Changing from Sole Trader to Company Structure

It’s a common choice for a newbie business owner to operate using a sole trader structure, simply because it’s fast, easy and cheap to set up with minimal ongoing costs.

However, as the business grows, you may find yourself outgrowing the sole trader structure. If you hire employees, intend to seek investment to expand your business or simply wish to manage your personal liability, you may consider changing to a company structure.

What is a Company Structure

The law treats a company as a separate legal entity. This means that you will not be held personally responsible for the actions of your business. A company structure is also beneficial as it continues to survive even after the owners and directors can no longer run its operations.

Benefits of a Company Structure

  • Limit your personal liability as the personal assets of the owners cannot be applied for the payment of debts of the company, in normal cases.
  • Minimise tax liability as the company’s income is assessed as a separate entity. The profit of the company can be split into the retained earnings of the company after paying wages to the business owner, and income of the owners by way of share dividends. The company’s net profit is taxed based on the corporate tax rate which is lower than the marginal tax for individuals.
  • Ability to retain profits in the company to fund future growth.
  • Create a better and more legitimised brand image to customers and suppliers.
  • Raise significant capital for the business via securing funding from investors.

Capital Gains Event

The sale of a sole trader business to a company is a capital gains event, which would normally create a taxable capital gain for the sole trader. Under the replacement asset rollover, the capital gain on the sale of the business to the company is deferred if the transaction is structured as follows:

  • The sole trader transfers the business assets to the company (including any business liabilities) to the company in exchange for ordinary shares in the company.
  • After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company.

Implementation & Process

  • Establish the company structure.
  • Prepare the business sale agreement.
  • Transfer (sell) the sole trader’s business assets and liabilities to the company in exchange for ordinary shares in the company.

Note: After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company, but this does not prevent the company from subsequently issuing additional shares to another party, so as to bring a new investor or partner into the business.

 

At Fortiz Accountants, we routinely set up structures for business owners. Contact us if you are a sole trader with a growing business wanting to find out whether it’s worthwhile operating under a company structure (or even a trust structure) before taking the next step.

Useful Tips for Your Small Business in 2019

It’s the start of a new year for you and your business and a good time to review your business finances at just over the mid-year point of the financial year.

Maximise the $20,000 Depreciation Deduction

If you run a small business which has turnover of less than $10 million a year, you may be eligible for an instant asset write off. This means that you can claim a deduction for assets used for business purposes if it costs less than $20,000 and purchased between 1 July 2018 to 30 June 2019.

If the asset costs more than $20,000, the total of the cost must be put into a small business pool. Small business owners can claim 15% of that pool in the first year and then 30% after that. If by the end of financial year, your asset pool is below the $20,000 threshold, then the balance can be written off.

This deduction can be used to claim deductions for items used for your business, eg. furniture, equipment, machines, etc. Note that you can only claim deductions for the part of the cost that is used for your business. For example, if you were to purchase a laptop that you plan to use for your business 60% of the time and for private use 40% of the time, you must only claim the 60% of the cost in your depreciation deduction.

Note that if you are registered for GST, you must exclude the GST amount from the cost of the asset when you claim. Otherwise, if you are not registered for GST, you claim the whole cost, including GST.

Utilise the Small Business Income Tax Offset

If you run a small business as a sole trader with a turnover of less than $5 million in the financial years 2019-20, you may be eligible for an 8% “discount” from the tax of your business income, which can cut up to $1,000 from taxes payable. This rate is fortunately set to keep increasing in future years.

Seek Professional Advice

If you have just started a business, it may be beneficial to seek help from professionals, whether it is financial advice, legal advice, tax advice or a range of accounting services. They can assist you with your business and help you to avoid surprises and navigate any obstacles along the way.

Your accountant’s fees are fully tax deductible as business expenses in the year you incur them. Ask your tax agent about claiming professional advice fees in your next tax return.

Understand the Legal Structure of your Business

Small businesses should review their PAYG income tax instalments and notify the ATO if expected profit will be higher or lower than previous financial years.

Take Advantage of Small Business Concessions

Make sure that you have set-up the most appropriate legal structure for your business. There are 4 commonly used business structures in Australia: sole trader, partnership, company and trust.

It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • the tax you are liable to pay
  • asset protection
  • costs

You are not locked into any structure and you can change the structure as your business changes or grows.

If you’re unsure which structure to choose, contact us at Fortiz Accountants for advice and assistance with set-up.

Stay on Top of Superannuation Payments

Ensure that your business’s superannuation obligations are met on time, as you can only claim deductions when you make payment before the deadlines. Late payments are not deductible!

Maximise Deductions While Ensuring that they are Business-Related

 Be sure that you maximise deductions for expenses that you are eligible for. However, be careful not to claim unjustifiable expenses just because you think you can. If selected for an audit, the ATO will require you to provide invoices/receipts and in some instances, provide justification as to why these are business-related expenses. Understand your expenses in detail and how they relate to the production of business income.

Speak to an experienced tax agent if you have specific questions about what you can and can’t claim as a deduction.

Set Up a System Early On

 Even if you are just starting out with your business, setting up a system will help to reduce stress later on. Start how you want to finish! Documenting the ins and outs of your business will help prepare you not only for tax time but also help you to understand how your business is performing throughout the year. Cloud accounting software, such as, Xero, MYOB or QBO are very popular these days. Fortiz Accountants can certainly assist you with setting up your accounting software and can provide training on how to use your selected software.

Engage a Trustworthy Accountant

Dealing with ATO, ASIC and other government departments can be stressful for you and can often take time off what you’d rather be focusing on: your business.

Laws change constantly for many reasons, so having a good accountant behind you might be the best thing after sliced bread!

 

At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you have any questions on any of the tips above or if you are interested in working with us to ensure your business will thrive in 2019 and beyond.

Eliminate Division 7A Problems

Division 7A is an ATO integrity measure to ensure that private companies don’t make tax free distributions of profits to shareholders or shareholders’ associates in the form of payments, loans and debts forgiven.

These rules only apply where the companies have retained profits. Under Division 7A shareholders or associates who receive payments or loans from their private company must include the value of those payments or loans as unfranked dividends in their individual tax return. As these unfranked dividends will be taxed at the individuals marginal tax rate this is not a tax effective strategy.

Options to Eliminate Division 7A Loan Problems

  • Arrange for the shareholder enter into a share buy-back with the company to eliminate the Division 7A loan.
  • Arrange for the payments or loans repaid prior to the date of lodgement of the company’s tax return with the ATO.
  • Enter into a written Division 7A loan agreement prior to the date of lodgement of the company tax return. The Division 7A loan agreement must have a maximum seven year loan period (if the loan is unsecured) with interest and repayments dictated by the Division 7A legislation. The interest rate is based on the FBT interest rate.
  • Pay directors’ fees or wages in the 30th June financials to eliminate the Division 7A loan. The directors’ fees will be taxable to the individual but the company will receive a tax deduction for the payment.
  • Arrange for the director to sell assets to the company or take over some of the company’s liabilities.
  • ay a dividend (ideally franked).

ATO website: Loans by private companies

Draft Tax Determination: TD 2017/D3

At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you require any advice or assistance with eliminating Division 7A problems.

Challenges of Running a Food & Beverage Business

Do you run a busy cafe or restaurant? Or perhaps contemplating starting an F&B business or purchasing an existing one?

An F&B business owner faces many challenges, such as, ensuring that food prepared and served is of high quality, keeping track of inventory and ordering supplies in time, ensuring that all overheads are covered, marketing the business successfully, managing staff, attending to customers with discerning taste buds, contending with food handling regulations and council permits, just to name a few. To add to that mix, there are legal and taxation compliance aspects to contend with as well!

Here are 3 challenges from a financial and taxation perspective:

GST-Free Food Items

A common mistake made by F&B business owners is claiming refunds for GST credits on food supplies that are GST-free.

Some examples of GST-free foods are:

  • bread and bread rolls without a sweet coating (such as icing) or filling – a glaze is not considered a sweet coating
  • cooking ingredients, such as flour, sugar, pre-mixes and cake mixes
  • fats and oils for cooking
  • unflavoured milk, cream, cheese and eggs
  • spices, sauces and condiments
  • bottled drinking water
  • fruit or vegetable juice (of at least 90% by volume of juice of fruit or vegetables)
  • tea and coffee (unless ready-to-drink)
  • baby food and infant formula (for children under 12 months of age)
  • all meats for human consumption (except prepared meals or savoury snacks)
  • fruit, vegetables, fish and soup (fresh, frozen, dried, canned or packaged)
  • spreads for bread (such as honey, jam and peanut butter)
  • breakfast cereals.

Even though a particular food item appears in the GST-free list, it may still be subject to GST under one of the taxable rules. For example, bread rolls are GST-free unless they are sold in a restaurant. Always check ATO’s taxable food lists when working out the GST status of a food item, and ensure that you do not claim refunds for GST credits by coding 10% GST on GST-free purchases or charge GST on GST-free food. Keeping receipts and ensuring that your bookkeeping records tally with the receipts also goes a long way in the event of a GST audit.

Cash Economy

Over the course of the last financial year, the ATO has conducted approximately 11,000 cash business audits. It noted that seven out of 10 were forced to increase the amount of tax they paid.

Some of the options being explored by the Black Economy Taskforce include:

  • the possibility that Australians would no longer be able to receive wages in cash
  • industries classified as being at “high risk” of illegally taking secret cash-in-hand payments including cafes and restaurants could be subject to a minimum rate of tax, which they could claim a refund on if they can prove to the tax man that they should be paying a lower rate.

To avoid penalties in the event of a cash business audit, ensure that all cash transactions are properly recorded in your books. To put it simply, keeping cash transactions off the books to avoid taxes is tax evasion.

Paying the Right Salaries 

While keeping a tight watch on the bottomline is a must for every successful business owner, cutting costs by underpaying staff isn’t one of the options. Ensuring the right level of remuneration for your staff not only helps to keep staff happy and motivated, but also keeps the Fair Work Ombudsman away! Check the Hospitality Industry General Award Rates to ensure that your business is compliant!


One of our firm’s partners has over 15 years of hospitality experience. Therefore, she’s familiar with the changes going on in the industry, standard KPIs and most importantly, what NOT to do when running an F&B business.

If you are thinking of starting an F&B business or purchasing a cafe, or wondering how we can assist you with the accounting, bookkeeping or taxation aspects of your existing F&B business, we offer a complimentary 30-minute discussion at either one of our offices or on-site at your business premises. Contact us today to find out how we can assist you.

How to Get the Most Out of Your Accountant

A typical week goes something like this:

A client walks into one of our offices, wanting to switch accountants as his previous accountant let him down with a backlog of un-lodged business tax returns and isn’t responsive to enquiries or requests.

Or a client complains bitterly about paying too much taxes because her accountant didn’t advise her how to reduce taxes.

Or an otherwise astute business person decides to do his own bookkeeping instead of engaging a bookkeeper or an accountant.

Upon probing, it is usually uncovered that these clients do not respond to their accountants’ queries or requests for supporting documents (ie. invoices & receipts), are unwilling to pay for accountants’ advice, prefer to DIY just about everything or worse, haven’t paid their accountant’s bill!

When you contact an accountant, expecting not to pay for their advice, then it’s more likely than not that you will get stock answers or no advice at all. You wouldn’t pay $1 and expect to get a good cup of coffee worth $5, so why would you expect to get tax or financial advice for next to nothing?

Like you, accountants need to make a living. If your accountant spends a lot of time providing free advice, then your accountant isn’t going to stay in business for long.

What You Need to Do

Maintain open communications with your accountant throughout the year. It’s a two-way street. If you regularly ignore your accountant’s emails or requests for additional information/documents, then you can most certainly expect to wait a while for your accountant to respond to you.

Be organised. Giving documents or information to your accountant in dribs and drabs will most certainly result in more time spent on your file, which translates to higher fees.

Most importantly, if you want to get the most of your accountant, be prepared to allow your accountant the liberty to assist you with all aspects of bookkeeping, BAS returns, tax returns and so on. This will put your accountant in a good position to provide you with sound cashflow analyses, forecasts and projections, and allow your accountant to pre-empt you of any financial issues ahead, and in so doing, empower you to take the necessary action well in advance.

 

Not all accountants charge by the minute. At Fortiz Accountants, we certainly don’t charge extra for all business clients who are on monthly fee packages. We are always a friendly phone call away (when we are not engaged in client meetings) or contactable by text messages and emails during business hours. Make an appointment with us at either one of our offices to find out how we can assist you.

Tax Tips for Uber Drivers

Have you heard?

ATO has written to more than 60,000 Uber and other ride-share drivers, advising them to register for GST.

http://www.smh.com.au/business/ato-writes-to-60000-uber-and-other-ridesharing-drivers-asking-them-to-register-for-gst-20170629-gx12xb.html

If you have jumped onto the ride-share bandwagon and are providing ‘ride-sourcing’ services for a fare such as Uber, Shebah and GoCatch, here are some handy tips to guide you along!

First Things First

If you start to offer ride-share services without tax planning, you could soon find yourself with an ATO tax debt.

Don’t worry! We are here to help!

With just a bit of planning and organisation, you can ensure that you are on-track.

3 main things to note:

  1. Income which you earn from your ride-share activities is assessable income and must be reported in your income tax return.
  2. Deductions can be claimed for expenses that directly relate to providing ride-share services. This applies even if you operate your ride-share activities on a casual basis to supplement your income from another job or other business activities.
  3. Ride-share services are deemed to be taxi travel for GST purposes, so you will have to register for GST regardless of how much you earn from offering ride-share services. The $75K threshold does not apply.

What You Need to Do

  • Get an Australian business number
  • Register for GST regardless of how much you earn (ride-share is taxi travel for GST purposes)
  • Pay GST on the full fare
  • Only claim GST credits related to transporting passengers for a fare
  • Lodge business activity statements
  • Know how to issue a tax invoice (you need to provide one for fares over $82.50 if requested)

Deductions

Deductions can be claimed for the business use proportion of the following:

  • commissions, licensing or service fees paid to Uber, Shebah, GoCatch or other ride-share facilitators
  • costs of becoming a ride-share driver after you have started the official application process, such as medical and police checks, application fees etc.
  • costs associated with business use of car (petrol, servicing, depreciation, etc.)
  • tolls
  • parking
  • vehicle licensing or registration
  • mobile phone bills
  • safety equipment (such as high visibility vests)
  • insurance
  • tax accountant’s fee
  • bank fees (if you maintain a separate account for your ride-share work)

Non-Deductible Expenses

  • costs incurred before becoming a ride-share driver, or before the application process starts (such as attending information nights) are not deductible
  • costs of a normal drivers licence
  • fines (parking, speeding, etc)
  • clothing other than safety clothing
  • meals, drinks, etc purchased whilst on shift

Claiming a Deduction for Business Use of Your Car

There are two ways to claim a deduction for business use of your car:

  • Cents per kilometre:
    • Claim deductions of $0.66 per kilometre
    • This method is only available for distances up to 5,000km. If you cover more than 5,000 business kilometres, the maximum allowable claim is 5,000 km which is $3,300.
    • This method incorporates all car expenses including petrol, servicing, depreciation/write-off up to $20K, etc. You can make no further claim.
  • Logbook:
    • Your claim is based on the business use percentage of each car expense, which is determined by a logbook that must have been kept for a minimum 12-week period.
    • This logbook must be updated every 5 years.
    • You can claim all expenses that relate to the operation of the car, at your percentage of business use, as established from your logbook.

The choice of methods can be changed from year to year, depending on which is more favourable to your situation.

 

Prefer to speak to someone about applying for an ABN, GST registration, preparing your Business Activity Statement or annual tax return? Contact Fortiz Accountants to make an appointment for a discussion.

FY 2017 Year End Tax Tips for Businesses

With just 6 days to the end of the financial year, here are some tax tips for businesses.

Trust Resolutions

If you run your business in a trust structure, be aware that trustees are required to make trust resolutions before 30 June in relation to how trust income will be distributed among beneficiaries.

Write off Bad Debts

To obtain a bad debt reduction, a debt must not be merely doubtful and must be written off as bad during the year of income in which the deduction is claimed. The debt must have been previously included as assessable income.

For businesses who pay GST on an accruals basis, you will also be able to claim back a GST credit. If you have paid GST on a sale but did not end up receiving any payment for that sale then you are able to adjust your Business Activity Statement (BAS) accordingly.

Write-off Inventory

EOFY is a good time to conduct a stocktake to identify missing, slow moving, damaged and obsolete stock, which must be written off prior to 30 June to claim a tax deduction.

Review PAYG Income Tax Instalments

Small businesses should review their PAYG income tax instalments and notify the ATO if expected profit will be higher or lower than previous financial years.

Take Advantage of Small Business Concessions

If your business is a small business entity (SBE), you can access a number of SBE concessions. Your business is a small business entity if you are a sole trader, partnership, company or trust that:

  • operates a business for all or part of the income year, and
  • has an aggregated turnover less than $10 million (the turnover threshold).

Instant Asset Write-Off

If you are a small business, you can immediately deduct the business portion of most assets that cost less than $20,000 each if they were purchased from 1 July 2016 to 30 June 2017. This deduction can be used for each asset that costs less than $20,000, whether new or second-hand. You claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Instant Write-Off of Start-Up Costs

small businesses are entitled to certain deductions when starting up a small business. The range of deductible start-up costs includes professional, legal and accounting advice and government fees and charges.

Small Business Restructure Rollover

Small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another. This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.

Ensure your books are kept in order and up-to-date

Most importantly, ensure your books are kept in order and up-to-date. Timely recording of transactions results in real-time financial information being available to your accountant, who can then make accurate forecasts and provide useful tax planning advice well before the end of the financial year. Help your accountant to be your best business advisor by ensuring that the books are up to date, and all receipts have been provided.

 

Need assistance with bookkeeping, budgeting, forecasting, business strategy or tax planning? Contact us for a coffee chat to see how we can help.

Bookkeeping Using Xero

Even as certified Xero advisors, we are constantly amazed by the new features in Xero.

At their recent Xero Roadshow in Geelong, Xero demonstrated the ‘Find & Recode’ feature which allows automation of coding of invoices and bank transactions, how financial report templates can be edited to suit each business, and a host of other useful new features.

Xero is a user-friendly cloud-accounting software that suits a range of businesses. Whether you run a cafe, a travel business or retail business, there are heaps of add-ons that can be integrate other business software with Xero, such as, Kounta (point of sales software) and Preno (tourism & hospitality software).

Best of all, you can access your accounts and run your business from anywhere in the world, without emailing files to your accountant as everything can be done by the cloud and on the move, even from your smartphone!

 

Fortiz Accountants is a Xero certified advisor. Visit our website for more information about our bookkeeping & payroll services at https://www.fortizaccountants.com.au/services/bookkeeping-payroll/.

Business Benchmark: Restaurant

One question we are often asked by business owners is how their business fares compared to other businesses in the same industry. In this blog post, we share the key benchmarks for coffee shops.

Turnover up to $250K

Cost of sales to turnover: 38%
Labour: 20%
Rent: 15.5%
Vehicle expenses: 2.5%
Other expenses: 7%
Profit: 17%

Turnover between $250K to $600K

Cost of sales to turnover: 37%
Labour: 24.5%
Rent: 13%
Vehicle expenses: 1.5%
Other expenses: 12%
Profit: 12%

Turnover above $600K

Cost of sales to turnover: 35%
Labour: 29%
Rent: 9.5%
Vehicle expenses: 0.5%
Other expenses: 17%
Profit: 9%

 

One of our partners at Fortiz Accountants has extensive background in Hospitality and F&B operations. Contact us if you require any advice or assistance with ensuring the profitability of your F&B Business.

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