SMALL AND MEDIUM BUSINESSES TO SAVE MORE THAN $300 MILLION OVER FOUR YEARS
The Government aims to reduce the reporting burden for small and medium businesses by raising financial reporting thresholds which have not been adjusted since 2007.
Currently, proprietary companies are considered to be ‘large’, for the purposes of ASIC reporting requirements, if they meet at least any two of the following
three thresholds for a given financial year:
- $25 million or more in consolidated revenue
- $12.5 million or more in consolidated gross assets; or
- 50 or more employees.
These ‘large’ proprietary companies are required to prepare and lodge a financial report, a director’s report and an auditor’s report with ASIC each financial
The thresholds will be doubled as follows:
- $50 million or more in consolidated revenue;
- $25 million or more in consolidated gross assets; or
- 100 or more employees.
Around a third of large proprietary companies (2,200 out of approximately 6,600) will no longer be classified as large and will therefore no longer be
required to comply with financial reporting and audit requirements. This is estimated to reduce the regulatory cost on these businesses by $81.3 million
annually, as the average cost of preparing and auditing financial reports is approximately $36,950 per company, per year.
Small proprietary companies will still be required by law to keep written financial records and may be required to prepare or audit financial reports if
directed by ASIC or five per cent or more of their shareholders. All other corporate obligations that apply to propriety companies will continue to
IMF BACKS NEGATIVE GEARING CURBS IN BROADER TAX REFORM
Taxation policy will be front and centre at the next federal election. In November, the International Monetary Fund (IMF) issued its annual report on the Australian economy with Federal Labor highlighting IMF comments on negative gearing.
In fact, the IMF has signaled qualified support for Labor’s plan to curtail negative gearing, while specifying that reducing tax breaks that encourage
excessive borrowing should be part of a broader tax reform and be rolled out carefully.
The IMF believes that tax reform would lift gross domestic product by 1.3%. IMF mission chief to Australia Thomas Helbling told The Australian Financial
Review that tax incentives for leveraged real estate and shares, as well as tax concessions for other assets, should be reviewed.
Mr. Helbling said the fund had long supported discouraging too much borrowing for assets including residential real estate.
We note that the IMF also took this position in February.
The IMF advocates raising more revenue from the 10 per cent goods and services tax and the removal of tax concessions to help fund a cut in corporate tax
to lift productivity and the economy.
The Coalition government warns that the Opposition’s proposal to end negative gearing for future investments, except newly built homes could cause a crash
in the housing market.
If it wins next year’s election, Labor would also reduce the 50 per cent capital gains tax discount to 25 per cent.
According to the IMF’s mission chief to Australia, Thomas Helbling:
- Negative gearing and the capital gains tax discount were only two aspects of housing taxation.
- Replacing state stamp duties on property sales with a broad-based land tax levied on the value of land should also be considered to encourage the efficient
movement of people and better use of land.
- Taxing transactions is very inefficient, and land is an ideal tax base that is under utilised in Australia.
While Federal Labor were happy with the IMF’S comments on their proposed negative gearing and capital gains tax changes the government maintained:
- The IMF’s headline finding is that “Australia’s recent strong growth is expected to continue” with growth picking up strongly to well above three percent
in 2018, driven by business investment and private consumption.
- Importantly, the IMF notes that this “strong economic momentum has resulted in further improvement in labourmarket conditions” and they see gradual
upward pressure on wages.
- It also says, “the cooling of the housing market is welcome and contributes to improving housing affordability”, noting that measures introduced by
APRA have reduced the share of investor and interest-only borrowing and lowered the risks to financial stability.
- The Government maintains its economic plan has delivered strong economic and jobs growth. Over the last financial year, almost 350,000 jobs were created,
the largest number in any financial year since 2004. Unemployment is down to 5.0 per cent, and there are now more than one million additional people
in work than when they came into office five years ago.
PRIVATE USE OF BUSINESS CARS
In November, many tax agents were contacted by the ATO on behalf of their clients that have cars registered in their business name and have not lodged a fringe benefits tax return.
It is fundamental that a car fringe benefit occurs when a business owns or leases a car and makes it available for their employees’ private travel. Don’t
forget, business directors are also employees.
Private use of a company car includes:
- Employees using the car for private travel, such as travel between work and home
- Garaging the car at or near an employees’ home and making it available for private use-Even if the car is not used by the employee
Contact us if your circumstances have changed or you have any concerns in the area.
ESTABLISHING A CONTRACTUAL RELATIONSHIP
Check before deciding to engage
Before you decide to hire an employee, you conduct reference checks to determine their suitability to perform the role. Hiring a contractor requires a similar process.
When engaging contractors many businesses have no previous experience in using their services or understanding of their skills and quality of work. Engaging
contractors without conducting any checks can have the same consequences as hiring an employee without references. Although a contractor is legally
responsible their own work, in the event that something goes wrong, the time and money associated with court proceedings and potential damage to your
business and reputation can have serious consequences.
Before engaging any contractors to perform work for your business, undertake the necessary steps to ensure they are a reputable, legal business and will
provide you with the services you need.
The following key areas should be checked before deciding to engage in a contractual relationship:
· Licensing and legal requirements
Is the contractor you are engaging actually licensed to perform the work? If you are engaging a plumber or licensed tradesperson, ask to see a copy of
their qualifications. If in doubt, contact the training organisation to check that they were attained. It is not uncommon for apprentices to drop out
before completion of their qualifications.
· Contractors are also responsible for their own insurance and this can include professional indemnity, public liability, workers compensation and damage
to or loss of property.
· Before engaging a contractor, ensure you are provided with a statement of their current insurances to protect your business and assets.
Check that they comply with applicable health and safety laws. This is particularly important if the contractor has subcontracted or engaged staff to work
for them. The last thing you want is a serious health and safety breach on your premises, not to mention an injury or death which could have been prevented.
· Ask for references and work examples
A contractor should be able to provide references for at least three similar jobs that they have performed. Ask the referees how they sourced the contractor
(ascertain if they are friends or a professional relationship). Ask to see at least two examples of their previous work that can be verified by their
Ask friends, family and business associates if they can recommend someone to you and/or about their previous contractor experiences.
Refer to industry resources such as magazines, websites and forums. These sources of information usually provide contractors who are reputable and may
specialise in your industry.
· Be aware of anything out of the ordinary
If you contractor provides a home address, multiple phone numbers, has only been in business for a short period, or asks that you pay only in cash, you
might want to re-think engaging them. Be on the lookout for dodgy contractors and don’t risk your business.
$2 BILLION FUND TO TRANSFORM SMALL BUSINESS ACCESS TO FUNDING
The Federal Government aims to significantly enhance access to funds for small business across the country through the introduction of a $2 billion Australian Business Securitisation Fund and encourage the establishment of an Australian Business Growth Fund to provide longer term equity funding.
Small businesses find it difficult to obtain finance other than on a secured basis – typically, against real estate.Small businesses that have already
obtained finance secured against real estate, but wish to continue to grow, also find it difficult to access additional funding.
Even when small businesses can access finance, funding costs are higher than they need to be.
To overcome this and ensure that small businesses are able to fulfill their potential and continue to underpin economic growth and employment, the Australian
Business Securitisation Fund will invest up to $2 billion in the securitisation market, providing significant additional funding to smaller banks and
non-bank lenders to on-lend to small businesses on more competitive terms.
The Australian Business Securitisation Fund will be administered by the Australian Office of Financial Management (AOFM), consistent with their prior involvement
in the Residential Mortgage Backed Securities Market in 2008.
The Government is also in consultation with APRA and a number of financial institutions about the establishment of an Australian Business Growth Fund that
would provide longer term equity funding to small businesses. Many small businesses find it difficult to attract passive equity investment which enables
them to grow without taking on additional debt or giving up control of their business.
The Australian Business Growth Fund is expected to follow similar international precedents. By way of example, since its establishment in 2011, the United
Kingdom’s Business Growth Fund has invested some $2.7 billion in a range of sectors across the economy.
A similar fund has not emerged in Australia, in part, as a result of the unfavourable treatment of equity for regulatory capital purposes. APRA has indicated
that it is willing to review these arrangements to assist in facilitating the establishment of the Australian Business Growth Fund. To fast track its
establishment, the Government held a meeting of key stakeholders in Canberra during the last sitting period of 2018.
With more than three million small businesses employing around seven million Australians, enhancing small business access to funding is crucial for a stronger
LEGISLATION PASSED TO TARGET THE BLACK ECONOMY AND ILLICIT TOBACCO
The final piece of legislation designed to strengthen the Government’s response to illicit tobacco has passed through Parliament. The Morrison Government
has enacted theTreasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018and theExcise Tariff Amendment (Collecting Tobacco Duties at Manufacture) Bill 2018.
ABN AND GST REQUIREMENT FOR RIDE SOURCING
Running a ride-sourcing enterprise such as Uber means you must have an Australian business number (ABN) and be registered for goods and services tax (GST).
You can get an ABN and register for GST at the same time if you register online, or a registered tax or BAS agent can do this for you.
Your GST registration needs to start from the date you started ride-sourcing, regardless of your income.
When applying for an ABN, use the following details:
- type ‘taxi ride sourcing’ as your business description
- select ‘taxi driver (except owner/operator)’ or ‘taxi cab service’.
GST and ride-sourcing
If you provide ride-sourcing services you are likely to be carrying on an enterprise, given that you:
- intend to make a profit
- operate in a business-like manner
- mustprovide invoices to customers when required.
If you have an existing GST registration as an individual, for example an IT contractor, use the same GST registration for your ride-sourcing activities.
However, if you have a GST-registered company, you need two separate GST registrations – one for you and one for the company. A company is a separate legal
entity that must report GST separately.
Service fees or commission
The services provided by a GST registered facilitator are subject to GST if they are provided from the following:
- Wholly from within Australia or wholly through an Australian business carried on here.
-You can claim a GST credit for the GST you pay on service fees or commission if you’re registered for GST.
- Wholly or partly from outside Australia – and you haven’t provided the facilitator your ABN and a declaration that you are GST registered (then they
must assume that you’re not registered for GST, and GST will be applied).
You can’t claim a GST credit for the GST you pay on service fees or commission if you’re not registered for GST.
CLASSIFICATION OF EMPLOYEES
A key issue that emerged throughout 2018 was the classification of employees.
In August, the Federal Court decision in WorkPac Pty Ltd v Skene (2018) FCAFC 131 was very important with implications for a large number of employers.
The key finding was that Mr. Skene was entitled to annual leave.
The Court’s decision inWorkPac v Skeneconfirms that in considering whether an employee is a casual or permanent for the purposes of theFair Work Act 2009(Cth),
the approach adopted by the common law prevails. To be considered a casual, an employee must have no firm advance commitment as to the duration of
their employment or the days (or hours) worked. However, the decision leaves open the capacity of an employer to ‘set off’ the liability for leave
or other benefits against the casual loading, where such loading is clearly expressed as an identifiable amount.
The bare facts here are that Mr. Skene was a fly in fly out worker and a dump truck (week on/off) operator, working a 7-day roster at a central Queensland
mine for a 21-month period which ended on 17.4.2012.
He worked 12.5 hours a day for $50 (later $55) per hour and was not paid for each second week he had off. Crucially the work roster was set in January
Employers should consider doing the following in light of the Court’s decision:
- Review how their casual employees are engaged including the systems of work and work practices. How far in advance is there a stated commitment to
work agreed days or hours? Even if employees are rostered, can it be said that the engagements beyond the roster period are not fixed and are variable?
In undertaking this assessment, keep in mind that key features of casual employment include irregular work patterns, unpredictability and intermittency.
- Where practical, consider offering full-time or part-time employment and/or changing the work arrangements.
- Review their contracts to ensure that casual loadings are attributed a clearly identifiable amount and expressed to be able to set off with an identifiable
value for annual and personal leave that would otherwise accrue. The description of an employee as a casual in a contract, and the payment of casual
loading, are not decisive factors. However, the payment of a casual loading may be able to be set off against annual leave entitlements where there
is a specific amount or percentage of wages attributed to it.
Since 1.10. 2018, regular casual employees have been entitled to request their employment be converted to permanent full-time or part-time. A regular casual
employment is one where you’ve worked a pattern of hours on an ongoing basis for at least 12 months. For example, if you’ve worked an average of 38
hours a week for at least 12 months, you could ask for your position to be converted to a full-time job. If you’ve worked for less than 38 hours a
week, you can ask to be a part-time employee.
If you want to convert to a permanent position, you must submit the request in writing to your employer and they have the right to say no. However, this
must be done in consultation with you and there must be reasonable grounds for making the decision, such as the job not being required in the next
12 months or it would require a significant adjustment to the hours of work. The refusal must also be provided in writing within 21 days of the request.
There will be some employees who are happy to be casual enjoying the loading paid. However, the decision in Skene needs to be borne in mind by all employers.
Some employees will want permanent status to be eligible for mortgage loan finance. It is crucial that employers understand their obligations and exposures,
and this leads on to next issue which is employers seeking to classify employees as subcontractors. The reasons here are clear – there is no P.A.Y.G.,
annual leave or super to deal with. However, if there is still a “master servant” relationship such action is fraught with risk. Down the line this
could result in large superannuation guarantee assessments or an employer being held liable for a large workplace injury claim if the business had
not properly insured the risk of a “subcontractor” being held to be an employee. Here the risk is greatest when dealing with an individual contractor.
According to the ATO, a worker is more likely to be an employee where:
- The worker can’t delegate the work by paying someone else to do it
- The worker is paid for the time worked, a price per item or activity, or a commission
- The business provides all or most of the equipment, tools or assets or is reimbursed for the cost of purchasing them
- The business, not the worker, is legally responsible for the work done and rectifying any defects in the work
- The business has the right to direct the way in which the worker does the work
- The worker is not operating independently of the business
Given all that happened in 2018, it is recommended that all employers carefully review their workplace arrangements.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.