A common question we get asked by new businesses is why they don’t receive a tax refund from the ATO when their company made a loss. This often occurs in the first 6 – 12 months of trading when business owners invest heavily in their business getting it off the ground and don’t make money in the first year of trading.
The reason a company won’t receive a tax refund is that they haven’t paid any tax so as the name suggests, there is no tax to refund. So, if companies don’t receive a tax refund when they make a loss, the next question is whether the losses in the company are wasted? And the answer is No! Continue reading “Tax Tip Tuesday: Company losses, do I get a tax refund?”
In this Tax Tip Tuesday, we look at a question that business owners ask when making profits. How do I pay myself dividends?
This is part of our three part series on how do I take money out of my company?
Pay myself dividends?
A dividend is effectively a distribution of profits from the company to its shareholders. It is paid in accordance with the company’s shareholding. What this means is that if you and a friend each own 50% of the company, then the dividend should be paid out in that proportion.
One of the great things about the tax system in Australia is that when a company pays tax on its profits and they are distributed to shareholders as dividends, the shareholders can receive a credit for this tax already paid. The payment of these profits with tax credits is called a franked dividend. Continue reading “Tax Tip Tuesday: How do I pay myself dividends?”
Changes to small business tax concessions are now in place with the Mineral Resources Rent Tax being abolished this week. And the Australian Financial Review interviewed the ATO as to what these changes mean for small businesses around Australia.
So what are the things you should be aware when considering these small business tax changes:
- The instant tax write-off of assets under $6,500 cannot be claimed by Small Businesses from 1 January 2014. We wrote about this previously in our June tax update which means that assets can only be written off if they were purchased for under $1,000. “The Tax Office said it will only apply to assets acquired on or after January 1, 2014 “as such it will impact on the returns for the 2013-14 income year”, so if this $6,500 was claimed in your 2014 Income tax Return, an amendment will need to be processed.
- Loss carry-back allowed companies to use a current-year loss against taxable income in previous years, resulting in a refund for all or part of the tax value of the loss. Under the changes that will now be repealed , businesses were able to carry-back up to $1 million in losses each year and get back a $300,000 refund in subsequent years. These changes which are expected to be prospective will remove this concession.
You can read more about this article in the AFR here.
Photo courtesy of the Australian Financial Review.
Writing as part of our new contribution to The Entourage Blog, we look at what numbers do businesses need to show investors.
The first step any company should have is an understanding of what your product is and who the market is you are selling to. This is an absolute must before you even start chatting to anyone else. But when you start these conversations, what are some questions you will get asked by investors?
How do you acquire the customer and how much does it cost?
When acquiring a new customer, there are a range of costs that you have to think about. Google AdWords, Facebook advertising etc. How much are you spending on acquiring this customer?
What’s the lifetime value of a customer?
How much you make from a customer over their lifetime is critical to understanding what your future prospects will look like. The value of the data about your customers spending habits helps you and potential investors understand what your customer lifetime value.
What are your overheads?
That is, what are the costs that you have that aren’t directly related to a product sale. Staffing, rent, utility bills, IT costs, they all give a great understanding not only on what your cost levels are but how you run your business.
Why is it important for you to be able to answer these questions? It comes down to you owning the business numbers. And by doing so, you give potential investors confidence that you know what you’re talking about and know where your business is at.
You can read more about numbers for investors here.
The 80 20 rule is something that we often get asked about by contractors and business owners? So what is it and where will you see it in business?
The 80 20 rule is one of several tests that fall under the ATO’s Personal Services Income provisions relating to income received by consultants and contractors. Personal Services Income is where the majority of the income is generated for the skills, knowledge, expertise or efforts of the person who performed the service.
Irrespective of what structure you operate under, if Personal Services Income applies in your situation, your deductions will be limited and income generated by you will be attributable solely to you, not your business. This means any perceived tax advantages associated with creating a corporate structure may be redundant under these rules.
So where does the 80 20 rule come into play? One of the ways in which the ATO determines whether you fall under the Personal Services Income rules is by looking at several tests. The 80 20 rule is one of these tests that looks at whether 80% or more of your income comes from one source (including related parties). If it does, then the Personal Services Income rules will apply which will require additional considerations when doing completing your Income Tax Return. If it doesn’t, than the Personal services Income rules will not apply and income will be considered business income.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.
This Tax Tips Tuesday is focusing on Income Protection Insurance deductions.
Income protection insurance can play a very important part in someone’s cashflow. Income protection insurance is coverage due to a loss of income and can cover situations where you cannot work due to sickness or injury or sometimes even because of redundancy. The premiums paid is based on the income you earn and in terms of payment is generally paid out like a salary (ie monthly or fortnightly).
From a tax point of view, Income Protection Insurance deductions can be claimed in your tax return if structured properly. The tax deduction is available to either the person or entity taking out the insurance. Often we see it taken either through an individual or their Superannuation fund. However, be careful as if the policy is taken out through a Superannuation Fund, then it is the fund that can claim the tax deduction, not the individual. Most mortgage brokers should be able to assist in making sure the policy is taken out correctly.
Just remember that although the premiums a deductible, any claims made on your insurance will be taxable.
Income protection insurance shouldn’t be confused with life insurance or trauma insurance which is not tax deductible. This is because life insurance or trauma insurance is not coverage on your regular income rather on your life which the ATO sees as being capital.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting.
For more information about Nudge Accounting’s work with startups around Australia or our Startup Spotlight series, get in touch or find out more at @nudgeaccounting. And you can see more about our fantastic client The Protein Bread Company here, @proteinbreadco or at http://instagram.com/proteinbreadco
At Nudge, we think accounting should be simple. Our online accounting packages provide an affordable end-to-end solution for small businesses and start ups. With efficient online systems, cloud storage and a dedicated client success manager, our team of Chartered Accountants ensure your finances are in good hands.
For one simple monthly fee, all of your accounting and compliance needs are taken care of, so you can focus on running your business.
For more information about Nudge Accounting’s work with startups around Australia or our Startup Spotlight series, get in touch or find out more at @nudgeaccounting. And you can see more about our fantastic client Venuemob here or @venuemob
Time: 09:00 am”
Location: Level 3, 673 Bourke St, Melbourne, VIC 3000
This month I will be sharing our Nudge marketing story as a guest presenter at Carolyn Tate’s workshop, “How to build a business with purpose”. Carolyn’s workshops will be held in Melbourne and Sydney.
Carolyn believes that marketing is all about breaking down conventional barriers and marketing with purpose. We’ve asked Carolyn to share a bit about what “marketing with purpose (conscious marketing)” is all about and some of her experiences …
EDIT: We’ve cut down Carolyn’s responses a bit, but get in touch with Carolyn to learn more.
Can you explain what conscious marketing is all about?
Like most small business owners, I bet you’ve started this year thinking about marketing and how you can get more clients and income. We get taught by most marketers that it’s all about more – having more hits, more followers, more likes, more of everything. No wonder chronic marketing fatigue sets in.
It’s not about doing more. It’s about doing less but doing it in a whole new conscious way that is all about attraction instead of promotion.
What are your marketing beliefs?
The goal of marketing is to get word-of-mouth referrals. And guess how that happens? By operating with purpose, actually offering something people seriously need and want, having real experience and runs on the board, being interesting and ethical and differentiated and by swimming against the flow of conformity.
I believe that businesses need to be built with purpose and that marketing can actually be fun and rewarding (for everybody, even your clients) if your company is built with the right intentions. Continue reading “Marketing Workshop Event “Building a business with purpose””
We look at some of the key aspects of the 2014 Federal budget and the resulting impact on small businesses and startups
1. Federal budget impact on Small business
The federal budget has impacted small business in the following ways:
a) Lower company tax rate
As part of the budget measures, the government has will cut the company tax rate by 1.5 percent from 1 July 2015. This will bring the current company tax rate of 30 percent down to 28.5 percent, benefiting many small businesses that use a company structure. Businesses with more than $5m in taxable income will not be in a better overall position as they will be required to pay a levy of 1.5 percent to fund the new paid parental leave scheme.
b) Superannuation contributions
Compulsory superannuation contributions for employees will rise from 9.25 percent to 9.5 percent from 1 July 2014. Although the federal government had previously flagged that this increase would be delayed, the superannuation contribution percentage will now be frozen at the new level of 9.5 percent until June 2018.
Continue reading “2014 Federal budget update – the impact on small business & startups”