Tag: Accounting Geelong

Discretionary Trusts + Keeping It In The Family

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A family trust is a form of a Discretionary Trust and one of the most important investment vehicles that individuals can look at starting.  They are very useful in particular for building wealth for the benefit of future generations, flexibility in daily operations, family investments, holding and protecting your family’s properties and other assets.  These assets could include investment properties, share portfolios, personal use assets (holiday homes, boats, land, antiques etc.).

Many of our clients also prefer to keep properties used in their business under a trust structure while carrying on their operations from other business entities under a rental agreement to protect their assets from creditors and other third party legal action.

The purpose of a trust is to hold these assets and cash flow for the benefit of the members of the “family group”.  Their operation is for the most part subject to the terms of the trust deed which is prepared when a trust is established.  This makes the trust deed the single most important document for this structure.  It dictates various things including:

  • Who is the Trustee (who looks after the legal property of the trust for the benefit of the family members and decide on annual distributions – generally mum and/or dad)
  • Who is the Appointor (Person in charge of selecting the trustee)
  • Who will be the beneficiaries (those entitled to the trust’s income and/or those who have right to trust’s assets)
  • Definition of trust income including how, to whom and what type of income will be distributed.
  • What happens when a trust vests or ends.

 

Due to the fact that the trust deed of the trust defines who the potential recipients of trust income will be on formation (usually family members), trust is a structure very much favored by family businesses (I.e. a Family Trust) who can provide capital if expansion is required in the future, investments need to be purchased or excess cash of family members needs to be loaned to the trust.  This is because, besides commercial loans, it is not possible to pursue external investor capital as a family trust.

If succession planning and keeping the business with in the family is the main goal, then this is the ideal business structure.  Discretionary trusts allow the business to be passed down to the next generation of family members.  In this case, the trust deed must allow for the change of Appointor or Trustee.  As there is no change in beneficial ownership of the trust and given all family members are beneficiaries of the trust, the changeover in the control of business within the family is not subject to any CGT implications.

This trust structure offers various benefits such as:

  • Being an ideal tool for succession planning and transferring within the family without immediate tax implications.  For example, when you want to hand down the family business to your next generation while avoiding any CGT implications.  This is true, as long as they are deemed to be beneficiaries as per the trust deed which also needs to be carefully drafted.
  • Strong asset protection is provided from creditors (for instance, in the event a family member experiences bankruptcy or a related entity is going through insolvency).  This requires that the trustee is a company and trust deed limits the trustee’s liability upon being sued to the share capital invested in the trustee company.  Please note that exceptions do apply when it comes to family law.
  • High degree of flexibility in distribution of income to various beneficiaries in the most tax effective way including family and friends ensuring all the family members tax free thresholds are fully utilized.

Distributions can also be varied every year to reflect changing income of family members.

  • Access to various small business Capital Gains Tax (CGT) concessions on sale, restructure of and retirement from business.  The individual also receives a 50% CGT discount when distribution is received from the trust.
  • Overall flexibility in operation of trust as it is mainly governed by the trust deed.

One of the main drawbacks of a trust structure would be that losses cannot be distributed and there are substantial hurdles to recoup such losses.  However, trust losses can be carried forward to future years and offset against future tax income.

Due to the trust offering such significant benefits and potential tax savings, the ATO have been looking more closely into them recently.  Recent changes included reduction in distributions to minor members of the family (usually under 18 years old).

All in all, it can be quite complex and challenging to identify your business needs and selecting the appropriate business structure or combination of entities.  Furthermore there are various commercial and taxation implications when it comes to family trusts.

Keeping your business circumstances in mind, and to ensure there is a seamless transfer of wealth between generations, it is recommended to get professional advice before making any such decision so you can customise your entity structure to your business needs.

 

Humam Siddiqui – Accountant

BComm

New Year Resolutions that Will Make A Real Difference To You + Loved Ones

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Now that the dust has settled on what was hopefully a fun-and-family-filled Christmas and New Year period, it is a great time to reflect on those hastily-made New Year’s resolutions, and consider the difference it will make if you actually see them through.

Perhaps you resolved that in 2019 you will exercise more, quit smoking, drink less, or spend less time looking at your phone.

For others, you may have decided that 2019 is the year you get your personal, financial or business affairs in order. That may include getting those Wills and Powers of Attorney prepared (which you’ve been meaning to do for years), getting that accounting or financial advice you know will make a difference, or kick-starting that business which you’ve been daydreaming about.

Now these are New Year’s resolutions that will make a real difference to you, your loved-ones, your financial health and your current/future employees.

The most important part is getting the process started. The second-most important part is making sure that each of the elements of your plan complement, and do not contradict each other. For example, the superannuation or asset planning which you undertake with an accountant or financial advisor should be reflected in your will, your business plan should be supported by adequate funding arrangements and succession agreements, and your business tax planning and compliance must be complemented by appropriate employment agreements for your staff.

Ideally, this means you should be seeing a lawyer, accountant and financial adviser contemporaneously, and have them talk to each other to ensure each element is consistent. But who has the time and energy for that?

This is where Canny Group can help you stick to your New Year’s resolutions. We have a team of experienced accountants, lawyers and financial advisers under one roof who are ready to listen, identify your needs or the needs of your business, and work cohesively to get your affairs in order, or your dream off the ground, for the best possible start to 2019.

 

Stefan Manche

Senior Associate Solicitor – LLB, BComm (Finance) 

We Bring Home an International Award

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The PANALITIX conference is a premier annual even where accountants from across the globe converge to learn on accounting best practice from industry influencers, thought leaders, technology and solution providers as well as international outstanding accounting firms.

Directors, Amanda Wilkens and Krystine Canny-Smith and Manager Helen Yau travelled across the globe to San Diego in November to take part in the conference.  Not only bringing back extra suitcases and excess baggage, they also managed to bring home the Best in Team Development Annual Award for 2018 from 12 awards.

The ‘Best in Team Development’ category aims to reward those who strive to create an amiable work environment for their team, while consequently providing continuous team development and engagement, resulting in business growth.

http://atthepac.com/thepac-awards/

How To Set New Year Resolutions and Stick To Them

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So 1st January you have your list of resolutions and you are completely committed… 2nd January you are distracted with ‘life’ and by 7th January they are in the ‘too hard, stinks of effort’ basket if you haven’t forgotten about them already.

Well this year is going to be different and this is how;

1. Think of the top 3 things you want to change in your life – business or personal.  Any more than this and it gets too complicated and overwhelming and this is where the failure rate creeps in.

2. Think about the length of time you need to achieve each goal and diarise the date that they each need to be completed by. Be realistic here but it must be within the year.

3. Contact the people or business that will help you achieve your 3 goals.  If it is getting your Will done, call your lawyer and make the appointment.  If it is getting fit, call a Personal trainer.  If it is starting a new business or expanding, call your Accountant.  If it is making more time to see your parents or friends get on the phone now and just do it!

4. Decide on the reward you will give yourself when these are completed.

It is likely that you can’t do all this alone so don’t be afraid to delegate to the experts who can help you.

Business goals are no different to personal goals in terms of the way you should ‘attack’ them.  You must be methodical and committed otherwise you are wasting your time, money and that of those that are prepared to help you.

We have many clients who say at the beginning of the year that they want to ‘increase their income’ or ‘decrease their costs’.  These are sweeping statements and we can help you do this, but first we will help you determine what the figure is and what and how they can be achieved.  It takes time and thought to plan this.

 

In 2019 we will be holding our popular ‘One Day Plan sessions’ each month commencing in March in our new premises at the Federal Mill.

These whole day sessions are designed to establish what your goals are and we work with you to determine the path you will take to achieve them.  So it doesn’t just have to be at New Year that you can make resolutions!

The dates for these sessions will be released in our February Newsletter and are open to existing clients or new.

 

Amanda Wilkens – Director

B.Comm CPA

Non-Compliant Withholders to be Denied Tax Deductions

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Businesses will no longer be able to claim deductions for payments to their employees where they have not met their PAYG obligations.  This includes where the employer is required to withhold PAYG from gross payments, but fail to report or remit it to the ATO.

Employers will be required to make sure all reports relating to PAYG withholding amounts be made to the ATO.  Failure to do so will render the gross payments made to employees’ non-deductible.  This includes any ‘nil’ lodgements for Activity Statements as well as any non-payments of PAYG withholding.

Strict penalties already apply to businesses who fail to withhold certain amounts paid for royalties, foreign dividends and interest payments.  Not only are these businesses fined by the withholding amount, but additional failure to remit penalties will also apply.

The new legislation goes another step further by removing deductibility of the original payment for workers.

Originally announced as part of the federal budget, this Black Economy legislation is due to take effect from date of Royal Assent.  PAYG withholders will be required to ensure that all lodgements are made on time to avoid large penalties with denied tax deductions.

Additionally, the deduction for businesses on certain payments to contractors which have not met PAYG obligations will be denied.  There are some exceptions.  In situations where an employer has been audited by the ATO and deemed to be paying staff as independent contractors, no denial of deductions will occur if the employer has made a genuine mistake and thought the staff member was a contractor.  However, the employer may still be liable for penalties associated with non-compliance of other tax and withholding obligations.

 

Source: Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018; Budged paper No 2, p 24 (VIA Wolters Kluwer)

Debt Recoveries

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The world of business dealings is underpinned by trust and reliance on promises to supply goods or services often with the consideration such as payment of money, a debt being due sometime in the future.  Once a contract is legally enforceable, the Court will, if the contract is breached, allow the injured party to seek recovery in the Courts.

Canny Legal regularly act in “debt recovery” proceedings.  Some claims may be very simple such as a failure or refusal to pay monies on account.  However in the cut and thrust of business dealings, contracting parties may have complex arrangements to reach out to potential customers and rely on more complex trading terms.

Suppliers may offer their customers credit terms reflecting their trade requirements.  For example a plumber may have a business which has many projects under way and needs plumbing supplies to compete works before it gets paid from expected future profit.  The supplying company may agree to trade on credit with interest which should also be secured by a personal guarantee and a charge over the director’s property. In this scenario we often find our client’s customers may “bite off more than they can chew” and default in their accounts resulting in debt recovery proceedings.

On the other side of the fence we also act for defendants against claims for monies due and owing and we will explore any genuine defences available to defeat the claim or reduce it by way of set-off.

Debt recovery requires the careful weigh-up of a return for recovery on a debt as against time, legal costs and the uncertainties of litigation.  There will be a range of facts to consider before being able to assess and legally advice on the merits of each claim or each defence.

If you would like more information, we are always here to help.  Please get in touch with our team.

 

Richard Pinkstone – Principal Solicitor

BA, LLB

Taxable Payments Annual Reporting (TPAR)

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Businesses operating in the cleaning industry or the courier industry, take note:

Commencing 1 July 2018 if you operate a business which provides cleaning services or courier services you will now need to report to the Australian Taxation Office (ATO) the payments made to contractors for provision of cleaning or courier services. These payments will need to be reported for each financial year to the ATO using the Taxable Payments Annual Report (TPAR). The first TPAR for those operating in this industry will be for the financial year ended 30 June 2019 and will be due with the ATO by the 28 August 2019.

WHAT ARE CLEANING SERVICES?
Cleaning services include, but are not limited to, any of the following activities undertaken on a building, residence, structure, place, surface, transport/vehicle, industrial machinery or equipment and for events:

  • interior cleaning
  • exterior cleaning (except sandblasting)
  • carpet cleaning
  • chimney cleaning
  • gutter cleaning
  • road sweeping and street cleaning
  • swimming pool cleaning
  • park and park facilities cleaning.

WHAT ARE COURIER SERVICES?
Activities where goods or items such as parcels, packages, letters and food  are collected from, and or delivered to any place in Australia using a variety of methods such as car, truck, station wagon, van, ute, motorcycle, motorised scooter, drones, bicycle or other non-powered means of transport, or on foot will be deemed courier services.

Courier services will not include the following:

  • delivery of goods your business provides where delivery is the only method your customers have of receiving the goods
  • passenger transport services, i.e. buses and taxis
  • transporting of blood, blood products, organs or tissue, or
  • freight transport.

WHAT IF MY BUSINESS PROVIDES MIXED SERVICES?
If less than 10% of your businesses total turnover is from services from cleaning or courier activities you will not need to report payments made to contractors.

WHAT NEEDS TO BE REPORTED?
The details you need to report for each payee / contractor include the:

  • ABN (where known)
  • Name (business name or individual’s name)
  • Address
  • Total amounts for the financial year of the:
    • Gross amount paid (including GST plus any tax withheld)
    • Total GST you paid them
    • Total tax withheld where ABN was not quoted.

WHAT DON’T YOU NEED TO REPORT?
Businesses in these industries are not required to report on the following payments:

  • Payments for materials only
  • Unpaid invoices as at 30 June each year (for an annual report)
  • PAYG withholding payments, as these are already reported elsewhere, and
  • Payments within consolidated groups

 

Note, other industries to come under these ATO reporting obligations from 1 July 2019 will be those business that supply road freight, security, investigation, surveillance or IT services.

If you would like further information and if you wish to discuss if your business needs to comply with these reporting obligations please contact our Canny Accounting team.

 

Gabriella Gibney – Manager

B.Com CA

Single Touch Payroll

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With the dawn of the current financial year, regulatory compliance for employers has become even more stringent with the introduction of Single Touch Payroll (STP). STP is a reporting framework for businesses with 20 or more employees to provide payroll and superannuation information to the Australian Taxation Office (ATO) on or before the day on which these amounts are paid. This is as opposed to providing this information partly through a monthly or quarterly business activity statement.

The framework was introduced in an effort to reduce the costs to employers of meeting their PAYG withholding obligations. STP will reduce the need to complete activities such as reconciling data between regular payroll payments and data used to complete an activity statement or reconciling and producing an annual payment summary for an employee at year end. Conversely, employees will be able to access their information in real-time via online MyGov accounts and know when payments have been made and how they have been calculated. All in all, this seems like a win-win for both employers and employees alike. However, with real-time data comes real-time errors and penalties.

Previously, if employers calculated incorrect PAYG withholding amounts or didn’t pay their employees’ superannuation on-time, there was time to fix up the errors or make any late payments with little or no ramifications. However, with the introduction of STP, the ATO will know in real-time when an employer hasn’t met their payroll and superannuation obligations.
Furthermore, STP does not only apply to just employees’ salary and wages. It also applies to other payments such as director’s fees and, with withholding obligations having to be calculated on a weekly, fortnightly or monthly basis, gone are the days when an employer could wait until year end to calculate how much to pay as a director fee or wages. This could result in the ATO levying a penalty against an employer for non-compliance with payroll and superannuation law. And to make the matter even more tricky, it looks like all employers will be required to use STP by 1 July 2019.

Not all is bad – this is a good opportunity for employers to get on top of their obligations and bring forward their tax planning for the year which can provide more relevant and timely information for their businesses. It’s important to get this right and understand your obligations as an employer in an increasingly regulatory environment. There’s no better time than now to setup an appointment with your accountant to discuss these matters in detail.

Should you require further information, we are always here to help. Please get in touch with our team.

 

Jamie Arrington – Manager

B.Com CA