Firm Journal

What to consider in an employee share scheme

Employee share schemes (ESS) provide employees with a financial share in the organisation that they work for. They can be offered by organisations as a way to grow their business by attracting, retaining and motivating their employees.

How they work:
ESS gives employees shares in the organisation they work for at a discounted price, and the opportunity to purchase shares in the future. The discount refers to the difference between the market value of the ESS interests, and the amount paid by the employee to acquire them. This discount forms part of an employee’s assessable income, and will need to be included in their tax return.

Employee share purchase plans offer eligible employees the chance to purchase shares from their employer, often through a loan. The shares can be paid through a salary sacrifice plan over a set period, or by using the dividends received on the shares. Employees who are on a higher income may be eligible to receive shares as a performance bonus or as a form of remuneration instead of receiving a higher salary.

Possible limitations:
There may be restrictions on when employees can buy, sell and access their shares through an organisation’s share scheme. For example, employees may have to get permission from the business before buying or selling their shares, or there could be an annual window during which shares can be bought or sold.

What to consider:
Employees should take time to research the organisation they are considering participating in an ESS with. This will help determine how well the scheme is doing, and whether the shares are likely to increase in value. To avoid losing a large part of your investment portfolio, consider purchasing shares that are part of a diversified investment plan.

Before entering into an employee share scheme, consider seeking professional financial advice that is specific to your circumstances.

Posted on 24 June '19 by , under money. No Comments.

How bullying brings your workplace down

Bullying is a serious issue in workplaces and can affect your business on many levels. Workplace bullying is where repeated and unreasonable behaviour is directed towards an individual or group of employees. It is considered to be workplace bullying where it poses a risk to health and safety.

Reduced productivity:
As people don’t perform well in high stress and anxiety situations, businesses will face a loss of productivity due to workplace bullying. When workers are distracted by bullying, research suggests that productivity could decline by 40%. Employees who are being bullied may also experience a loss in motivation, which will cause them to avoid putting in any effort or time into their work.

Higher staff turnover:
People that do not feel comfortable at work due to the effect of bullying will be inclined to look for work elsewhere. This can cause a business to have high rates of employee turnover, which will have significant economic impacts on the employer. This includes the replacement costs associated with recruiting, hiring and training new staff. A culture of bullying within a workplace can also create low morale, making the business even more susceptible to high turnover rates.

Financial impacts:
There can be many legal costs and other financial impacts associated with bullying within a business. In some cases, employers may be found to be liable for the bullying that takes place within their organisation. They may be required to pay for damages, costs of legal proceedings, or even settlements in more extreme cases. Further financial impacts may be associated with rehabilitation costs if the bullied worker chooses to stay with the business. These costs may include counselling fees, team-building activities or anger-management training.

Posted on 24 June '19 by , under business. No Comments.

Penalty interest deductibles

The ATO has recently replaced the Taxation Ruling (TR) 93/7W on whether penalty interest is deductible to the new TR 2019/2. This new ruling highlights the circumstances in which penalty interest is deductible and the situations where it is not.

“Penalty interest” refers to an amount charged by a lender to a borrower under a loan agreement if instalments are not paid. The payable amount is then calculated by reference to a number of months of interest that would have been received.

TR 2019/2 says that penalty interest is generally deductible under section 8-1 where:

  • The borrowings are incurred when gaining or producing your assessable income; or
  • It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

Penalty interest that is incurred to discharge a mortgage is also deductible under section 25-30, to the extent that borrowed funds were used to produce assessable income. The ATO makes a note that unlike the general deduction provisions, there’s no influence from the expense being capital or revenue in nature.

You cannot deduct a loss or outgoing under section 8-1(2) to the extent that:

  • It is of capital or capital in nature.
  • It is of a private or domestic nature.
  • It is incurred in relation to gaining or producing your exempt income; or
  • A provision of the Act prevents you from deducting it.

Posted on 24 June '19 by , under tax. No Comments.

Is your SMSF adequately diversified?

When forming a fund’s investment strategy, diversification is a notable consideration for SMSF trustees. By spreading the investments of a fund across different asset classes and markets that offer varying risks and returns, SMSF members can better position themselves for a secure retirement.

Why diversify?
The intention of diversification is to spread the investment risk of an SMSF. The idea is that if one asset underperforms, it can be offset by the success of other assets and keep the fund on track to meet its investment objectives. Diversifying investments across uncorrelated assets, such as shares and bonds, may also make it possible for investors to lower the volatility of the portfolio.

How to diversify your fund:
Accessing certain asset classes can be challenging for SMSFs due to minimum investment requirements or other ownership restrictions. Managed funds and exchange-traded funds (ETFs) are two options that can provide easy access to diversification. Managed funds pool together money from multiple investors which professional managers then invest in a variety of assets, such as global or local shares, offshore property or high-yield investments. ETFs, on the other hand, aim to replicate the performance of a particular index or group of assets, which can give an investor exposure to an entirely different market or asset class. These two methods can give SMSFs the ability to access more diverse investments.

As having an appropriately diversified portfolio can have a significant impact on members’ retirement savings, trustees may consider seeking professional financial advice in the management of their SMSF’s investment strategies.

Posted on 24 June '19 by , under super. No Comments.

Good record keeping practices

Starting your business with a good record keeping system can help you track your business performance, meet reporting responsibilities and access financial history with ease. Since different rules apply to different types of documents, the length of time that a business needs to retain documents depends on what the documents are. Some businesses may need to keep documents indefinitely.

The seven year principle is recommended as a base due to the fact that seven years is sufficient time for defending tax audits, lawsuits and potential claims. Government departments and organisations, such as the Australian Securities and Investment Commission (ASIC) and The Fair Work Ombudsman (FWO), require company and employee records to be kept for seven years.

Owners should note that there are some circumstances where it may be required to keep documents for more than seven years. For example, documents relating to intellectual property rights, such as trademarks and copyright should be kept indefinitely by businesses. These documents should be retained for as long as the rights in the intellectual property exist.

Financial, legal, employee, policy and procedural records are the main categories of documents that a business will need to retain. Keeping good records can save you a lot of time and money when a situation arises as you may need to rely on these files if disputes or other issues appear in your business.

The general standards for record keeping in Australia are as follows, documents need to;

  • Be in writing, either on paper or electronically.
  • Be written in English.
  • Explain all transactions.

There are benefits and risks to storing files both on paper and electronically. The most important thing to remember, regardless of storage method, is to back up your records. A combination of both methods can ensure you have documents available when needed.

Posted on 18 June '19 by , under business. No Comments.

First Home Super Saver Scheme

The First Home Super Saver (FHSS) scheme was introduced in the Federal Budget 2017–18 to reduce pressure on housing affordability. The scheme allows people to save money for their first home inside a superannuation fund, helping first home buyers to save faster. Changes introduced to the FHSS scheme in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019, will come into effect on 1 July 2019.

The FHSS can now only be applied to a first home that is bought in Australia, as opposed to previously being in any location.

Another change is that individuals must now also apply for and receive an FHSS determination from the ATO before signing a contract for their first home or applying for the release of FHSS amounts. A contract can be signed to purchase or construct a home either:

  • From the date a valid request to release your FHSS amounts is made;
  • Or up to 14 days before a valid request to release your FHSS amounts is made.

There is no longer a waiting period between the first FHSS amount being released and signing a contract to purchase or construct the home.

Individuals now have 12 months from the date they make a valid release request to do one of the following:

  • Sign a contract to purchase or construct the home and notify the ATO within 28 days of signing;
  • Or recontribute the assessable FHSS amount (less tax withheld) into their super and notify the ATO within 12 months of the valid release request date.

These changes apply retrospectively to valid FHSS release requests and contracts entered into on or after 1 July 2018.

Posted on 18 June '19 by , under super. No Comments.

Tax planning tips for businesses

Although the 2018-19 financial year is coming to an end, there are still a number of tactics you may be able to employ to ensure that you get the most out of your tax return.

Bring forward expenses:
It is a common recommendation at tax time for small business owners to claim all of the appropriate deductions that are available. These can include rent, utilities, repairs for the business, or work-related travel. You may also consider bringing forward as many expenses as possible to before 1 July, such as pre-paying rent or repair expenses. This can allow you to claim the necessary deductions in your 2018-19 tax return.

Take advantage of the instant-asset write off:
More business owners can take advantage of the instant-asset write off this financial year, as it has now been extended to include businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction of up to $30,000 for assets purchased or installed and ready for use from 2 April 2019 until 30 June 2020. This could be particularly helpful for individuals who rely on tools, cars or other assets.

Keep strong records:
As a good recommendation to keep in mind for the end of each financial year, keeping up-to-date records can make tax time a little easier next year. It’s never too late to start getting your records in order, so consider keeping all of your documents together once you have filed your 2018-19 tax return. As an added benefit, a well-detailed set of records is the easiest way to resolve any issues that you may face with the ATO.

Posted on 18 June '19 by , under tax. No Comments.

Ratio analysis methods for your business

Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance. By using ratio analysis methods, you can gain insight into a company’s liquidity, efficiency and profitability by comparing the information contained in its financial statements.

Solvency:
Solvency ratios measure the company’s capacity to fulfil long-term financial commitments. Debtor days is one of the key measures of this ratio analysis method. It shows the average number of days that a business takes to collect invoices from their customers. The longer it takes to collect, the greater the number of debtor days. When debtor days increase beyond normal trading terms, it indicates that the business is not collecting debts from customers as efficiently as it should be. The formula for working out debtor days is:

(Trade receivables ÷ Annual credit sales) x 365 days

Profitability:
Profitability ratios help measure and evaluate the ability of a company to generate income relative to revenue, balance sheet assets, operating costs and shareholders’ equity during a specific period of time. The net profit margin measures what percentage of each dollar earned by a business ends up as profit at the end of the year, the formula is:

Net income ÷ Total revenue = Net profit margin

Posted on 11 June '19 by , under money. No Comments.

Tax time changes

The ATO will start processing 2018-19 tax returns on 5 July 2019 and are expected to start paying refunds from 16 July 2019, with the majority of electronically-lodged current year tax returns completed within 12 business days of receipt. There a few changes to tax returns that individuals should take note of going into this end of financial year.

Private health insurance statements:
From 1 July 2019, health insurers are no longer required to send private health insurance statements, it is now optional to send this information. Private health insurance information will be available in the pre-fill report, expected by mid-August. If it is not populated by then, taxpayers may need to request a statement from their health insurer.

Low and middle-income tax offset:
Taxpayers may be eligible for an income tax offset if they are an Australian resident for income tax purposes or their taxable income is in the appropriate income range. It is not compulsory to claim this offset, the ATO will work it out when their tax return is lodged.

Income statement:
Employers reporting through Single Touch Payroll are not required to provide a payment summary to their employees as income statements will replace them. Employees can access their income statements through ATO online services at any time. Employees will receive a notification through myGov when their income statement is ‘Tax ready’, so they can complete their tax return.

Posted on 11 June '19 by , under tax. No Comments.

Building the right team for your business

While hiring the right staff is a key element when running a business, to be successful you will need to build a strong team. Here are some tips on turning a group of individuals into a cohesive, collaborative team that will help your business to reach its full potential.

Have a vision:
When starting a new business, defining what your motivations are can help you to visualise the type of organisation you want to create. This can help your staff to know what you are aiming for and understand the goals of the business. Don’t just focus on your products or services, outline the principles and characteristics you wish to build in your organisation. For example, some of your core goals may be to have outstanding customer service or to create a supportive workplace. Once you have outlined your vision, you can use it as a guideline for both you and your employees.

Involve your staff:
By getting your employees involved in the day-to-day operations of your organisation, it will allow them to use their strengths to integrate and develop into the business. Challenge your staff by giving them timelines or specific goals to strive for. If they have achieved these, acknowledge their success. This will motivate them to work hard if they know they are being recognised for their efforts. Consider team-building exercises or activities outside of work as a way to foster a friendly and positive environment. When your employees are happy and enjoy coming to work, this will reflect in your business.

Posted on 11 June '19 by , under business. No Comments.