overviewSummer 2016

INSIDE • Planning for the New Year • ATO Statistics on Small Business raise concern • Time is ticking for the (expanded) $20,000 immediate write-off • Binging on Christmas expenses • Possible Fix to Fundraising Legislation

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“Those who walked in darkness have seen a great light… for unto us a child is born. And the government shall be upon his shoulders, and his name shall be called,

Wonderful Counsellor, Mighty God, Everlasting Father, Prince of Peace.” - Isaiah 9.

accountants

Planning for the New Year

Although I am not one for New Year’s resolutions, it is a great opportunity to take time out and reflect on what you want your business to look like moving into the New Year.

The main business concerns of small to medium business owners are: 1. Cash flow2. Staffing issues3. Dealing with declining sales and profitability

Cash FlowFor many businesses cash flow can be a significant issue.

Virtually every decision in your business has a financial impact. The impact of these decisions are summarised in the financial statements of your business.

If a business is experiencing tight cash flow typically there can be a number of issues that need to be addressed. I am an advocate of rolling cash flow projections for businesses. Depending upon the business needs these may be done either monthly or quarterly. By proactively forecasting, the owner knows the cash flow requirements of the business up front and is able to deal with the issues before it impedes on the business.

Most small business owners are spending too much time working in the business on the everyday tasks, rather than working on the business – to improve the business operations or their strategic plan.

You will note another article in this publication on ATO Statistics on Small Business. In this article the ATO says the primary reason for small businesses failing is a result of them not seeking professional advice. Staffing IssuesStaff are probably the most critical asset for micro and small businesses. Typically they are the largest cost, particularly for service based businesses.

According to ABS data 70% of micro business and 48% of small business spend little to no time on key human resource measurers such as skills development, performance assessment or job satisfaction.

Personality profiling has a significant influence when employing staff. There are some free tools such as Myers & Briggs. However, I have not found these very useful. We now use a psychologist to conduct these assessments. Employing the wrong staff member typically costs the organisation 1.5 to 5 times their annual salary. Please free to call me if you would like further details on the tool we are now using.

Dealing with declining sales and profitabilityAround half of business owners reflect a high level of concern about declining sales and profits.

Most business owners are optimistic about opportunities to develop and grow their business. However, very few are actively pursuing those activities.

According to research only 23% of businesses have a strategic plan. Research has proven that having a written strategic plan significantly increases the chance of your business succeeding.

From my personal experience business is tough. As a business owner you want the odds stacked in your favour!There are some aspects to strategic plan’s that do not change over time. For example mission, vision and core values. There are other aspects to the strategic plan that do change and these need to be revised on a regular basis.

As a child I wanted to be an astronaut. One interesting statistic I recall was when the Lunar Module Spacecraft was going to the moon it was only on track 3% of the time. Business owners also need to be monitoring, tracking and changing various business drivers so they meet their overall strategic plan.

Nigel Mason

General Manager

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Uber, Airbnb and the ATO - What you need to knowATO Statistics on Small Business raise concernRecent ATO statistics on Australian small business (defined by the ATO as a business with less than $2m in turnover) have focussed attention on the importance of the sector to the Australian Economy, and the precariousness of some of its players. Consider the following:

• There are more than 2 million small businesses in Australia;

• 96% of Australian businesses are small businesses, producing over $330 billion of our nation’s economic output;

• Small businesses employ 4.5 million people; almost half of the labour force;

• In the 2014/15 year, there were 20,018 businesses in Australia which became insolvent. Key reasons for insolvency included:

- Inadequate cash flow or high cash use (18%);

- Poor strategic management (18%); and

- Trading losses (13%)

- 65% of small businesses have reported that managing cash flow is a significant concern for their business;

The ATO has found that the majority of small business either don’t seek advice at all, or seek advice only from informal sources, when starting their business. While small business is clearly a key component of our economy, the tendency to avoid seeking professional advice is regarded by the ATO as a primary reason for a number of small businesses failing to meet their financial commitments, including tax and superannuation obligations. Talking to your RDL accountant about your business is a smart way to proceed, and could well avoid your business ultimately becoming part of the insolvency statistics.

Time is ticking for the (expanded) $20,000 immediate write-offThe $20,000 immediate write off was introduced in the May 2015 budget, to give “small” businesses an immediate tax deduction on the purchase of most assets (eg cars, equipment, etc) where the cost of each item is below the $20,000 threshold. The concession has had a good run and is due to finish on 30th June 2017, so small businesses have a window of opportunity before then to purchase assets and claim an immediate tax deduction.

Unlike previous concessions, this claim is available on the purchase of both new and used assets, and there is no limit to the number of individual purchases. GST registered businesses can use the GST exclusive price when assessing if a purchase qualifies for the claim.

This concession has only been available to “small businesses” which until 30th June 2016 meant businesses with a turnover under $2m. However, the announcement in the 2016 Federal Budget to expand the definition of a small business to businesses with a turnover under $10m has significantly broadened the scope for larger businesses to take advantage of this concession, albeit in the short run to 30th June 2017. At the time of writing, this budget announcement has yet to become law, so we need to wait for this to occur. If it does become law, it will give those businesses that have in the past missed-out, an opportunity to lock-in a good tax claim on capital purchases this tax year.

Talk to your RDL advisor about how you can benefit from this concession.

Joel Hernandez

Joel is Director and specialises in Taxation and Business Services

accountants

It’s easy to spend too much at Christmas time. Remember, however, that if you are splurging on clients, the expense has to be related to how your business generates income, for it to be a legitimate business expense and therefore tax deductible. Excessive expenses may draw the attention of the regulators and the deduction denied, so be ready to justify your Christmas spending spree.

One area to watch is entertainment (food, drinks, sports tickets, theatre etc.,). If you are hosting client functions, inviting them to lunch, or to your Christmas party, these entertainment costs are not deductible.

For staff, if you really want to avoid tax on your work Christmas party then host it in the office on a work day - that way, it’s likely to be exempt from Fringe Benefits Tax (FBT) regardless of what you spend per person.

However, if that is likely to earn you the title of “Scrooge”, and you decide to host a work Christmas party outside of the office, keep expenses under $300 (GST incl.) per employee to stay under the FBT minor benefit exemption threshold. Note that post Christmas party taxi travel expenses, and the cost of the Christmas party itself (including meals, drinks and entertainment etc.) will all be exempt from FBT as long as the cost is kept below $300 per employee. While this saves FBT it means that employers cannot then claim a tax deduction for the Christmas expenses or claim GST credits.

Binging on Christmas expenses

Christmas gifts for the team should also be kept to under $300 (GST incl.) to ensure they do not incur FBT. Employers can claim a deduction for ad hoc Christmas gifts as long as they do not relate to entertainment.

RDL Christmas Hours The directors and staff would like to take this oppor-tunity to wish our readers a very enjoyable Christmas

time and a safe and prosperous 2017.

Our office will be closed from 12:30pm on Friday 23rd December

and will reopen on Tuesday 3rd January 2017.

Possible Fix to Fundraising LegislationState/Territory based fundraising legislation has long been a significant headache for organisations raising funds for charitable purposes. A Deloitte Access Economics report commissioned by the ACNC into Cutting Red Tape released in February this year estimated that Fundraising Legislation costs charities $15.1 million a year.

According to the same report there are approximately 16,000 fundraising licenses or registrations in Australia. Interestingly though, there are more than 54,000 charities and multiple other non-charitable fundraisers. Even taking into account exemptions, the relatively low number of fundraising licences seems to indicate a high rate of non-compliance, especially given that one organisation could hold multiple licences.

The Deloitte Access Economics finding is consistent with our own experience, where many organisations we deal with have chosen to remain unregistered. Some have registered in Victoria only. There can be quite a disconnect between reporting expectation and reality so unfortunately that experience has strongly discouraged them from registering elsewhere.

Harmonisation of fundraising legislation has been formerly recommended many times over the years. It was one of the key recommendations of a 2010 Productivity Commission report and the subject of a discussion paper released by Treasury in early 2012.

The most recent development is a joint submission to the Australian Consumer Law Review by a number of professional and peak bodies which proposes:

• Minor amendments to Australian Consumer Law so that it clearly applies to fundraising activities;

• Repeal of individual State and Territory fundraising laws; and

• Regulators and self-regulatory bodies to provide guidance to fundraisers to continue to improve fundraiser conduct.

See https://www.justiceconnect.org.au/fundraisingreform for more details.

Justice Connect is a community organisation which helps disadvantaged people obtain legal representation, and engages with government on improving unfair or complex laws. It is taking up this issue with lawmakers. If this is the type of reform that you would like to support, consider joining the

Justice Connect #fixfundraising campaign.

Claire Harris

Claire is Senior Manager and a Not-For-Profit Specialist

financial planning

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.

Fraser Holt Authorised Representative No. 231442 of Magnitude Group Pty Ltd ABN 54 086 266 202

AFSL No. 221557

financial planning

financial planning

The asset test changes that come in on 1 January 2017 will result in many people seeing a significant reduction in their Age Pension payment.

The age pension is calculated based on the harsher of an assets and income test. Most age pensioners, are assets tested, however especially if you are still working, or receive a Defined Benefit Pension, the income test may apply.

Some people will see an increase in their Age Pension. For those couples that own their own home, with assets below $453,500, they could see a modest rise in their Age Pension. (For the purpose of this article, “assets” means all assets other than the family home).

However, for those (couple, homeowner) with assets greater than $453,500, they will see a reduction in Age Pension. For those in this category with assets above $816,000, they will lose the Age Pension altogether. Up until 31 December 2016, a home owner couple with assets below $1,178,500, and assessed under the assets test, are entitled to some Age Pension.

These changes present some interesting outcomes.

For example, if you are a home owner couple, subject to the assets test, and have assets of $816,000, you would presently be entitled to an Age Pension of $14,122 per annum.

As from 1 January 2017, this will reduce to nil.

Let’s assume that your investment of $816,000 is presently held in an Account Based Pension and you are drawing an income stream of 5% of the account balance. Your income would amount to $40,800 per annum as a couple. This was previously $54,922, and with the loss of age pension, is reduced by $14,122pa.

Now compare with a couple/home owner that has $400,000 assets that is all held in an Account Based Pension. The couple draw 5% of the account balance being $20,000 per annum and this is supplemented with the Age Pension of $32,432 per annum. The total income for this couple is $52,432 per annum.

So the couple/homeowner with assets of $816,000 has an income of $40,800 per annum while the couple with assets of $400,000 has a total income of $52,432 per annum.

For those that lose some or all of their age pension, what can be done? We do not suggest that you spend up on a big holiday, or go out and do a home renovation, just for the purpose of increasing age pension. However it may help to seek professional advice. Many people’s financial affairs are more complex than the scenarios presented, so advice directed to your specific circumstances is most important.

Asset Test Anomalies

financial planning“The world is moving so fast these days that

the person who says it can’t be done is generally interrupted by someone doing it”

Harry Emerson Fosdick

SOMETHING TO THINK ABOUT

It will mean that someone who, for example, does not fully use their concessional cap for some years, but has a large capital gain from the sale of a property, will be able to put some of that gain into super to reduce their tax in a year when the capital gain takes them to a higher tax bracket.

Conclusion

Unfortunately the new rules are complex, and there is still significant guidance to come from the government and the ATO, before firm recommendations can be made to clients on specific action required before 1st July 2017. The new year will undoubtedly bring further clarification, at which time we plan to run client briefings to inform our clients of the impending changes and their practical impact.

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs. No representation is given, warranty made or responsibility taken about the accuracy, timeliness or completeness of information sourced from third parties. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.

Roslyn Schnerring Authorised Representative 232164 of Magnitude Group Pty Ltd ABN 54 086 266 202

AFSL No. 221557

Roslyn Schnerring wins top prizeRDL financial planning clients will be pleased to read that our own Roslyn Schnerring was recently honoured by the industry’s peak professional development body for achieving the highest overall result for 2016. This is a tremendous achievement and places her ahead of her peers in both technical knowledge and its practical application. In an environment of constant change and complex regulation, RDL clients are well served by Roslyn’s ability to apply her expertise to achieve great outcomes for clients. Well done Roslyn.

financial planning

financial planning

not having to pay tax on the earnings that are credited to the member’s pension account. This has been used for some time to save tax in super, and build up the member’s account. When the tax exemption is removed, earnings will revert to being taxed at 15%, and it is likely that such TRIS arrangements will stop.

Carrying forward unused concessional contributions

This is a welcome concession that will apply where a member’s superannuation balance is less than $500,000, and will mean that from 1st July 2018 they will be able to make additional (carry forward) concessional contributions where they have not fully utilised their concessional contributions cap in previous years.

The following example from Treasury illustrates how this measure will work:

Cassandra has a superannuation balance of $200,000 but did not make any concessional superannuation contributions in 2018–19 as she took time off work to care for her child. In 2019–20 she has the ability to contribute $50,000 in concessional (before-tax) contributions into superannuation ($25,000 under the annual concessional cap and $25,000 from her unused 2018–19 concessional cap which she can carry forward).

http://www.treasury.gov.au/Policy-Topics/SuperannuationAndRetirement/Superannuation-Reforms

Reduction in concessional contributions

The concessional contributions cap will be reduced to $25,000 from 1st July 2017. The cap will be indexed in line with wages growth in $2,500 increments. The caps will no longer be based on age.

Claiming a tax deduction on super contributions

From 1st July 2017, it will be easier for employed individuals aged under 75 to claim a tax deduction for personal superannuation contributions. The current system requires that individuals pass the “10% test” (ie less than 10% of their adjusted income for the year relates to employment activities) in order to claim a deduction for personal superannuation contributions. This change removes an unnecessary complication and will allow part-time workers, in particular, to contribute to superannuation through personal contributions rather than via salary sacrificed arrangements.

Removal of the tax exemption on earnings from a transition to retirement pension

The tax exemption on the earnings from assets supporting Transition to Retirement Income Streams (TRIS) will be removed from 1st July 2017. Currently members aged at least 56 and under 65 who are still in the workforce can access part of their superannuation account by taking a pension. This results in the fund

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Super changes now lawIn the May 2016 Budget, the Federal Treasurer announced a series of substantial changes to superannuation. This was followed by a Federal Election, as well as significant public debate and negotiation with the minor parties. Finally in late November, the Senate passed a series of broad ranging superannuation reforms.

Below is a summary of the reforms, most of which will start from 1st July 2017:

$1.6m personal cap on superannuation in retirement phase

From 1st July 2017 there will be a cap of $1.6m on the amount that can be held in a tax-free pension account within super. As a result, funds will be required to pay tax at 15% on earnings from that part of the member’s balance that exceeds $1.6m; such amounts are currently tax free. On 1st July 2017, members with over $1.6m of super will have the option to take the excess out of super, but it is unlikely that many will do this, as it will generally be better to pay a flat 15% tax on investment earnings in super than personal tax. In any case, the chances of being able to return the money to super are going to be slim, so get advice before you act. One thing that remains unchanged is that super pension drawdowns will continue to be tax free from age 60.

$1.6m lifetime limit on non-concessional contributions

A $1.6m lifetime non-concessional (non tax deductible) contributions cap will apply from 1st July 2017. This essentially means that where the total of a member’s super from all sources exceeds $1.6m as at 30th June of the previous year, that member will no longer be eligible to make further non-concessional contributions. This change highlights the opportunity for members who currently have balances close to, or in excess of $1.6m to consider making a non-concessional contribution prior to 30th June 2017, as it could be their last chance.

Reduction in non-concessional contributions

The current annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3 years for individuals aged under 65 using the ‘bring forward’ rule) will be reduced to $100,000 (or $300,000 every three years for individuals aged under 65) from 1st July 2017.

An opportunity exists for clients aged under 65 to trigger the ‘bring forward’ rule and utilise the full 3 year amount of $540,000 in the current financial year, and forego non-concessional contributions during the 2018 and 2019 years.

financial planning

financial planning

The closely watched ISM index – a measure of the strength of the US manufacturing sector – also pointed to further improvement, following a lull earlier in the year. The index increased to 51.9 in October from 51.5 a month earlier. A reading above 50 suggests the manufacturing sector is expanding. The related measure for the non-manufacturing sector fell to 54.8 from 57.1 a month earlier.

In contrast, consumer confidence has faltered. The two main measures - the Michigan University survey of consumer confidence and the Conference Board Consumer Confidence index both tumbled in October to the lowest levels since September 2015. It should be noted that, despite the drop, sentiment remains slightly better than the long term average. Election uncertainty has likely played a part in denting confidence. As a result, it will be important to monitor upcoming readings for the post-election impact.

Another US Fed rate hike has been talked about, not least by the Fed, since the first increase in December 2015. US and global growth concerns often triggered by geopolitical events such as Brexit stayed the Fed’s hand through most of 2016. Trump’s victory was initially seen as another limiting factor, but the Fed futures market is now predicting a greater than 75% chance of an increase at the December meeting.

In Australia, the National Accounts released in September showed the economy grew 0.5% in the June quarter to be 3.3% above year ago levels. Private investment remains

weak but consumption spending and exports supported the economy. The RBA has increasingly made clear that rate cuts in May and August this year were not prompted by concerns around growth, but rather reflected low inflation and a desire to ensure inflation expectations did not become too negative. There are few signs inflation pressures are substantially increasing in Australia with the headline and underlying inflation figures still below the RBA’s 2–3% target range. The next official inflation reading will be available on 25 January 2017.

As in the US, other economic data remains mixed. While consumption provided a strong contribution to June quarter growth, more recent data has been less positive suggesting retail sales increases were largely due to price increases rather than increased sales volumes. Nevertheless, the unemployment rate continues to slowly trend lower reaching 5.6% in September compared to 5.7% a month earlier and 5.9% a year ago.

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And what is good for the US sharemarket is generally good for the Australian sharemarket as our market tends to take its lead from the US market. And infrastructure spending is generally positive for commodities which in turn is good for Australian shares (particularly miners) and our terms of trade.

However, Trump’s policies tend to be more insular, nationalistic and populist – much like the increasing global political mood that produced Brexit and the rise in populist parties around the world, including Australia. This mood is generally not conducive to global stability. Talks of tariffs and watering down trade agreements could hurt Chinese exports and lead to retaliatory trade policies – neither of which is good for Australia which may end up caught in the crossfire.

Trump’s focus on growth is also likely to increase inf lation which may be bad news for bond markets but good news for term deposit investors.

So what should investors do now? In short, resist the temptation to react to any panic in the markets. Panic selling in market busts and panic buying in boom times are two of the greatest destroyers of long-term wealth. Your best defence is to have very clear long-term goals with an investment portfolio that is well diversified across different types of assets and aligned to your attitude to risk.

Economic outlook - Whats’s in store?

Economic data has taken a back seat in recent weeks as the US presidential race and the eventual election of Trump has dominated attention. Now that the election is out of the way, focus is likely to return to economic statistics to inform investment decisions including likely central bank decisions. The US Federal Reserve (the Fed) is due to meet on December 13–14 while the Reserve Bank of Australia (RBA) meets in early December.

US economic data has recently presented an economy where positive developments in some areas have been offset by weakness in other areas. This has seen overall growth struggle to break higher, but the risk of recession has been held at bay. The labour market has been the most consistent area of strength but even it has suffered its share of setbacks. Nevertheless, most recently the news has been positive. Non-farm payrolls increased by 161,000 in October with the unemployment rate at 4.9%, slightly below the rate seen a year earlier.

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financial planning

The Trump Presidency – what it means for you

Sharemarkets rebounded, oil recovered losses and gold retreated. And in the following days, share and commodity markets surged as hopes of Trump-led economic growth gained currency. Gold recorded its worst week in three years, falling 6.1%.

Donald Trump’s victory may have been a surprise for some, but the ensuing rise in markets caught almost everyone off guard. Most market commentators had forecast short term panic; one predicting sharemarket falls of between 5 and 10 percent, a plummeting Australian dollar and surge in the gold price. Like so many others before them, these predictions did not come to fruition.

So what are the likely medium to long term implications of Trump’s victory for Australian investors? In short, the answer is uncertain. And in general, markets do not like uncertainty. Will Trump

the President retain the more contentious policies of Trump the Election Campaigner? Will the Republican Congress allow these policies to become law? How will the world, particularly China, respond to Trump?

It will be some time before we know the answers to these questions. But early signs are far from the doom and gloom predicted.

There is a widespread perception that Trump’s policies are good for growth. His policies include lowering corporate and personal taxes and increasing spending on infrastructure. These types of policies are generally stimulatory for the economy and good for sharemarkets. So while Trump’s aggressive election rhetoric was largely destabilising on market confidence, his policies may end up building confidence in markets and creating more certainty.

When news of Donald Trump’s impending election victory started filtering through in the afternoon of 9 November 2016, markets were thrown into turmoil. The Australian sharemarket lost almost 5% in the space of a few hours, the US sharemarket pointed down 5%, oil plummeted and gold shot up. However within 12 hours, calm had been restored.

CONTACT DETAILS60-64 Railway Road, Blackburn 3130PO Box 189, Blackburn 3130t: (03) 9878 1477f: (03) 9894 1798contact@rdlaccountants.com.aurdlaccountants.com.au

InsightsSUMMER 2016

INSIDE...

• The Trump Presidency - what it means for you

• Economic outlook

• Super changes now law

• Asset Test Anomalies

Merry Christmas