CNS Partners Blog
Below is a copy of our Tax Planning Checklist that we go through with every client. Unsure of the answers? Contact CNS Partners today on (07) 3356 7088 or admin@cnspartners.com.au and we'll make sure you're ready for Tax Time.
Is your Self-Managed Super Fund (SMSF) ready for the new financial year?
Last week the Federal Government delivered the 2017 budget. Most of the country is still trying to come to terms with the changes to superannuation resulting from the 2016 budget! Thankfully, 2017 was fairly uneventful, but what still needs to be done to your SMSF before 30 June?
In the 2015 financial year the $20,000 instant asset write-off was first introduced. Now in the 2017 budget the government has proposed to extend this accelerated depreciation for a further 12 months to 30 June 2018. Many small business owners are still confused. Is the government going to give me $20,000 to put towards buying assets for my business? No, they're not. Let me explain.
The $20,000 immediate deduction is therefore a timing difference in that you can get the full deduction over one year instead of over the assets effective life.
Here are some examples:
Oscar runs a small business and buys a new car for his business for $19,000. This is an outright tax deduction in the year of purchase and is deducted off the businesses taxable income. This is a tax saving of $5,225 (assume 27.5% tax rate).
Example 2
Zac runs a small business and buys a new car for his business for $35,000. The $35,000 asset will be depreciated at 15% in the year of purchase ($5,250 deduction) and 30% each year after that until the $35,000 cost is fully depreciated.
You can see from the above that overall both business owners get a full tax deduction for the asset purchased but in example 2 it is over a few years instead of one. The bottom line for me as an adviser is this – if you need new assets to help generate larger profits for your business then buy them and take advantage of the $20,000 accelerated depreciation. If you are purchasing just to save tax you are wasting your money.
If you do need new assets for your business and they cost less than $20,000 then it may be worthwhile purchasing before 30 June 2017 to gain access to the deduction in the current financial year. Assets purchased on or after 1 July 2017 will be deducted in the 2018 financial year.
On Tuesday 9 May 2017, the Treasurer, Scott Morrison, released the Government's 2017-18 Budget.
This year's Budget won't significantly impact retirees; however, there were plenty of changes announced that could affect you. We have summarised below changes that may affect our small business and self-funded retiree client base.For further information regarding these proposed changes, speak to your CNS Partners adviser.
It's important to note that at this point in time, these proposed measures are not yet law and may be subject to change.
Superannuation
Additional super contributions for downsizers
From 1 July 2018, individuals aged 65 and over will be able to make an after-tax super contribution of up to $300,000 ($600,000 for couples combined) from the proceeds of the sale of their home. This measure will only apply following the sale of a principal home held for a minimum of 10 years.
This new measure will not attract any special Centrelink treatment but it will allow eligible individuals to make contributions above the super caps, without being subject to work or age test requirements.
First home super saver scheme
To reduce pressure on housing affordability the Government will allow voluntary superannuation contributions to be withdrawn for a first home deposit.
- From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year, up to $30,000 in total, to superannuation for the purposes of this measure. Voluntary contributions can be made before or after tax and are subject to the relevant contribution caps.
- From 1 July 2018 those voluntary contributions (along with deemed earnings) can be withdrawn for a first home deposit.
- Withdrawals will be taxed up to an individual's marginal rate, less a 30% offset. Withdrawals of after-tax contributions will not be taxed.
0.5% increase in Medicare levy
From 1 July 2019, the Medicare levy will increase by 0.5% to 2.5% of taxable income. The increase ensures the National Disability Insurance Scheme (NDIS) is fully funded.
Increase to Medicare levy low-income thresholds
The 2016-17 financial year Medicare levy low-income threshold will be increased as follows:
|
Family status |
2016-17 |
2015-16 |
|
Single |
$21,655 |
$21,335 |
|
Single, eligible for seniors and pensioners tax offset (SAPTO) |
$34,244 |
$33,738 |
|
Couple |
$36,541 |
$36,001 |
|
Couple, eligible for SAPTO |
$47,670 |
$46,966 |
|
Additional threshold for each dependent child |
$3,356 |
$3,306 |
Reduced residential property deductions
From 1 July 2017, the Government will no longer allow deductions for travel expenses related to inspecting, maintaining or collecting rent for residential rental property. However, investors can continue to deduct those types of expenses incurred by third parties such as real estate agents and property management services.
In addition, from 1 July 2017, depreciation deductions on plant and equipment (for example dishwashers and fans) will be limited to outlays actually incurred on residential properties. For plant and equipment purchased after 9 May 2017, deductions are claimable over the effective life of the asset only by the investor who bought the items.
For investors with existing investments as at Budget night, grandfathering rules will apply, broadly allowing deductions to continue until either the investor no longer owns the asset or the asset reaches the end of its effective life.
Small business
Extending the immediate deductibility threshold for small businesses
The Government will extend the accelerated depreciation rules for small businesses by 12 months to 30 June 2018. This allows small businesses, with aggregate annual turnover of less than $10 million, to immediately deduct purchases of eligible assets up until 30 June 2018, provided the asset costs less than $20,000. Assets valued over $20,000 or more can be depreciated at 15% in the first income year and 30% each income year thereafter.
The above is by no means an exhaustive list but simply some of the key issues that our small business clients may be interested in or affected by.
At this time of year we stop and take stock of the most important person in many of our lives – our Mums.
As the end of financial year (EOFY) fast approaches many clients ask me what they can do to get ready for it. Here are the three most critical items every business owner should get sorted before 30 June:
1. Tax Planning
Understanding what the potential tax liability will be for your business and allowing time for tax planning may save you thousands of dollars. By better estimating your taxation liability you will be able to budget for this cash outflow in your business. Arrange a time to sit down with your adviser as soon as possible to allow time to implement any plans.
2. Finalise Goals, Plans and Budgets
It is important to set the goals for the year ahead before it gets underway. Once these goals are established the business plan can be adjusted to ensure it aligns with the goals. As a final item the financial budget should be established or reviewed for the year ahead. These budgets should then be regularly reviewed and measured against as the year progresses.
3. Accounting Software
A new financial year is a great time to make a change if your current accounting software is not meeting your business needs. Online software such as Xero is great as it allows for regular contact with your adviser. The software should also have the ability to handle budgets, payroll functions and automate as many tasks as possible. This will save you valuable time and money.
Overall interaction with your accountant is a must as this time of year. This will allow you to start the new financial year with the above items sorted and be ready for a successful and rewarding 2018 financial year!
If you need help with your EOFY preparation or with getting 2018 on the right track contact Scott Grady at scott@cnspartners.com.au or (07) 3356 7088.
Twelve months ago I met with a client with a trade service business that had turned over $700,000 for the year with a net profit of $20,000 (and no wage paid for the owner). He was working six days a week and seemed to be getting nowhere. He was fixated on the hourly rate charged by his business and his competitors businesses and paid little attention to the input required to complete a job.
All too often business owners settle on a price for services based on what they think the market dictates. They put little thought into the inputs required to provide this service. By analysing what it cost to provide the service business owners can firstly ensure that the price is set at a level that ensures profit and also the business owner can reduce unnecessary costs associated with providing the service.
The overall change in net profit was a staggering $69,000.
We recently met with a client to discuss their business and how it was performing. The conversation moved onto retirement and we asked the simple questions :
The client was under the impression that they would simply put the business on the market when they were ready to sell and receive a payment that would assist in meeting their needs in retirement.
We assisted in preparing a succession plan which dealt with the following:
- The possible business structures required
- Key personnel required
- Legal considerations
- Personal insurances
- Taxation considerations
The succession is still a few years off but the client now has a clear understanding of what the transaction will look like and how much money they can realistically extract from the transaction.
If you are in this position and would like help preparing a succession plan or to discuss the options for your business' future please contact Scott Grady at scott@cnspartners.com.au or 3356 7088.
Retirement – Will You Have Enough Money?
How much money do we need to fund this bucket list? Where is the money coming from?
Achieving your desired financial position takes planning, management and time! One of the best vehicles to achieve this is Superannuation, but who even thinks about it? By retirement age, super is usually the second biggest asset you will have, following the family home.
Act NOW – it's never too early but it can get too late!
If you would like to discuss strategies for generating wealth for retirement, please contact Alan King, either at alan@cnsfinancial.com.au or (07) 3188 0234. Or join us at our next work shop '3 Secrets To Financial Success For Business Owners' (Tickets available at: Eventbrite.com/e/3-secrets-to-financial-success-for-business-owners-tickets-32915221313).
A couple of years ago I met with some business clients who were unhappy with the profits they were generating from their business. They had been in business for twelve years and were making a profit of $60,000 per year. This was for two full time business owners who were not drawing a wage on top of this profit figure. HELP!
Rather than starting with what was going wrong in the business we discussed what their business financial goals were and their personal financial goals. To my amazement they did not have any goals. They just felt like they were working too hard for the little return that they were generating.
We immediately brainstormed what they wanted out of their business, both financially and non-financially, and then what they wanted financially to be paying themselves from the business. We also discussed what they could do with the money if they were able to achieve the numbers they desired.
Once we had down on paper what the client wanted to achieve the rest of the plan came together very quickly. The client was able to detail a business life plan, we assisted in the creation of a business budget and a personal budget. The client now had direction and could make decisions based on what they wanted to achieve.
Two years on and the clients are happy. They are achieving the goals that they set for themselves way back in the original meeting. All it took was time to stop, think about what they wanted and plan how to get there.
If you would like to discuss your business financial goals, please contact Scott Grady, either by email scott@cnspartners.com.au or (07) 3188 0232 or join us at our next work shop '3 Secrets To Financial Success For Business Owners' (Tickets available at: Eventbrite.com/e/3-secrets-to-financial-success-for-business-owners-tickets-32915221313).
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