies for all ages 10

Business owners on hunt 11

Acquiring premises through super 12

The pros and cons of SMSFs

But this isn’t necessarily the case. While SMSFs do offer a number of benefits, including choice and control, they definitely aren’t for everyone.

They demand significantly more time, effort and responsibility, and only people who are prepared to invest the time and resources to properly manage the fund will fully benefit from them.

Some questions to ask include:

Why do I want an SMSF? It shouldn’t just be a fancy or an impulse – there should be concrete reasons why an SMSF is a better option in your particular circumstances than a public offer fund.

For instance, business owners may find an SMSF useful to own their business premises (see Andrew Buchan’s story on page 12), and when rolling over proceeds when selling the business.

Or those who enjoy managing their own money, and want to spend more time on investment opportunities and considerations, will find an SMSF a good way to take control of their superannuation planning.

However, hoping to get a personal benefit – such as a wine connoisseur wanting to buy wine, or families intending to buy a holiday house – is not a good reason.

Some of these things can be done, but can be complicated and may reduce the effectiveness of the fund.

Also, don’t expect that money can be

accessed sooner with an SMSF. The same accessibility rules apply as with all other funds.

What does running an SMSF involve? Find out about the obligations and regulatory requirements before setting up an SMSF – they could be more onerous than you realise.

This includes lodging tax returns on time, keeping records up to date, and satisfying legislative requirements such as the ‘sole purpose test’.

The trustees of the fund are responsible for its governance and compliance, and failing to meet these obligations can result in serious penalties.

However, don’t let these requirements put you off entirely – there is specialist assistance available to take over much of the administration and compliance requirements, if preferred.

What will be the investment strategy? This needs to be fully considered and thought through – holding shares in the banks and big resource

Self-managed superannuation funds (SMSFs) have enjoyed enormous popularity in recent years, and people often think that once they have enough money in their super, an SMSF is automatically the right option for them.

Michael HuttonHLB Mann Judd Sydney [email protected]

Continued on page 4

Succession planning A special supplement on the ins and outs of succession planning appears on pages 5–8.

2

Mann Judd

Issue #121 Spring 2015

Almost everyone has at least one goal at any one time that they are hoping to achieve. For younger people, it may be an overseas trip or a new car. As people get older, it is more often the aim of paying off the mortgage, or paying for their child’s education.

Budgeting: the key to happiness?

Jonathan PhilpotHLB Mann Judd Sydney [email protected]

The ultimate goal is saving enough for a comfortable and satisfying retirement. And while we all know that money can’t buy happiness, it can certainly make a big difference in achieving these aims.

At risk of stating the obvious, it is necessary to save money in order pay for such goals. But this is often easier said than done.

So what are the key steps towards saving?Firstly, work out exactly which goals to focus on, including how long it will take to get there. For example, “pay off the mortgage in 10 years time” or “reach a certain amount in superannuation by the time I’m 60”.

Then it’s time to look at how to achieve these goals, and there are four main steps – savings, investments, structure and protection.

Create a savings planThe key to building wealth is the ability to save. First, review budgets and identify where savings are possible. As a general rule, being able to save 10 percent of a net salary (excluding super) is a good start, but it may not be sufficient for some to meet their goals.

As part of this, develop some projections for the next, say, ten years of the savings and when the big expenses will pop up. The growth rate will be determined by asset allocation, but over a few years the benefits of compounding become evident. Keep in mind, however, that it takes time to build wealth.

Choose the right investmentsThe next step is to determine the asset allocation for investments. The key driver of investment returns is

the mix between equity and fixed interest investments. Professional advice can help determine the correct asset allocation to suit individual circumstances.

As a general rule, the longer the investment horizon, the more people can invest into the volatile investments, as in the end it is the additional volatility that provides the excess return.

Structure investmentsThirdly, it’s important to choose the correct structure to invest in. For those approaching retirement, this may be superannuation, but those in their thirties may want to access this money much sooner so it may be better to invest personally or in a spouse’s name. If there are sufficient funds to invest and some tax

advantages can be gained, family trust structure might be appropriate.This stage may also need a combination of plans, such as increasing superannuation contributions to build retirement wealth, repaying the mortgage to reduce the non-deductible debt and an investment plan in a non-working spouse’s name or geared savings. All these options need to be fully explored.

Protect yourselfFinally, it is important to have the right personal protection in place. This means having appropriate income protection, critical illness and life cover, and also estate planning arrangements and appropriate powers of attorney.

Working through each of the above steps is the best way to ensure that goals can be reached. ■

It’s necessary to get the basics right before focusing on long-term plans, and this means balancing the household budget and cashflow.

Cashflow forecasts for next 12 months sound complicated, but they don’t have to be. The difficult part is the expense side, not knowing what the regular expenses amount to each month. This requires a review, typically the last few months of credit cards and bank statements.

It is more important to keep the budget cash flow up to date with actual cash flow on a monthly basis. It’s a bit like people who, when watching their diet, write down what they eat, see results much faster, same with finances.

It is normally the large lumpy lifestyle expenses that tend to result in the credit card being maxed and not being able to fully repay, eg large household goods, holidays, car expenses. Where they can be planned into a cash flow will help with the funding of them when they do occur.

Allow a buffer for the expenses that occur that you cannot trace, at least 5% of income should be the ‘other expenses’.

The aim is to try and reach a savings target at the end of the year. If unsure, a good figure of what should be saved is 10% of net income. Of course if a mortgage is in place, this should be the offset account that is increasing by the saved amount.

Managing household budgets


Mann JuddCrowd-funding (or “crowd-sourced equity funding”) is an emerging funding source that uses the power of the internet and social media platforms to raise funds for a business idea or innovation.

Is crowd-funding an option for your business?

Michael GummeryHLB Mann Judd Melbourne [email protected]

Crowd funding has proven to be a successful approach for many businesses to raise money, particularly overseas.

Examples include a video game idea that has raised over $84 million (the target was $500,000); a cooler design that has raised over $13 million (with a target of $50,000); and a charity that has raised over $5 million of an $8 million target in order to restore the Martin Luther King Jr. International Chapel in Atlanta.

There was even a crowd-funding initiative to help Greece pay off its creditors.

Due to strict Australian regulations regarding public offers of securities, in its current form crowd-funding tends to be popular among social enterprises or artists, whereby the incentive for contributions may be limited to an acknowledgement of support or a token gift of incidental value.

What are the current barriers to accessing crowd-funding?As a result of the continuing popularity of crowd-funding, the Australian Securities and Investments Commission (ASIC) issued guidance clarifying some of the regulatory requirements which may apply to crowd-funding projects.

The ASIC guidance serves as a warning to those who were hoping to utilise the popularity and power of crowd-funding to raise capital in exchange for equity in their business.

However, realising the potential of crowd-funding to drive innovation and entrepreneurship, the Australian Government issued a discussion paper on the topic in December 2014.

How could Australian businesses benefit?In addition to existing funding options such as debt finance, venture capital and business angel investment, crowd-funding may provide an alternative route for start-ups to access funds.

For many start-ups debt finance may be unobtainable, or may simply not be a suitable option due to the requirement to make ongoing repayments, pledge security or comply with restrictive covenants.

Equity finance on the other hand does not generally require immediate repayment, with shareholders accepting that funds will not begin to be returned until such time as the entity reaches sustainable profitability.

It therefore has the potential to kick-start local entrepreneurship and innovation, and to provide an alternative and possibly preferable funding source to small businesses.

Unfortunately, with current regulatory requirements acting as a barrier to prevent entrepreneurs tapping

this emerging funding source, entrepreneurs and start-ups may have to continue to rely on the likes of debt finance or an IPO, if possible, in order to access the funding they require.

However, late last year the federal government issued a discussion paper on the topic, and in its most recent Budget set aside $7.8 million over four years to implement a new regulatory framework for crowd-funding for start-ups.

So it is certainly worthwhile continuing to ‘watch this space’ as, in the future, crowd-funding may prove a viable option for many businesses. ■

””

It therefore has the potential to kick-start local entrepreneurship and innovation...

4

Mann Judd


Brisbane Daryl Jones has been appointed senior tax consultant with HLB Mann Judd Brisbane.

Daryl specialises in advice relating to corporates (listed and unlisted), SMEs, high net

wealth individuals and private family groups, including restructures, takeovers, demergers, trust and private company issues.

Daryl spent more than 10 years working with the Australian Taxation Office, before moving into public practice. He is a qualified certified practicing accountant and a chartered tax accountant. Daryl holds a bachelor of commerce from University of Queensland, a graduate diploma in taxation from University of Central Queensland, and a master of taxation from University of NSW.

Gold CoastThe Gold Coast office has appointed two new directors.

Felicity Cooper has joined the Gold Coast firm as director of wealth management. She has particular experience in investment strategy,

superannuation advice and portfolio management.

She joins HLB Mann Judd from RBS Morgans and has 15 years’ experience in finance and investment. She has also worked at Macquarie Bank and Goldman Sachs JB Were.

Felicity holds a bachelor of business and a bachelor of arts (accounting) from Griffith University in Queensland.

James Yoo has been promoted to director of business services.

James joined the firm in 2005 and works with businesses to manage their tax,

cash flow, financial reporting, and strategy and planning needs.

He holds a bachelor of business (accounting) from Griffith University and is a chartered tax adviser with the Tax Institute of Australia and a chartered accountant with the Institute of Chartered Accountants in Australia.

AdelaideJon Colquhoun has been appointed by HLB Mann Judd Adelaide as partner in its business services division. Jon joined the firm in 2005

and has strong technical and tax compliance experience, along with a business advisory background focusing on small to medium businesses. Jon holds a bachelor of commerce from Adelaide University and is a registered chartered accountant.

SydneyThe Sydney firm has made four promotions.

Maria Sfirse has been made a manager in the business advisory division. Maria first joined HLB Mann Judd in 2007 and

worked with other firms before returning to HLB in 2012. She provides tax preparation and report advice and assistance for clients and has a degree in applied finance from Macquarie Univerity.

Alex King has also been promoted to manager, in the tax division. He joined the firm in 2008 and has a bachelor degree in commerce

from the University of Sydney.

In the audit and assurance division, Vanessa Abboud has been promoted to manager. She joined HLB Mann Judd as an auditor in 2008. Vanessa holds a bachelor

of commerce (accounting) from Macquarie University and is a member of the Institute of Chartered Accountants in Australia.

Timothy Maclean has been made manager in the business recovery and insolvency division. Timothy has six years’

experience in this area, including restructuring, budgeting and business management. He holds a bachelor of business administration and commerce (accounting) from Macquarie University and is a member of the Institute of Chartered Accountants in Australia and the Insolvency Practitioners Association.

Appointments

Continued from page 1

companies, and the rest in cash, is unlikely to be a good approach for most people.

Trustees will need to make the fund work for them, and this means having a diversified portfolio with a long-term view.

Do I have the time to manage the fund? Expect to be more engaged with your superannuation, and invest time and resources.

Those who set up their SMSF fully prepared for what it involves, and with a clear idea of how they will make the most of the opportunities,

will likely find it a rewarding, satisfying and advantageous way of saving for their retirement.

But those who think it will be a ‘set and forget’ approach are likely to be disappointed with the outcome, and may well be better off in a public offer fund. ■


Mann Judd

One of the biggest challenges facing business owners is understanding the value of their business, and the business drivers, to ensure that they always have their business “ready for sale”.

A purchaser will only pay what the business is worth to them. Recognising the basics of business valuation will ensure owners’ expectations are realistic, and help avoid disappointment and unnecessary stress during a sale process.

The main factors affecting the value of a business include the certainty of future profits/cash flow and risk. Valuers normally try to assess future profitability or “maintainable earnings” and then apply a capitalisation rate to calculate value.

Capitalisation rateA capitalisation rate is effectively the rate of return an investor is likely to demand to invest in a business within a certain industry and based on the profit and risks of the business.

The capitalisation rate reflects the degree of certainty of the business’s continued profitability or, in other words, the degree of risk that the expected future profit may not be realised.

This is usually reflected as a multiple of the net expected future annual profit.

For some sectors, valuation methods based on turnover have been established as ‘industry norms’, or ‘rules of thumb’.

These should be treated as an indication of value only, and in my view the application of this methodology is flawed in many cases.

Goodwill The difference between the calculated business value and the realisable value of the business’s tangible assets is referred to as ‘goodwill’. Tangible assets usually consist of furniture, plant, equipment, vehicles and so forth. They may also include stocks of raw materials and finished goods.

Strategic valueA business is likely to be more valuable to a competitor than if it is sold to a party who will become another participant in the industry. This is known as strategic value.

This is because competitors can take advantage of synergies and economies of scale.

Competitors may be able to extract obvious savings in areas such as rent and personnel, which means that the profitability of the business for sale is significantly more as the competitor does not have to duplicate these costs.

In addition a competitor may be able to complement the business with aspects of their own business that enables additional market penetration of the products that are sold by the acquired business or vice versa.

Plan to maximise valueThe key to unlocking the full value of a business is planning, and this means investing time and effort in preparing the business for sale.

Profitability and business riskProfitability, matched by dependable cash flow, is an important element to consider when determining a business’s value.

However, not all businesses with the same profitability will have the same valuation.

The difference is usually risk. Some businesses tend to be more dependent than others on the business owner to achieve profitability.

This is a very important issue when trying to sell a business. A business that has robust systems and processes and that can easily be adopted by others is less likely to rely on a key person.

In addition, a business that has many customers versus a business that relies on a small number of key customers is likely to be considered less of a risk, as the loss of one key customer can have a big impact on the profitability of a business.

A business with a key supplier also has considerable risk as the business carries the risk of the supplier’s business including pricing, service, and delivery.

How much is your business worth?

For many business owners, their business is a major component of their overall personal wealth and in many cases will form a significant part of their retirement funds.

Succession PlanningJeff LongHLB Mann Judd Melbourne [email protected]

Continued on page 7

6 Issue #121 Spring 2015

One of the most important considerations when selling a business, and potentially one of the most costly, is the tax.

Tax considerations when selling a business

Peter BembrickHLB Mann Judd Sydney [email protected]

Careful planning is required to ensure up to half the business value is not lost in tax. But if planned correctly, there is every chance that a business can be sold tax-free.

There is no one-size-fits-all approach to business succession, and the best approach will depend on each individual’s particular situation. But there are some general questions to ask to help ensure the best outcome.

One of the most important things to keep in mind is how to make the most of the small business capital gains tax (CGT) concessions, as these can drastically reduce, or in some cases completely eliminate, the tax payable on a profit from selling a business.

Negotiating terms of saleIt is often more tax-effective for individuals or family trusts to sell their shares in an operating company than it is for the company to sell its business assets and then distribute the net proceeds out to the shareholders.

This might be easier when the succession involves selling to a senior employee already working in the business, but can also work for an outside purchaser.

Reviewing the structure For business owners looking at a possible exit in, say, five years or later, now is the time to review the business structure and consider any improvements that can realistically be made.

For example, many companies start out being owned directly by one or more individuals but it may be more flexible and tax-effective for the shares in the operating company to be held by a discretionary family trust.

Restructuring into a company owned by a family trust can be done using

the small business CGT exemptions and relevant stamp duty concessions (this will vary by State).

One trap that can affect the way the small business CGT concessions apply to a business sale include the mix of business assets versus non-business assets in a company or trust, as well as the existence of different classes of shares such as discretionary dividend access shares, non-voting shares or preference shares generally.

Where any of these exist, it is worth reviewing the opportunities for changing the arrangements before a business sale takes place, and whether this will improve the access to the small business CGT concessions.

Keep in mind that timing is a crucial consideration. It is important not to undertake restructuring arrangements too close to an external sale agreement, as the ATO has wide-ranging anti-avoidance powers and is becoming increasingly willing to use these powers when it sees an arrangement it doesn’t like.

Passing over control In some instances, it can be fairly straight-forward for a business to pass from one owner to another without too many problems for staff.

However, if the business owner has taken a very personal and hands-on approach to running the business, there may need to be a transition period that allows employees to get used to the new owners.

And if the business is family-owned, this will almost certainly need to be carefully managed.

The first step should be a careful review of the current structure, and consideration of the options available.

The advantage of passing control within the family is that it is easier to

ensure that it is done in the way that best suits the older generation as they exit the business, as well as those members of the next generation who will be taking over the business, and those siblings not involved.

Again the small business CGT concessions will be useful, especially if the older generation is aged over 55 and have access to a wider range of benefits.

The concessions can be used whether they are ready to retire and enjoy life outside the business, or where they are not yet ready to completely leave the business but are looking for a phased exit.

Other family business issuesThere are special tax rules applying to assets passing through someone’s will after their death, and this can be a tax effective option.

It’s a good idea, and can potentially save a lot of angst, if the family’s plans are reviewed while the parents are still alive to contribute to the process (and possibly keep the peace if there are tricky issues to navigate).

One of the biggest challenges can be ensuring that everyone is treated fairly, including those siblings not directly involved in the business.

Ideally, there will be enough wealth in the family, such as investment properties and share portfolios, to give them other assets of an equivalent value to the shares in the business. But not everyone is that lucky.

Even where this can be done, great care must be taken to manage the tax arising from asset transfers to ensure that when some family members pay more tax than others, everyone else shares the pain. ■


Whether planning to transfer a business to a family member, selling to a third party, or even just starting the process of working out how to exit the business, engaging experienced advisers will help maximise a business’s value and minimise the risks and uncertainty at every stage of the process.

Some business owners also think that they must be able to do a better job than an external adviser because they are the ones who knew the business inside out and therefore can do the best sales job.

But trying to do it yourself is almost always a false saving.

Specialist transaction advisers have experience in managing the process, minimising problems, and can help bring options and considerations to the table that would otherwise have been missed.

The role of a transaction adviser in advising on the strategy for the sale of the business and negotiating a deal can therefore be critical in ensuring the future value of the business.

Assessing current valueAs a first step, transaction advisers will assess the value of the business, taking into account the various structures that can be used to achieve the sale.

To determine the indicative selling price of the business, advisers will

consider its key value drivers and a combination of quantitative and qualitative factors.

Existing relationshipsAnother advantage of engaging experienced transaction advisers is the benefit of their extensive network of contacts and the relationships they can draw upon to identify potential buyers.

In many cases when a business owner wishes to exit, selling the business to a family member, business partner or employee is not possible.

Transaction advisers are experienced in identifying potential purchasers, have extensive networks and can introduce buyers to sellers.

International reach can add value, with overseas purchases being very active in recent times.

Ensuring confidentialityMaintaining confidentiality around the desire to exit the business, and throughout the sale process, is very important to most business owners.

Advisers can help ensure controls in place over who is aware of the proposed sale and who is provided access to confidential information.

Reduce distractionsOnce a business owner has decided to exit the business, it is important

that neither this decision, nor the sale process, distracts them from actually running it.

During due diligence, a transaction adviser will facilitate the process, managing requests for documents and further information, enabling the business owner to retain the focus on the business.

NegotiatingThe value of engaging a transaction advisor is particularly apparent during the negotiation and completion stages of the process.

An experienced adviser is able to maximise value at the negotiation stage in ways such as:

■ Improving the business owner’s negotiating position and minimising disruptions and surprises

■ Accelerating closing and facilitating a smooth transition

■ Working with management, if required, to accelerate the transaction value in the critical post-deal period.

To ensure the best chance of a successful exit from a business, professional advice should be sought early to ensure the structure of the business, and the transaction, is in the best possible position to maximise the value to the outgoing owner. ■

Selling a business not a 'DIY' job

It may be tempting to take the 'do it yourself' route, thinking that this will help save money but this is not the case when selling a business, says Simon James.

Simon JamesHLB Mann Judd Sydney [email protected]

Continued from page 5

Cash flowIf the business has a regular and dependable positive cash flow, the business’s value is likely to be enhanced.

For some businesses, establishing a regular and dependable positive cash flow involves putting in place effective business systems.

In any event, for all small businesses cash flow is of paramount importance. It is therefore an aspect of the

business that all business owners should strive to improve in order to increase the value of their business.

Financial recordsIt is important that businesses maintain reliable accounting records and can produce current financial accounts.

If it appears that a business’s accounting records are unreliable, or if the business cannot produce current financial accounts, any prospective purchaser is likely to discount the

value of the business because of uncertainty about its real profitability.

When planning for a sale, the business records should correlate with what would be required in a due diligence process to be conducted by any potential purchaser.

Business structureReviewing the business structure is important because the correct structure can directly increase the ‘after-tax’ value of the business. ■


Mann Judd

We have all heard the saying that you should not think of retirement as retiring from work, but rather as retiring to something better.

Succession planning – make it work for you

Colin EmmottHLB Mann Judd Perth [email protected]

For those approaching the retirement milestone, however, this may not be the case. Retirement may instead loom as a time of uncertainty and fear about what the future holds.

In particular, this may be the case with business owners where work is the lynchpin of their life and they have had little time or inclination to develop outside interests.

Statistics show that about 80 percent of business owners intend to retire in the next 10 years, yet nearly three quarters of them have no succession plan. The reasons often cited for this include:

■ A low level of trust in the abilities of the successors

■ Unwillingness to let go

■ Little interest from potential successors

■ The financial capacity to retire.

But it is often more than this. In many cases, those approaching retirement are concerned that their relevance in business, social and family circles will be diminished once they cease their working lives.

There are a few tips to bear in mind to help make this process easier.

Succession need not be retirementSuccession planning should not be about getting old, stepping down, being unable to contribute anymore, or any other thoughts along these lines. For those who have this view, it is unlikely the succession process will take place, as they will be reluctant to let go.

Rather, business owners should put in place plans that see succession as the evolution of the business, and a legacy that they leave for others to continue and build on.

Succession Planning Advice There is a wide range of succession planning issues that affect businesses and their owners in different ways, not all of which can be covered in a newsletter supplement.

Anyone considering selling a business should contact an HLB Mann Judd expert at their local office. Branch details are shown on page 12 of this Financial Times

Set goalsBusiness owners need to ensure that they have not only set the goals for the succession process, but also for life after they exit the business.

The business goals will guide everyone through the process.

Setting personal goals – such as travel, study, volunteer work, learning a sport or other hobby, for instance – will give the “retiring to” motivation.

Understand strengths and weaknessesEveryone has a different psychological make-up, particularly baby boomers and Gen Xs.

Business owners and founders are typically entrepreneurs who dislike repetition, rules and letting go.

Often they have a lack of interest in detail and therefore a formal succession process can be challenging, particularly when they have no vision about where their energies will be directed in the future.

The key to retiring successfully is ensuring a picture is created of the future and what can be achieved, so there is something to look forward to and to work towards.

Life after workAll too often, business owners work full time right up to their last day and

then wake up the next day wondering what they are going to do for the next twelve hours – and subsequent days, weeks and months.

Ensure that the succession is staged so there is time to become accustomed to the things that can be achieved in life after work.

Consider extended leave breaks or a shorter working week so that a pattern can be developed for the coming change in circumstances.

Don’t waste skillsJust because someone is no longer working in the business, doesn’t mean that their skills need to be lost.

Whether it is taking on board positions, charity work or similar activities, there are many opportunities to use hard-earned skills.

Keep calm don’t panicOften I hear clients say that they don’t want to retire “because they don’t know what they will do with themselves”.

But six to twelve months later, those same clients are saying that they don’t know how they ever found the time to work.

These clients are the ones that developed their bucket lists and outside interests, and planned for this next life phase. ■

Great people, great results

Mann Judd

9

Its reputation for a stable economy, strong regulatory environment, and innovation and success, means that Australia is seen as a reliable location to do business and a safe place in which to invest, as well as a strong performer in highly-respected industries such as education, healthcare and scientific endeavour.

There are good opportunities available to Australian businesses to take advantage of this interest.

In addition to the already significant utilisation of education, medical services, and tourism and hospitality, there are also many Asian investors looking to invest in good private businesses in Australia.

However, to take advantage of these opportunities, businesses need a strategy in place to ensure they are able to attract the right investors. In particular, they need to consider aspects such as how to manage the expectations of Asian investors, how they will communicate with them, and how to deal with some of the cultural or social differences that will come into play.

Some tips to consider include:

Investor managementInvestors from different countries are likely to have different expectations or ways of doing things compared to Australian investors.

For instance, they may express ideas or raise concerns in ways that business owners aren’t familiar with and who therefore may not interpret the situation correctly. Its a good idea to do some research first.

In addition, Asian businesses place more emphasis on relationships and networks compared to their Australian counterparts. Local businesses may need to work on developing their ‘soft

skills’ in order to deal effectively with Asian investors.

Use available resourcesFollowing on from the above point, organisations such as Austrade, or international chambers of commerce, have useful information for businesses dealing with overseas investors.

Taking full advantage of these resources can help iron out any potential problems before they become too big.

Consider communicationsThis covers both language issues (verbal or otherwise), and distance issues.

Having a reliable and experienced translator can be a good idea to ensure the success of any transaction or arrangement.

Even if both parties speak English, it could be worthwhile covering all bases by having an interpreter or qualified adviser on hand to ensure people are saying what they think they are saying.

Next, also consider how ongoing communications with overseas investors will be managed.

Is a regular video-conference adequate, or will face-to-face meetings be required several times a year? Are emails considered an acceptable communications channel or are more formal communiqués expected?

Assessing such issues before entering into any discussion with Asian investors will help make the process easier and make it more likely that a deal that benefits both parties can be reached. ■

Developing a business strategy to attract Asian investors

Australia is viewed as an attractive investment destination by many Asian investors says Kim Chew.

Kim ChewHLB Mann Judd Chew [email protected]

””

...Australia is seen as a reliable location to do business and a safe place in which to invest.....

Mann Judd


Employers of start-ups in particular have a big incentive for offering an employee share scheme.

For a small growing business, capital and cash are usually tight, so employee shares give employees an economic incentive to stay on board and share in the long term business success, but means the business doesn’t have to pay out precious cash to do it.

However, in the past, smaller businesses have found employee share scheme rules complicated and as changeable as the weather.

Many viewed them as the preserve of the multinational C-suite and their advisers.

The previous tax rules on employee shares meant most smaller businesses avoided employee share schemes because the tax payable defaulted to the time of issue.

Unless the employer was ASX-listed, this meant tax first, payout some time

later, maybe never.

Such schemes became very hard for employers to administer, with disclosures having to go to the employee and ATO every year.

Worst of all, employers had to value the business frequently, and to know what “discount” employees were getting, and being taxed on. Sometimes that meant getting complex valuations done every year.

The result of the new provisions is that start-up businesses can now create a complying scheme in a matter of minutes and have a cheaper and simpler way to do annual compliance as well.

There are now a series of ATO-approved, simple valuation methodologies that make it much easier to work out the market value of the business.

Employees using the startup concessions enjoy both a tax free component, plus a concessional CGT

treatment on their shares or options. The tax free part is 15 percent and approximately the same for options.

The CGT treatment means, thanks to the individual 50 percent discount, tax on the remainder is half the usual employee rate.

If the discount offered to employees is less than 15%, there may be nothing to report to the ATO anyway, making compliance much easier.

For the purposes of the scheme, a “start-up” is an Australian company that is less than 10 years old, turns over less than $50 million a year, and is not publicly listed.

For those employers who don’t meet those requirements the general rules continue to apply much as they had before. ■

Changes to employee share schemes benefit start-up businesses

The government recently unveiled its new ’start-up’ employee share scheme provisions, effective from 1 July 2015, which make available a massive tax saving to employees on shares or options, and a huge cash upside to growing businesses as well.

Jol DareHLB Mann Judd Sydney [email protected]

Super strategies for all ages

These will depend on age and include:

20 year oldsThose in their 20s should be seeking to maximise the long term growth potential of their superannuation by ensuring it is invested in growth or high-growth investment options.

This age group can afford to ride out short-term market volatility and take advantage of the upward trend of

markets over the longer term.

Another consideration is to avoid setting up new superannuation accounts when changing jobs.

People in their 20s are likely to have three or four different jobs, which can inadvertently result in them having three or four different superannuation accounts.

Keeping super in one place is simpler

and can make a significant difference to the final balance at retirement, minimising the level of fees.

30 year oldsPeople in their 30s should also be investing in growth or high-growth options as they too have time on their side to ride out market volatility.

In addition, this is an age where people may have a young family, so anyone with dependents should consider appropriate life insurance within superannuation, as this is tax-effective.

People should consider some simple strategies throughout their working life to help maximise their superannuation balance for when they retire.

Great people, great results

Mann Judd

11

Fifty per cent of business owners and managers will consider acquiring another business during 2016, with 14.7 per cent saying an acquisition is “likely”, according to the recent HLB Mann Judd Corporate Perspective survey.

A quarterly survey found that over 80 per cent of business owners were unlikely to sell their own business in 2016, a finding which indicates a favourable environment for the 20 per cent of business owners who did want to exit their business.

It means there is an opportunity for other business owners to review their exit and succession planning strategies to meet the market demand for good quality business acquisitions.

As outlined in the “Succession Planning” supplement in this issue of the Financial Times, preparing to sell a business, and ensuring its value is maximised, requires planning.

Business owners who think it likely they will want to sell their business at some point in the next decade should start taking steps now to ensure their business is ‘investor ready’.

Even if the intended sale is still some time off, it’s always useful to be prepared for opportunities that arise.

Business confidenceThe Corporate Perspectives survey also showed that business owners’ confidence in their ability to increase profitability in 2016 was mixed, with just over half of respondents saying they have “low confidence” of improved profitability during the year.

Of the remainder, 15.5 per cent are very confident, 17.9 per cent confident, and 15.6 per cent moderately confident.

In the current economic environment, businesses that are not confident of their ability to increase their profitability need to start focusing on improvements such as internal systems and processes.

They should put in place a detailed business plan and adopt a strategic view to drive business profitability.

AcquisitionsThere is no doubt that one successful strategy to increase the profitability of an existing business, if executed effectively, is acquiring another business.

While business owners shouldn’t pursue an acquisition just for the sake of growth, and must ensure it first meets their strategic objectives, it can be an efficient and effective way to expand.

However the success of an acquisition is reliant on the strategic fit of the target company to the ongoing business strategy, the quality of the due diligence completed, and the post-acquisition integration plans.

The acquisition and integration can quickly become costly to both businesses if the right plans and management are not in place.

The first 100 days following acquisition are crucial to the integration of the acquired business into an existing business.

Businesses need to pay attention to the observations and insights gained through the due diligence process and appoint specialist advisers to ensure a successful integration. ■

Business owners on the hunt for acquisition opportunities

Nicholas GuestHLB Mann Judd Sydney [email protected]

It may also be worthwhile looking at spousal contributions if one partner earns less than $13,800 a year.

40 year oldsThis age group should also ensure they have appropriate insurances in place to meet their family’s needs.

In addition, they may be in a position to consider strategies such as salary sacrifice to build up their superannuation balance.

People in their forties are usually reaching the peak of their earning capacity.

It’s therefore a good time to start thinking about using salary sacrifice

to boost concessional contributions up to the $30,000 annual limit.

As a rule of thumb, this is a worthwhile strategy if salary level is over $100,000 and the home mortgage is less than 50 percent of the property’s value.”

50 to 65 year oldsAt this age most people start to get serious about their superannuation, and as long as they have taken the right steps, they should be in a good position for retirement.

It is the time people should think about what kind of income level they want in retirement, and check whether

their superannuation is on track.

It’s also time to focus on maximising contributions, taking advantage of concessional contribution limits as much as possible. As these can’t be carried forward into future years, if they aren’t used they are lost.

Last but not least, from age 60 consider ‘transition to retirement’ strategies. This means transitioning super to pension phase, so that any income earned on superannuation assets is tax-free. The pension drawn is also tax-free after the age of 60 and can be re-contributed. ■

Jonathan Philpot

12

Mann Judd


For business owners, acquiring the business’s premises through their

self-managed superannuation fund can be a very useful strategy says Andrew Buchan.

Andrew BuchanHLB Mann Judd Brisbane [email protected]

The main benefit is the tax savings, as shown in the table below.

But how do you go about it?One option is to buy a suitable property that then will be rented out to the business. SMSFs are able to borrow on a ‘limited recourse’ basis which means the borrowing is tied only to the property itself and no other assets are exposed, so the risks are managed.

Another option is to transfer the ownership of the business premises from an existing arrangement to the SMSF. Again, the business then pays rent to the SMSF.

Usually, having an SMSF acquire assets from members, or related parties, is forbidden; however business real property is exempt.

For example, it can be done by way of in-specie contributions, using

either or both concessional or non-concessional superannuation contribution caps.

An in-specie contribution is the transfer of a non-cash asset. Using the current caps, a couple could potentially contribute up to $1,150,000 in business real property in a financial year.

There are a few limitations. The property in question cannot be subject to any borrowings and care should be taken to ensure clear title is transferred to the SMSF.

Also, keep in mind that a change in existing ownership of the property may result in a capital gains tax event for the current owner (subject to the small business CGT concessions) and other costs including transfer duty for the SMSF. ■

Disclaimer All material contained in this newsletter is written by way of general comment to clients of member firms of the HLB Mann Judd Australasian Association. No material should be accepted as authoritative advice and any reader wishing to act upon the material contained in this newsletter should first contact a member firm for properly considered professional advice which will take into account each client’s own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein. Liability of Australian firms is limited by schemes approved under Professional Standards Legislation.

ISSN 1037 -1915 © Copyright on all contents of this newsletter is held by the HLB Mann Judd Australasian Association. Articles may be reproduced only if acknowledgement to an HLB Mann Judd member firm is given.

HLB Mann Judd firms are members of International. A world-wide network of independent accounting firms and business advisers.

Printed on: Monza Recycled

The HLB Mann Judd Australasian Association comprises a number of independent accounting firms with offices in Australia and New Zealand.

Member FirmsAdelaideHLB Mann Judd Tel 61 8 8133 5000 Email [email protected]

AucklandHLB Mann Judd Tel 64 9 303 2243 Email [email protected]

AustralasianHLB Mann Judd Chew Tel 61 7 3001 8800 Email [email protected]

BrisbaneHLB Mann Judd Tel 61 7 3001 8800 Email [email protected]

Gold CoastHLB Mann Judd Tel 61 7 5574 0922 Email [email protected]

MelbourneHLB Mann Judd Tel 61 3 9606 3888 Email [email protected]

PerthHLB Mann Judd Tel 61 8 9227 7500 Email [email protected]

Business Recovery: Tel 61 8 9215 7900 Email [email protected]

SydneyHLB Mann Judd Tel 61 2 9020 4000 Email [email protected]

WollongongHLB Mann Judd Tel 61 2 4254 6500 Email [email protected]

Representative FirmsHobartLorkin Delpero Harris Tel 61 3 6224 4844 Email [email protected]

LismoreThomas Noble and Russell Tel 61 2 6621 8544 Email [email protected]

www.hlb.com.au

Acquiring business premises through superannuation

Income type Individual tax rate SMSF tax rate SMSF tax rate (accumulation phase) (retirement phase)

Income Marginal tax rate 15% 0% (i.e. up to 45%)

Capital gains (asset held Effective marginal tax Effective tax rate 10 % 0% for more than12 months) rate (i.e. up to 24.5%*)

* but reduced by small business CGT concessions

HLB Mann Judd Financial Times Spring 2015

Documents

Transcript of HLB Mann Judd Financial Times Spring 2015