Winter 2019

accountants

overviewINSIDE • Sales Down, But Profits Up • STP... Just Around The Corner For Smaller Employers • The Real Cost of Airbnb For Property Owners • The End of Payment Summaries For Larger Employers • Small Business Write-off Extended • Goodbye To Special Purpose Reporting For Charities

accountants

Sales down, but profits up!In uncertain times or slowing sales, you need to move quickly to protect your bottom line. Ignoring or delaying a decision to ‘cut’ the fat from your business will significantly impact your business’ performance, cash flow and future survival. Examining and restructuring your costs will ensure your business not only survives but thrives when sales slow down.

Consider these 3 simple cost saving strategies.

1. Income > expenses

Do you know your business’ breakeven point? Break Even Analysis identifies the minimum sales you require to cover your “necessary” business expenses. It requires you to calculate your total fixed costs (i.e. rent, interest etc.), gross profit margin, and then you ‘sensitise’ your sales to produce a break even result ($0 profit). Once you have determined your breakeven point, be realistic in assessing your likely sales and recalculate your result as your gross profit margin fluctuates.

2. Reduce your fixed costs

Successful businesses have their cost structure weighted to variable costs (i.e. low fixed costs). Activity Based Costing is a process that enables you to analyse and change your cost structure. For example, using contractors to provide non-core services to your business or outsourcing the

distribution of your products (i.e. freight) are examples of variable cost strategies.

3. Identify the strengths and weaknesses of your

business

Benchmarking is a process that allows you to compare your business performance to ‘like’ businesses. Consider the example below.

Key Performance Indicator (extract)

Your Business

Industry benchmarks

Result

Gross Profit Margin

38.5% 35% Good

Wages ratio (to Sales)

17.25% 13% Improvement Required

Changing your sales mix by focusing on high margin product or service lines and offering incentive rewards to staff are examples of benchmarking strategies to increase gross profit and reduce wages costs as a percentage of sales. Benchmarking data can be collected from your Industry Association, Accountant or Financial Adviser.

Implementing cost savings measures can be a difficult and emotional process. Your rdl advisor is best positioned to provide you with professional advice.

Matthew Hung

Director – Assurance, Taxation & Business Services

STP….just around the corner for smaller employers

1st July 2019 will see the introduction of Single Touch Payroll (STP) for employers with less than 20 employees. This is a system that requires employers to send tax and super information from their payroll or accounting software to the ATO as each pay run is processed. Don’t leave it until it is too late to get organised. While the ATO will allow some leniency in the early days, it will be expecting employers to get on board quickly. Your rdl accountant can assist your business to ensure you have the right systems and processes in place.

“Laziness is nothing more than the habit of resting before you get tired.” – Jules Renard

accountants

The real cost of Airbnb for property owners

indicated that it will obtain data from online homestay service providers, so that it can match those records to the tax records of hosts.

Perhaps a lesser known (but more significant) implication from listing a property with a homestay service provider, is the potential Capital Gains Tax (CGT) that could bite later on.

When CGT was originally introduced, the family home was made exempt, but only to the extent that it was not used to generate income. Where a family home is used to generate income CGT will generally apply to a portion of the profit on the future sale of the property, unless an exemption applies.

There is a popular CGT exemption that allows home owners to rent out their home where, for example, they have relocated for work, or perhaps where an adult child has moved back home. This concession, known as the 6 year absence rule, allows a property to be rented out and remain CGT free for up to 6 years.

It was this concession that became the subject of an ATO private ruling requested by an Airbnb host in 2018. The issue in question was whether the 6 year absence rule

In 2007, two roommates living in San Francisco, struggling to pay their rent, came up with the ingenious idea of renting out their attic to help them make ends meet. The idea was simple – offer the use of 3 air mattresses overnight and breakfast in the morning. Knowing that a big design conference was coming to San Francisco, making hotel rooms scarce, they created a simple site, airbedandbreakfast.com, bought three air mattresses, and put their plan into action.

Fast-forward to 2019, and the idea that netted the pair $240 when two men and one woman showed up to stay the night, is now the popular online homestay marketplace known as Airbnb, with annual revenue in excess of USD2.6 billion.

As with many others around the world, Aussies have embraced the phenomenon. But what about the potential tax pitfalls?

Firstly, it is important to realise that where a property is listed on an online marketplace, income received from successfully renting the property will be taxable to the recipient. Expenses incurred in doing so, including service fees paid to the provider, as well as a proportion of electricity, gas, etc. will be tax deductible. The ATO has

would apply where a property was rented out under a homestay arrangement. Unfortunately for the taxpayer, the ATO concluded that for the concession to apply the property needed to cease to be the taxpayer’s main residence (possessions removed, mail redirected, reconnection of services, etc.), which is not the case under most homestay arrangements. Accordingly CGT would apply. What’s more, the point has been made that simply making the property available for rent can get a property owner into CGT “hot water”, regardless of whether the listing was successful.

There are other subtle negative CGT implications from renting out a home but not qualifying for the 6 year absence rule. Property owners need to approach the homestay game with all the facts. What might seem like a good way to make a few extra bucks could turn out to be a future tax headache.

Joel Hernandez

Director – Taxation & Business Services

accountants

The end of Payment Summaries for larger employersEmployers who have been reporting to the ATO as part of the government’s Single Touch Payroll system have already ticked-off on one of their end-of-financial-year obligations.

One of the anticipated advantages of the government’s single touch payroll system, which has applied for the first time this financial year to employers with 20 or more staff, is that employers who

have been in the system will not be required to issue payment summaries this year.

Employees will be able to access pay information directly from their MyGov account, allowing them to obtain an “Income Statement”, which is the equivalent of a Payment Summary (or Group Certificate). It’s a snippet of red tape that has been cut.

Small business immediate asset write-off extendedThe small business immediate asset write off, enables a business with an annual turnover under $10m to claim an immediate tax deduction for assets costing less than the relevant instant asset write-off threshold, in the year such assets are first used, or installed ready-for-use.

This incentive has undergone significant change in recent times. In January this year the Federal Government announced a 12 month extension to the period of application to 30th June 2020, and an increase in the write-off threshold from $20,000 to $25,000. Then, in the April 2019 Federal Budget, the threshold was further increased to $30,000. This was one of only a few measures passed by Parliament prior to it being dissolved for the election.

The following table sets out the relevant dates and thresholds:

Date range Threshold for each asset

7:30pm (AEDT) 02/04/2019 to 30/06/2020

$30,000

29/01/2019 to before 7.30pm (AEDT) 02/04/2019

$25,000

7.30pm (AEST) 12/05/2015 to 28/01/2019

$20,000

Unlike prior concessions, this incentive can be applied to the purchase of new or used assets. The entire cost of the asset must be less than the instant asset write-

off threshold, irrespective of any trade-in amount, in order for the business to be able to claim an immediate deduction. Where a business is registered for GST, it can deduct the GST from the purchase price in order to determine if the cost of the asset has exceeded the threshold. The ability to claim the cost of an asset in the same year as the expenditure is incurred will help eligible businesses to align the tax deduction with the outflow from purchasing the asset.

accountants

Goodbye to special purpose reporting for Charities?

Financial reporting requirements in Australia turn on the answer to an important question: is it reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the allocation of scarce resources?

If the answer is yes, the entity is a “reporting entity” and is required to prepare general purpose financial statements, compliant with all of the accounting standards. If no, then the entity is not a “reporting entity” and can prepare special purpose financial statements using accounting policies matched to the purpose of the financial statements.

More recently, the International Accounting Standards Board (IASB) defined a “reporting entity” as an entity that is required, or chooses, to prepare financial statements. Australia is committed to following the IASB, so supporting a definition of “reporting entity” that differs from that adopted by the IASB is a problem.

As a result, the Australian Accounting Standards Board (AASB) has decided to remove the Australian definition of “reporting entity,” and will start to phase-in the IASB definition. In time, this decision will effectively make general purpose reports the only option for entities required by law to prepare financial statements in accordance with the accounting standards.

The change will first apply from 1 January 2020 to entities in the for-profit private sector with public accountability such as those listed on the stock exchange. It will next apply to all other for-profit entities (timing unknown). Those that are not publically accountable will be able to prepare financial statements fully compliant with the measurement and recognition requirements of the

accounting standards, but with options for reduced disclosure.

The AASB will hold further consultations to consider when and how these changes will be implemented across the not-for-profit sector, so the impact is likely to be years away. However, if the same measurement and recognition requirements are imposed, the impact is likely to be significant for charities currently preparing special purpose financial statements.

Claire Harris Manager – Not For Profit Specialist

Disclaimer

The contents of this publication are general in nature. No person should act on the information contained without first seeking specific professional advice.

“First we will be best, and then we will be first.”– Grant Tinker

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

InsightsWINTER 2019

INSIDE...

• The 2019-20 Federal Budget

• Sweeping Changes To Insurance Through Super

• What’s Involved In Aged Care

financial planning

financial planning

The 2019-20 Federal Budget

The Federal budget, delivered on 2nd April 2019, became rather a non-event. Not only were there comparatively few changes announced, but the impending Federal election stole the limelight, leaving many feeling that many of the budget announcements might never see the light of day.

Taxation

The major aspect of the Coalition Government’s taxation reform has been based on its “Personal Income Tax Plan”, which was announced in the 2018-19 Federal Budget, to be phased in over a seven year period. This year’s budget saw a proposed extension to the tax cuts announced in the 2018/19 budget, which were earlier legislated.

Small business owners have been given a further incentive to invest in plant and equipment, with the benefit of a further 12 month extension (until 30 June 2020) of the entitlement to claim an instant asset write off for eligible assets purchased, and an increase in the write off up to $30,000 (previously $20,000, then $25,000) for asset purchases from 3rd April 2019. This is one of the few budget measures that was passed in the short period during which Parliament sat, prior to it being dissolved ahead of the Federal election.

Superannuation

Superannuation was left largely untouched except for a number of adjustments to existing policies, including giving individuals greater flexibility to contribute to super.

It is intended that from 1 July 2020, if you are aged 65 or 66, you will be able to make additional contributions to super even if you are no longer working. In addition, from 1 July 2020 there will be an increased ability to make spouse contributions to super. Currently, this is only an option provided your spouse has not turned 70. The existing age limit will be increased to allow you to make contributions on behalf of your spouse, up to age 74.

Welfare

The Government committed to increased funding to make more aged care spaces available for Australians in the future – an important commitment for those in need. Of more immediate impact however is an immediate one-off payment of $75 for individuals and $125 per couple for eligible welfare recipients to assist with their next power bill.

financial planning

Sweeping Changes to Insurance through Superannuation

A number of members of superannuation funds (excluding SMSF’s) who have insurance cover, have been receiving notifications from their super funds advising them that they must “opt-in” in order to maintain their insurance cover.

Under the Federal government’s Protecting Your Super changes, legislation for which has now received Royal Assent, from 1 July 2019 insurance through super cannot be provided to a member where their super account is ‘inactive’ for a period of 16 months (including the period

financial planning

financial planning

prior to 1 July 2019), unless they ‘opt-in’ to retain their cover. An inactive account is defined as one that has not received a contribution or rollover in respect of that member for a continuous period of 16 months.

These changes are designed to protect members from a situation where insurance premiums erode a fund balance, particularly in the case of lost or forgotten super, but they can be potentially fatal for a member who has kept an account balance to fund insurance premiums, particularly where there is an illness of condition that is intended to be covered. Where insurance lapses, it may not be possible to reinstate it, or it may be reinstated but with significant restrictions on existing ailments.

If you have insurance that was put in place many years ago and has continued to be held, but where you are no longer making contributions to that account, it is likely you will be impacted by this change.

Fund members with inactive accounts are urged to be on the “front foot” and ensure that the appropriate cover is in place. Your RDL financial advisor can assist you in ensuring that your insurance through super is correctly set in place.

“In many ways, the stock market is like the weather in that if you don’t like the current conditions all you have to do is wait a while.”– Low Simpson

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What’s involved in Aged CareAged care can be a tough subject for many families to broach, but as we enjoy longer lives, there’s a growing likelihood that at least part of our final years will be spent in formal care.

The decision to move into aged care doesn’t just come with a raft of emotional issues. There are also financial considerations. That’s because nursing home accommodation can involve substantial costs, especially for self-funded retirees.

The costs involved

New residents entering aged care are often asked to pay an upfront accommodation bond. There is no set level for this bond – the only proviso is that residents must be left with at least $46,500 in assets (excluding the family home) after the bond has been paid.

An accommodation bond works like an interest-free loan to an aged care home. Any income earned from the bond is used by the aged care home to improve accommodation and services for residents.

As aged care facilities are generally free to set their own bond, it’s usually open to negotiation between families and the home’s staff. This can be a source of discomfort as it means

revealing your financial worth to complete strangers. Simply being aware of how the system works can help you plan for it.

How do I pay my accommodation costs?

You can choose to pay an upfront bond by:

• a lump-sum style ‘refundable accommodation deposit’

• rental-type payments called a ‘daily accommodation payment’, or

• a combination of both.

The accommodation bond is generally returned to residents or their estate, if they move out or pass away when it is paid as a lump sum.

Bonds vary widely and in some of our capital cities, the cost is running into hundreds of thousands of dollars. So it’s extremely important to consider all the facilities available and consider if a particular aged care home is the right place for you or your loved one.

Unfortunately, high demand for aged care, particularly high level care, often means families who haven’t done their research have to accept the first place that becomes available and that can see a mad scramble to find the bond money.

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financial planning

Basic daily fee

In addition to the accommodation bond, a basic daily fee is used to contribute towards your day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone entering an aged care home can be asked to pay this fee.

The maximum basic daily fee for new residents is $48.44

per day. This equals 85% of the basic age pension rate and it increases on 20 March and 20 September each year in line with changes to the age pension.

Means-tested care fee

This is an additional contribution towards the cost of care that some people - self-funded retirees in particular, may

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Disclaimer

This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.

be required to pay. The Department of Human Services will work out if you are required to pay this fee based on your income and assets.

There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees.

The government’s Aged Care website features a Residential Care Fee Estimator to help gauge the sorts of fees you could be looking at.

Funding it all

Meeting the future cost of aged care is just one aspect retirees need to factor into their investment portfolio.

The way your portfolio is structured can impact on your age pension entitlements as well as the costs you’ll pay for aged care. Your rdl financial planner is able to assist you in working through the process of ensuring you adequately plan for your aged care needs.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”– Warren Buffet