October 2022: Business and Inflation

Pandemic Leave Disaster Payment reinstated

In recognition of the risks associated with more infectious new COVID-19 variants through the winter period, the Commonwealth agreed to reinstate the Pandemic Leave Disaster Payment to 30 September 2022, which was otherwise set to end as of 30 June 2022.

Eligibility for the payment will be backdated to 1 July 2022, to ensure that anyone unable to work owing to isolation requirements in this period (without access to paid sick leave) is supported.
Access to these payments will commence from Wednesday 20 July, with existing eligibility requirements to continue.

The Commonwealth and the States and Territories have agreed to share the costs of the payment 50:50.

In addition, the Commonwealth Government will also reinstate the Crisis Payment – National Health Emergency (COVID-19) until 30 September 2022, with eligibility also to be backdated to 1 July 2022.
This will ensure people affected by COVID-19 isolation requirements who receive an income support payment or ABSTUDY Living Allowance, and who are in severe financial hardship, continue to receive support through the winter period.

Register your .au domain!

23:59 UTC on 20 September 2022 is the cut-off to register for your .au direct domain. The .au domain is the new, general purpose, shorter Australian domain name option.

 If you do not register the direct match of your existing domain for the direct .au domain, you risk your brand equity being consumed by someone else, rivals redirecting your clients to their products and services, squatters holding the domain, or cybercriminals impersonating your business. The opening of the new .au domain is the single biggest shift in Australian cyber real estate in decades and the risks for business are high.

If you are registering:

  • an exact match of your existing domain name, for example .com.au or au; and
  • you held your domain name prior to 24 March 2022

then you have priority access but only up until 23:59 UTC on 20 September 2022 (9:59am AEST on 21 September). Once this deadline has passed, the .au direct domain name will be available to anyone with a connection to Australia to register from 21:00 UTC 3 October 2022 (8:00am AEDT 4 Oct).

While you can register for the .au domain through any number of providers, the most efficient method is to utilise your existing provider. To do this, you will need your domain’s access information. If these details cannot be found, for example, the details were held by a former staff member, it can take some time to recover them so do not leave the registration process until the last minute.

Once you have applied for your matching .au domain, if your application is uncontested, you will be able to use the .au direct name soon after applying for priority status.

What happens if .com.au and .net.au both apply for the .au name?

If you share a domain name with another entity, for example, one entity owns .com.au and the other .net.au, the right to register the .au domain will cascade according to priority.

Category 1 are those that secured the domain on or before 4 February 2018. Category 1 applicants have priority over Category 2 applicants who registered their domain after 4 February 2018. If the name is contested by a Category 1 and a Category 2 applicant, the Category 1 applicant will secure the name. If two Category 2 applicants apply for the name, the name is allocated to the applicant with the earlier domain license creation date.

But, it gets tricky when two Category 1 applicants apply for the name. In these circumstances, both parties must agree on the allocation, or the name remains unallocated.

How to sell your business

We’re often asked the best way to sell a business.

There are two key components at play in the sale of a business: structuring the transaction; and positioning the business to the market. Both elements are important and can significantly impact your result.

Structuring the transaction covers areas such as pricing the business, the terms and conditions attaching to the sale, key terms in the contract, and ensuring the transaction structure is as tax effective as possible. Much of the structuring is about ensuring the vendors secure the most efficient and effective outcome from the sale. It is about maximising the vendor’s position.

Positioning the business for sale is all about ensuring that you achieve a sale and maximise your price. It covers areas such as ensuring there are no hurdles within the business that will limit its saleability, identifying the competitive position of the business within its market segment, ensuring that operating performance is as good as it can be, and that the business benchmarks well in its market. Positioning also includes identifying the best time to take the business to the market, how to take it to the market, and who the most likely buyers will be.

Positioning is about doing everything needed to maximise the probability of a sale occurring, whereas structuring is about getting the best outcome from a transaction once it has occurred. A lot of people make the mistake of spending most of their energy on the structuring of the transaction. It is important but only becomes important if the sale is achieved.

 Structuring should be addressed first to help identify any key decisions that need to be made but put most of your effort into positioning the business for sale. To do this, you need an objective assessment of how the business compares in its market, its competitive position, and what if any impediments to sale exist – all the things a buyer will look at and look for when they assess your business.

Most buyers believe that we are currently in a buyer’s market and will try to drive down price expectations.  Whether or not you are in a buyer’s market depends on your industry segment but regardless of this, you are in a competitive market. Buyers may be comparing your business to similar businesses but also opportunities in other industry segments. Securing a sale at the best possible price is about having your business positioned for sale. Preparation time is needed to achieve this well in advance of putting your business on the market.

FBT-free Electric Cars

New legislation before Parliament, if enacted, will make zero or low emission vehicles FBT-free. We explore who can access the concession and how.

Electric vehicles (EV) represent just under 2% of the new car market in Australia but it is a rapidly growing sector with a 62.3% jump in new EV registrations between 2020 and 2021.

Making EVs FBT-free is just the first step in the Government’s plan to make zero and low emission vehicles the car of choice for Australians, focussing on affordability and overcoming “range anxiety” by:

  • Cutting import tariffs
  • Placing EV fast chargers once every 150 kilometres on the nation’s highways
  • Creating a national Hydrogen Highways refuelling network, to deliver stations on Australia’s busiest freight routes
  • Converting the Commonwealth fleet to 75% no-emissions vehicles

It is on this last point, fleet cars, that the FBT exemption on EVs is targeted. In Australia, business account for around 40% of light vehicle sales according to a research report by Griffith and Monash Universities. However, EV sales to business fleets comprised a mere 0.08% of the market in 2020. The Government can control what it purchases and has committed to converting its fleet to no-emission vehicles, but for the private sector, there is a wide gap between the total cost of ownership of EVs and traditional combustion engine vehicles. It’s more expensive overall and the Government is looking to reduce that impediment through the FBT system.

Read more

Using Family Trusts in a Business Structure

There are many ways to use family trusts and they are likely to remain an important feature of the Australian economy, including as part of a small to medium enterprise (SME) business structure.

While they can be more complex and harder to understand than a simple company structure, the added flexibility offered by a family trust can make it worthwhile. And recent communications from the Australian Taxation Office (ATO) concerning distributions from family trusts further highlight the use and advantages of family trusts within a business structure.

Two of the more common methods for utilising a family trust in carrying on a business include:

Family trust carrying on a business

The simplest approach is for a family trust to carry on a business, which provides similar asset protection to trading through a private company as any debts and business risks are separated from the family members, and assets owned by the family, such as their home and other passive investments, can be protected from claims by creditors of the business.

The main advantage offered by a family trust is a high degree of flexibility compared to a company that has its shares owned by one or more individuals, as the trustee can make decisions each year on a discretionary basis as to how the net profit of the business should be allocated among different family members or related entities falling within the class of eligible beneficiaries.

Companies can be used as beneficiaries and may be entitled to a 25% tax rate. However there are strict rules on how this situation is managed which require the funds to be either paid to the company or “loaned back” on standard seven-year principal and interest terms (the interest on the loan should be tax-deductible to the trust).

It is also important to note the nature of a discretionary trust means this structure works best for a business controlled by a single family and is unlikely to suit two or more unrelated families carrying
on business together, although this is sometimes addressed by the less common structure of trading through a partnership of different discretionary trusts.

Family trust owning shares in a company carrying on a business

A more sophisticated approach to business structuring which can work well in the right circumstances is to have a company carrying on a business where all the shares are owned by a family discretionary trust.

This structure has all the simplicity of a regular operating company, which is readily understood by all involved including the business owners, family members, customers, suppliers, lenders, and potential future purchasers.

It also allows profits to be retained by the company to fund working capital and/or to help grow the business and only paid out as dividends – usually fully franked – to the trust, when funds are required by the family for their own purposes. When dividends are paid, this will represent income for the trust in the year of the dividend, which will then be allocated to various trust beneficiaries on a discretionary basis.
Family trusts remain a popular vehicle with an enormous level of flexibility that can be used in a wide variety of ways and for a whole range of purposes.

How Could Your Business Handle Mounting Costs as Inflation Rises?

As the country’s interest rates rise, so too do the costs for businesses. The spike in inflation (recorded at 5.1% in Q1 of 2022) could provide additional challenges for unprepared businesses across the country. Understanding how and preparing your business for the impact of inflation is an important element of business planning that should be addressed as soon as possible.

Given that there is no expected expiration for how long the current inflation rate will apply, this is something that you may need to plan for in the long term.

Common issues that can impact small businesses as a result of inflation include:

  • Increased costs of materials and stock (which can then take months to arrive)
  • Fixed-price contracts failing to take into account these costs
  • Increased shipping costs
  • Increased employee costs, with inflation also applying to wages

While raising prices to address these costs might seem like an immediate solution, it can have a negative impact to customer relationships. The following are simple methods in which your business can address inflation (without potentially alienating customers).

Know where money is currently being spent

Knowing where the money of your business is currently being spent and who in turn is spending it is critical in knowing about how your business is currently sitting, expense-wise. In an inflationary period, it is critical to establish repeatable, end-to-end, actionable visibility of spending by cost category, business process, function, and business unit.

Knowing the drivers of cost can add up in an inflationary environment to a better understanding of how your business could improve. You should understand the rate that you are currently paying and your consumption for critical cost categories. This is again something that can be discussed with your business adviser.

Doing so should allow you to tailor your business’s approach to inflation by matching current expectations and challenges. This might include addressing issues in purchasing due to the supply chain and produce pricing pressures by choosing ways that allow you to spend better.

Know the difference between strategic & non-strategic spending

One of the key steps is to clearly distinguish between strategic and nonstrategic cost-cutting, the protecting of your signature customer and employee experiences, and fiduciary requirements, for example.

This may involve determining whether the spending for the business is:

  • A committed cost, which is spending that is necessary for the business’s operational structure on a long-term basis (e.g. rent, salaries, etc)
  • A discretionary spend, which is spending that is not deemed as critical to the running of the business and which can be examined/altered as required (e.g. marketing costs, holiday parties, event tickets, and tuition reimbursement)

Rather than completely cut the costs of some of these discretionary spends though, you may be able to consolidate what’s left. Combine activities like training days and celebrations into single events, or combine events across multiple departments. You could also cross-schedule the use of outside resources, such as facilities or trainers.

Why are you spending X amount here?

Knowing the drivers of cost can add up in an inflationary environment to a better understanding of how your business could improve. You should understand the rate that you are currently paying and your consumption for critical cost categories. This is again something that can be discussed with your business adviser.

Doing so should allow you to tailor your business’s approach to inflation by matching current expectations and challenges. This might include addressing issues in purchasing due to the supply chain and produce pricing pressures by choosing ways that allow you to spend better.

Eliminating work & implementing automations

With labor shortages and ballooning labor costs, eliminating the work itself has the greatest impact. This can be done by scrutinising what activities are being performed, how those activities are being performed and what might be easily eliminated through automation.

You may be able to provide services on an optional basis (opt-in versus opt-out), create better processes for your staff to maximise productivity and their value and automate through technologies to free up current staff  for other duties.

Here are just a few of the business processes you can automate easily:

  • Email
  • Contract creation and renewals
  • Invoices
  • General ledger entries
  • Purchase orders
  • Collections
  • Inventory
  • Shipping
  • Sales and marketing

Lower your supply chain risk

To further hedge against inflation, it is suggested to keep an eye out for tendencies that might make your small business more vulnerable to supply chain disruptions, such as:

  • Over-reliance on single suppliers
  • Overseas suppliers that require a long lead time
  • Materials that are challenging or costly to store
  • A single commodity representing more than 10% of the cost of goods sold

To lower your supply chain risk, try the following:

  • Create backup supply chains
  • Search for domestic alternatives to overseas suppliers
  • Stock up on core supplies with minimal storage costs
  • Hedge commodities where appropriate.

Company Tax Returns: What you need to have ready for your accountant

If your company had a prior-year tax return outstanding on 30th of June, then your next company tax return is due by the 31st of October. This means that there may be multiple items that you need to prepare for your company’s return, and the sooner that they’re addressed, the better.

There are certain sections that relate to your company’s taxation aff airs that you will need to provide to your accountant so that they can assist you with completing the return on your behalf.

Income – including accounting information, cashbook, assets register, dividend statements, managed funds distributions statements, capital gains statements and more.

Expenses – including details of advertising and marketing expenses, bad debts actually written off during the year, bonuses and commissions paid to employees, or of bonuses and commissions paid to external parties Interest on loan, motor vehicle expenses, donations of $2 and over to registered charities, entertainment expenses, salaries paid, superannuation contributions and more.

Balance Sheet (Assets) – including Bank statements, CGT assets purchased during the year, leases entered into and terminated during the year, value of stock as at 30 June (and the basis of valuation) and more.

Balance Sheet (Liabilities) – including accrued expenses and unearned revenue, all loans, the listing of trade creditors with amounts owing, provisions for long service leave and annual leave, and statements from the lending authorities detailing the opening and closing balances of existing loans during the fi nancial year.

Balance Sheet – Equity, including details of any changes to shareholdings, details of loans from shareholders or partners or details of any increases or decreases in reserves.
There may be more items that are required for your particular tax return. In that situation, consulting with your tax adviser is the best step for your business to take to prepare for your next company tax return

Consultation on crypto reforms

The Government has announced its intention to implement a regulatory system to manage crypto assets to keep up with developments and provide greater protections for consumers.
The ATO has recently estimated that more than one million taxpayers have interacted with the crypto asset ecosystem since 2018.

In a recent Media Release, the Government announced it is ready to start consultation with stakeholders on a framework for industry and regulators with the aim of allowing consumers to participate in the market while also better protecting them.

As the first step, Treasury has confirmed that it will prioritise ‘token mapping’ work in 2022, which will help identify how crypto assets and related services should be regulated.
The aim will be to identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third party custodians of crypto assets and provide additional consumer safeguards.

Can I claim my crypto losses?

The ATO has released updated information on claiming cryptocurrency losses and gains in your tax return.

The first point to understand is that gains and losses from crypto are only reported in your tax return when you dispose of it – you sell it, convert it to fiat currency, exchange it for another type of asset, buy something with it, etc. You cannot recognise market fluctuations or claim a loss because the value of your crypto assets changed until the loss is realised or crystallised.

Gains and losses from the disposal of cryptocurrency should be reported in your tax return in the year that the disposal occurred.

If you made a capital gain on crypto that was held as an investment and you held the crypto for more than 12 months then you may be able to access the 50% Capital Gains Tax (CGT) discount and halve the tax you pay.

If you made a loss on the cryptocurrency (capital loss) when you disposed of it, you can generally offset the loss against capital gains you might have (unless the crypto is a personal use asset). But, you can only offset capital losses against capital gains. You cannot offset these losses against other forms of income like salary and wages, unfortunately. If you don’t have any capital gains to offset, you can hold the losses and carry them forward for another future year when you can use them.

If you earned income from crypto such as airdrops or staking rewards, then these also need to be reported in your tax return. Remember, keep records of your crypto transactions. The ATO has sophisticated data matching programs in place and cryptocurrency reporting is a major area of focus.

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