Kick Start your 2021 Financial Year - Nexia
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Kick Start your 2021 Financial Year 21 July 2020
Transcript of Kick Start your 2021 Financial Year - Nexia
Kick Start your 2021 Financial Year
21 July 2020
Presenters
Raoul StevensonSenior Manager, Business Advisory
Adelaide Office
Ian StoneDirector, Business Advisory
Sydney Office
David MontaniNational Tax Director
Nexia Australia
Introduction
Difficult and challenging period
Particularly affected industries:
Hospitality
Tourism
Retail
Wine industry embodies all of the above
Unique issues
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Today’s session
Forward Tax Planning – Right Through to Business Sale
The New Normal
Wine Industry Matters
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Forward Tax Planning
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Company tax rate
From 1 July 2020
Base Rate Entity:
Group-wide turnover <$50m; and
Maximum 80% passive income
Dividend franking rate determined separately
Be wary of franking credit wastage; over-taxation
26%
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Closing stock value
Assessable income Directly impacts taxable income
Choice: Cost
Market selling value
Replacement value
Item-by-item basis
Lower? Or higher? Reduced profit for 2020?
Loss?
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Superannuation for employees
9.5% of OTE
Due 28th day after each quarter
eg, June 2020 quarter due 28 July 2020
Allow additional time if using a Clearing House
If miss 28th deadline – do not subsequently pay SG to super fund
Lodge SG statement, pay SG charge
Within one month of 28th
Deadline
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Superannuation for employees
Unpaid super for 1 July 1992 to 31 March 2018
7 September 2020 deadline
Tax deductible; no penalties
If decline to take up amnesty:
Non-deductible
100% penalty
$20 per-employee, per-quarter administrative penalty
Amnesty
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Bad debts
Accruals basis (not cash)
Attempts to recover
Considered non-recoverable?
Deductible when write off in debtors ledger/records
1/11th downward GST adjustment
Available once 12 months overdue (even if haven’t written off)
Deduction: 10/11th, GST adjustment: 1/11th
Deduction
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Instant asset write-off
Increased from $30k to $150k, 12 March to 31 December 2020
Cost, net of GST credit, must be less than $150,000
Group-wide turnover <$500 million (up from $50m)
New or second-hand, internally constructed
Installed, ready for use by 31 December 2020
Car limit: $57,581
From 1 January 2021, reverts to: Small Business Entities only: <$10m group-wide turnover Must be using pooling <$1,000
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Accelerated depreciation
New depreciable assets only
Group-wide turnover <$500 million
Used/installed between 12 March and 30 June 2021
50% up-front deduction for asset’s cost
Remainder depreciated in usual manner
No limit on asset cost
Except car limit: $57,581
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Concessions for small business entities
$150k instant asset write-off
Depreciation pooling
Immediate deduction for start-up costs
Deduction for certain prepaid expenses
Simplified trading stock rules
Simplified PAYG tax instalment rules
Cash basis for GST, ATO-calculated GST instalments
FBT exemption for car parking, multiple devices
Capital gains tax roll-over
Group-wide turnover <$10 million
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Business exit concessions
Conditions
Just before sale
Period of time
Integrity rules
Think about this: $4 million x 47% = $1.88 million
Tax impost: between 0% and 47%
You keep at least53%
Up for grabs:47%
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Business Horizon Review
Identify currently present concession disqualifiers. eg:
Legal/equity structure
50% discount
Small business relief
Pre-CGT
Asset protection
Non-deal asset extractions
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Ideal timing
Tax advice – before sale/transaction
Groom business for sale – 2 years minimum
Business Horizon Review – anytime
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The New Normal –2021 and Beyond
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Now is the time to reset your Business.
Strategy
a. Objective, Why do you exist? What is your Purpose?
b. Value Proposition – What set’s you apart?
c. What is your target Customer?
d. How do you measure success? Operating Metrics and Finance metrics
Business Plan
a. Analysis – Competition, Industry, Market, SWOT
b. Finance
c. Marketing
d. Operations
e. Exit / Succession
Business Plan
Finance
• Review Operating Structure -risk
• Cash flow forecasts - Cash in not King it is Oxygen
• Budgets
• Review Pricing
• Review Banking Facilities / Working Capital Capacity
• Taxation Obligations
• Insurance review – bush fires ??
Marketing
• Review – what has gone well, what can we stop
• Distribution Model
• Mailing lists
• Web site
• Everyone in your team represents your Brand
Business Plan (continued.)
Operations
• Staff Engagement – how do you rate, do they know their role in the businesses success
• Health and Safety
• Employment Agreements
• Training
• Material Supplies / Grapes – plan B
• Machinery Maintenance and upgrade
• Disaster and Contingency Plan
Exit / Succession Plan
• Time Frame
• Sale - Business /Land
• Next Generation
Monitoring Your Performance
Traffic Light System
Has not commenced or
Not achieved
Progressing/Changes Required
Completed
Simple template for monitoring your Business Plan
Business Plan Monitoring
Item Finance Date Due Progress Notes
1 Review previous years performance 31-Jul Started - waiting on final creditors position
2 Review Structure 15-Jul Completed No Change required
3 Review Insurance Cover with Broker 31-Oct Meeting with Broker on 30 September
Understanding your Risk
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Entered Event Probability Impact Score Mitigating Action/ ControlsResidual Risk
1 1-Jul-20COVID -19 positive infection at our Winery 4 5 20Tempertaure test all Visitors and staff 18
COVID Plan in place
Cleaning arranged
Seperation of stock, rotation of staff
2 1-Jul-20Cash flow shortage 4 1 4Have 6 months cash flow available - but will continue to monitor 4
3 1-Jul-20Web site Security - Cyber attack 3 5 15Hosted by external party 5
Security tested every 6 months
Back up available within 24 hrs
Risk Register Framework
Banking Issues
• Facility Review dates / Loan Terms
• Banks are looking for more regular and timely information
• Bank Covenants
• Lag time before any decisions are made - allow 2 months
• Deferred Payments
Building working capital and additional capacity
• Normal Ratio is Current Assets / Current Liabilities 1 to 2 is good however if you cannot sell your stock?
• How many months cash or cash and stock which can be sold do you need? 3 – 6 months
• Cash Flow modeling - sensitivity , different scenarios
• Fixed Costs vs Variable Costs
• Contingency Costs
Building Capacity
• Converting short term debt to long term
• Extending Trading terms with Suppliers
• Debtors – personal approach
• Reduce discretionary spending
• Address slow moving stock quickly
Government SME Guarantee Scheme
Government Guarantee 50% of new loans
Turnovers up to $50m
Maximum loan originally $250k now $1m
Working capital or Investment
Loans up to 3 years and now 5 years – 6 monthly repayment holiday
Unsecured Finance
Other Tax Matters
Job Keeper
• Ongoing reporting requirements –you must still pay $1500 p/f for each eligible employee
• You can still apply
• It is assessable income when received
Cash Flow Booster
• Not assessable
• Need to lodge your activity statement
• The amounts will be equal to the total amount of initial cash flow boosts received and split evenly over the lodgements for the periods June 2020 to September 2020.
• If you lodge:• quarterly – you will receive 50% of
your total initial cash flow boosts for each activity statement
• monthly – you will receive 25% of your total initial cash flow boosts for each activity statement.
Wine Industry Matters
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Producer Rebate
For eligible wine producers
Credit of the WET amount they have paid on a dealing with wine, or the amount of WET they would have paid on the dealing had the buyer not quoted
Rebate capped at $350,000 ($1,206,897 sales) from 1 July 2018
Assessable rebate
Attached to amount of WET that would have been paid.
Consider impact of changes in sales channels - wholesale v retail v export
Eligibility Criteria
From 1 July 2018 onwards, to qualify for WET rebates on assessable dealings in wine, a producer will need to satisfy the:
85% ownership of source product requirement
Packaging requirement
WET payment requirement
A producer is an entity that:
Manufactures wine, or
Supplies source product to another entity for that other entity to manufacture wine on its behalf
Still qualify as a producer if wine produced by contracted winemaker
85% Ownership Requirement
A producer will satisfy the 85% ownership requirement, for a parcel of wine, if:
At least 85% of that wine by volume in its final form, packaged for retail sale, was produced from source product owned by the producer before the winemaking process commenced, and
The producer maintained ownership of that source product and the resultant wine throughout the winemaking process
Producers need to keep evidence of ownership of the source products
Potential consequences for blending and pooling
Restructure warning Change in operating entity and owner of stock
Rebate at risk
Source Product
The source product for wine is whole unprocessed grapes
The grapes must be fresh
Dry grapes or grape juice will not satisfy as source product
Deemed Source Products Grape juice concentrate – providing =/<10% of final wine Water – no volume Other Substances – but only if a substance makes up =/< 1% of final wine Fortifying Substances – grape spirit & brandy
Where the allowable amount of a deemed product is exceeded, the entire amount will be a substance other than source product when determining whether 85% rule is satisfied
Issues with blending and pooling
Source Product
Must own all of the source product necessary to meet the 85% ownership requirement:
Before crushing & maintain ownership throughout wine-making process
Ownership = good title to source product
Need evidence of ownership
Grape purchase invoices
Weighbridge records
Production records
Grape supply contracts
Packaging Requirement
To satisfy the packaging requirement, wine must be:
Packaged in a container not exceeding 5 litres, suitable for retail sale
Branded with:
A registered trade mark
A trade mark for which registration is pending, or
A trade mark that has been used in the course of trade from 1 July 2015 to the time of an assessable dealing in the wine
The trade mark must be owned by the producer or an associate
WET Payment Requirement
Producer only able to claim WET rebate on a parcel of wine if:
They are liable for WET on a taxable dealing with that wine, or
The purchaser of that wine issues a quote to the producer stating that they intend to make a taxable dealing with that wine
WET rebate must correspond with WET liability so no net outflow of funds from WET system
Prevents WET rebates claimed on a parcel of wine exceeding the WET paid on that wine, as can be the case previously with certain blending arrangements
2018 and Earlier Vintages
New WET rebate eligibility criteria generally apply from 1 July 2018 onwards
2018 and earlier vintages subject to the transitional provisions
2018 vintage – new eligibility criteria will apply if the crushing of more than 50% of those products occurs on or after 1 Jan 2018
2017 and earlier vintages – 85% ownership requirement will not apply if: The crushing of grapes for more than 50% of the wine occurred before 1 Jan
2018
The producer of the wine owned it immediately before 1 Jan 2018
The wine was bottled on or before 30 June 2018, or labelled with a vintage date as being 2017 or an earlier year, and
The assessable dealing (usually sale) occurs on or before 30 June 2023
Quoting
Buyer quotes ABN to seller in approved form – transaction become exempt from WET
Producers only able to claim WET rebate on sales made ‘under quote’ indicating that the purchaser intends to make a taxable dealing with the wine
Once WET is paid on wine, it can no longer be sold under quote
Quotes required to indicate if purchaser intends to: Make a GST-free supply of the wine
Sell the wine under quote (by making another wholesale sale of the wine)
Use the wine as an input in the manufacture of further wine or wine product
If purchaser quotes, absolutely liable to remit WET on that wine – no exemption of exclusion
Purchase liable for WET even if they make a GST-free supply for the wine, sell the wine under quote or use the win as an input in manufacture
Common Errors
Incorrect WET liability corresponding with incorrect WET claim (sale treated incorrectly)
Insufficient paperwork to support ownership requirement
Claiming rebate on transactions not giving rise to WET liability (egexport)
Ignoring of associate rules
Not reporting rebate as assessable income
Grants for Wine Industry
Wine Tourism and Cellar Door Grant (round 2 applications open shortly)
Export Market Development Grants (EMDG)
National
Grants for Wine Industry
Small Business Support Grant – Bushfires (applications close 30 Sep 2020)
Small Business Bushfire Recovery Grant
PIRSA Financial Support after Bushfire
Smoke Taint Grants
Export Accelerator Grant
South Australia
Grants for Wine Industry
Small Business Support Grant - Bushfires
Small Business Recovery Grant – COVID19
Small Business Recovery Grant - Bushfires
Primary Producers Special Disaster Grant – Bushfires (Low interest loans are also available)
Bushfire Supply Chain Support Grant (closed 12 June 2020)
Smoke Taint Grants
New South Wales
Grant for Wine Industry
International Competitiveness Co-investment Fund
Western Australia
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Conclusion
Wine industry issues, opportunities
Grants
Forward planning, manage outcomes
New normal
Nexia expertise
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Nexia Australia Wine Industry Specialists
Adelaide
Raoul Stevenson [email protected]
Grantley Stevens [email protected]
Robert Prime [email protected]
Brisbane
Sarah Richmond [email protected]
Shaye Eyre [email protected]
Canberra
Mark O’Shaughnessy [email protected]
Melbourne
Perth
Dean Birch [email protected]
Sydney
Ian Stone [email protected]
Adam Boles [email protected]
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Please let us know what you think of this session
Important Disclaimer
The material contained in this presentation is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this presentation without taking appropriate professional advice which relates specifically to their particular circumstances. The publishers, authors, consultants, editors and presenters expressly disclaim all and any liability to any person who acts or fails to act as a consequence of reliance upon the whole or any part of this presentation.
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Thank you
If you would like to discuss anything further, please do not hesitate to contact us.
