CROWD SOURCED FUNDING

Mih Chowdhury C Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
CROWD SOURCED FUNDING
EQUITY RAISING OVERVIEW
Paper 003-055
CONTENTS
Page
1. What Is Crowd Sourced Funding? 3
2. Stage I of the CSF Legislation Journey in Australia 3
3. Stage 2 - Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018 4
4. Small Proprietary Company 4
5. CSF Shareholder 5
6. Eligible CSF Company 5
7. Issuer Cap 5
8. Fundraising in Addition to a CSF Offer 6
9. Annual Financial Reports and Directors’ Report 6
10. Small Proprietary Companies – Shareholder Directions 6
11. CSF Audit Threshold 6
12. Primary Issue Only 6
13. Making a CSF Offer 7
14. Corporate Governance Concessions 7
15. CSF Intermediaries – Financial Services Licensing Requirements 8
16. Australian Market Licence (AML) 8
17. The Obligation of a CSF Intermediary 8
18. Stages of a CSF Offer 9
19. CSF Investors 9
20. General Investor Protections 10
21. Investor Protections For “Retail Clients” Only 10
22. When is a CSF Document Defective? 11
23. Obligations in Relation to Defective Documents 11
24. Investor Rights – Defective Documents 11
25. Criminal and Civil Liability 11
26. ASIC 11
27. Professional Advice 12
CROWD SOURCED FUNDING
EQUITY RAISING OVERVIEW
Paper 003-055
This paper covers the journey from an enquiry to the preparation of the Crowd Sourced Funding Offer Document.
1. What Is Crowd Sourced Funding?
Crowd Sourced Funding (CSF) is a type of corporate capital raising whereby a company seeks funds, in small amounts, from a large number of individual investors in return for securities in the company. CSF involves:
• Companies (issuers) that propose to raise funds;
• Intermediaries that host the platform through which offers are made to crowd investors;
• Crowd investors.
CSF has developed over the last six years in other countries as an online phenomenon, utilised particularly by small start-up companies seeking seed capital, as a complement to more established financing options involving professional investors, such as angel investing and venture capital.
However, the legislative framework in Australia presented barriers to CSF. Proprietary companies have been limited to 50 non-employee shareholders and are prohibited from making public offers of securities, while public companies are subject to governance, reporting and disclosure requirements that may be too onerous for a small business.
2. Stage I of the CSF Legislation Journey in Australia
The legislation known as the Corporations Amendment (Crowd-Sourced Funding) Bill 2017 was passed by the Australian Parliament in March 2017.
The legislation authorised capital raising utilising Crowd Sourced Funding Equity Raising to commence from September 2017.
The Australian Security Investment Commission (ASIC) finalised the appointment of the initial group of Crowd Sourced Funding Intermediaries in early January 2018 thus enabling Crowd Sourced Funding Equity Raising to commence.
The Bill provided for the addition of a new Part 6D.3A to the fundraising provisions of the Corporations Act. The new Part provided for a disclosure regime that can be used instead of the existing fundraising disclosure requirements for certain offers of securities for issue in small unlisted companies.
In Stage I only unlisted public companies were able to use CSF.
However proprietary limited companies could convert to an unlisted public company so that they were able to utilise this legislation. During 2017 the government announced proposals to introduce amendments relating to crowd sourced funding equity raising which would enable private companies to raise capital from the public without having to convert to an unlisted public company.
3. Stage 2 - Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018
The legislation which was originally introduced into parliament as a 2017 Bill was passed by Parliament on 12 September 2018. The Act commences on the 28th day after the Act receives the Royal Assent. This Paper summarises the ongoing position that applies under the new legislation.
Royal Assent was granted on 21 September 2018 – the amendments operate from 19 October 2018.
4. Small Proprietary Company
1. A small proprietary company needs to be limited by shares or be an unlimited company with a share capital.
2. A small proprietary company needs to:
(a) have no more than fifty shareholders, although employee shareholders and shareholders connected with CSF offers do not count for this purpose; and
(b) not do anything to require disclosure to investors under Chapter 6D – except for:
An offer of its shares to:
(i) existing shareholders of the company; or
(ii) employees of the company or a subsidiary of the company; or
(iii) a section 708 of securities that are of the same class as those offered under the CSF Offer; or
(iii) a CSF Offer.
3. A CSF shareholder (or an entity that has acquired a security of the company that was originally issued to another entity pursuant to a CSF Offer by the company) is not counted as a shareholder of the proprietary company.
4. A proprietary company must not engage in any activity that would require disclosure to investors.
5. Small Proprietary Limited Company
Counted Not Counted
Ordinary shareholders Up to 50
Employee shareholders 
s708 Capital Raising (included in 50) 
6. CSF Company
Counted Not Counted
Ordinary shareholders Up to 50
s708 Capital Raising (included in 50) 
Employee shareholders 
CSF shareholders 
Shareholders who owns shares originally issued as a CSF shareholder shares 
5. CSF Shareholder
CSF shareholder of a proprietary company means an entity that holds one or more securities of the company due to being issued with the securities pursuant to a CSF Offer by the company.
6. Eligible CSF Company
1. At the time of the offer, the company making the offer must be an ‘eligible CSF company’, which is a company that satisfies the following conditions:
• it is a public company limited by shares;
• or the company is a small proprietary company (section 45A(2) that:
- has at least 2 directors
- with its principal place of business and a majority of its directors in Australia;
• the value of the consolidated gross assets of it and its related parties must be less than $25M at the time it is determining its eligibility to crowd fund (the “assets test”) (a related party, for the purpose of the CSF provisions, is a related body corporate or an entity controlled by a person who controls the company or an associate of that person);
• the consolidated annual revenue of it and its related parties must be less than $25M (the “turnover test”);
• neither it nor a related party is a listed corporation (as listed corporations generally have access to other forms of equity raisings such as rights issues and share purchase plans);
• neither the company, nor any related party of the company is included in an official list of a financial market operated outside this jurisdiction;
• neither the company, nor any related party has the intention of utilising the funds sought to be raised by the offer to issue a credit facility to the company or a related party of the company.
• The Explanatory Memorandum tabled in Parliament by the Minister for Small Business and Assistant Treasurer relating to the “Corporations Amendment (Crowd-Sourced Funding) Bill 2015 commented as follows:
“The company must not intend the funds sought under the offer to be used by the company or a related party of the company to any extent to invest in securities or interests in other entities or managed investment schemes.”
2. A CSF company only has to have an audit if it has raised a total of $3M or more.
7. Issuer Cap
The offer must comply with an “issuer cap” of $5M in any twelve month period, calculated taking into account:
• the amount sought to be raised under the current offer;
• all amounts raised from previous CSF Offers made within the twelve month period preceding the current offer;
• all amounts raised from small scale personal offers exempt from disclosure pursuant to s.708(1) within the twelve month period preceding the current offer;
• all amounts raised from certain offers made through the holder of an Australian Financial Services Licence (AFSL) and exempt from disclosure pursuant to s.708(10), within the twelve month period preceding the current offer.
8. Fundraising in Addition to a CSF Offer
In addition to the $5M that can be raised under the CSF regime, a company can raise funds from:
• sophisticated investors
• professional investors
Fundraising from these persons does not require a disclosure document under the current fundraising disclosure provisions in Chapter 6D of the Corporations Act (s.708(😎, 708(11)).
9. Annual Financial Reports and Directors’ Report
A Financial Report and a Directors’ Report must be prepared for each financial year by (section 292):
• all public companies
• a small proprietary company has to prepare the Financial Report and Directors’ Report only if (section 292 (2)):
(i) it is directed to do so under section 293 (refer item 10);
(ii) it has one or more crowd sourced funding shareholders at any time during the financial year (section 292 (2) (c).
10. Small Proprietary Companies – Shareholder Directions
Shareholders with at least 5% of the votes in a small proprietary company may give the company a direction to (section 293):
(a) prepare a Financial Report and Directors’ Report for a financial year; and
(b) send them to all shareholders.
The direction may specify all or any of the following:
(a) that the Financial Report does not have to comply with some or all of the accounting standards;
(b) that a Directors’ Report or a part of that Report need not be prepared;
(c) that the Financial Report is to be audited.
11. CSF Audit Threshold
The Audit Threshold for a Crowd Sourced Funding Company is $3 Million.
12. Primary Issue Only
The offer must be for a primary issue of securities of the company making the offer: it cannot be for secondary sale of those securities.
13. Making a CSF Offer
An issuer must, for each CSF Offer:
• prepare a CSF Offer Document containing clear, concise and effective information, as specified in the regulations (for instance, information about the company and its business, the securities on offer, how the proceeds from the offer will be used);
• in the CSF Offer Document, the following information needs to be shown:
- a description, or a summary, of the key provisions of the offering company’s constitution that deal with any rights and liabilities that attach to the securities in the issuing company (this information will be required from a public company as well as a small proprietary company that are seeking to raise Crowd Sourced Funding Equity Raising Capital);
• small proprietary companies that have one or more CSF shareholders are bound by the related party transactions rules contained in the Corporations Act as if the small proprietary company was a public company: (Section 738ZK);
• the related party transaction rules are designed to protect the interests of a proprietary company with one or more CS F shareholders as a whole, by requiring approval for giving financial benefits to related parties that could endanger those interests.
• obtain the consents of persons associated with the offer document;
• publish the offer document (including, or together with, the offer itself) on the platform of a single CSF Intermediary;
• have only one CSF Offer open at any one time;
• not have a CSF Offer open at the same time as a CSF Offer of a related party (this avoids circumvention of the issuer cap).
An issuer has the power to withdraw a CSF Offer at any time before the Offer is complete by notifying the Intermediary. Other stages of a CSF Offer are mostly under the control of the Intermediary. Refer to Section 15 and 17.
Issuers have particular responsibilities when a CSF Offer Document is found to be defective. Refer to Section 22.
The regulations also clarify that the description of the rights attaching to a company’s securities also covers rights and liabilities arising out of the company Constitution and Shareholders Agreements and there must be disclosure of any restrictions that apply to the company in relation to the off market transfer of shares, including any rights of the directors to refuse to register a transfer of shares in the company including where such a transfer would bridge the fifty shareholder cap.
The requirement to summarise the key terms of a company’s Constitution applies to both public and proprietary companies.
14. Corporate Governance Concessions
These concessions only apply to a public company or a proprietary company that converted to a public company and the required application was lodged before the “eligibility end day”.
“Eligibility end day” means the day, 28 days after the Royal Assent was given to Corporations Amendment (Crowd Sourced Funding for Proprietary Companies) Bill 2018 – 19 October 2018.
The legislation provides a CSF issuer with corporate governance concessions for five years from the date of registration as a public company if it:
• satisfies the CSF eligibility criteria at the time of registration as a new public company and at the end of the relevant financial year; and
• intends to crowd fund at the time it is registered; and
• completes a CSF Offer within twelve months of registration.
The corporate governance concessions are:
• an exemption from holding a physical Annual General Meeting;
• the option to provide financial reports to shareholders online only;
• not being required to have audited Financial Reports until more than $3M has been raised from CSF offers or other fundraising offers requiring disclosure.
15. CSF Intermediaries – Financial Services Licensing Requirements
A CSF Intermediary must hold an AFSL (Australian Financial Services Licence) to provide a crowd-funding service, which is a new category of financial services created under the Bill.
A person provides a crowd-funding service if:
• applications may be made to the person for the issue, by an issuer company, of securities pursuant to the offer;
• a CSF Offer Document relating to securities of a company is published on a platform operated by the person.
The crowd-funding service is provided to:
• the issuer (when the issuer enters into the hosting arrangement for the offer of securities with the Intermediary);
• potential investors who apply for CSF securities through the Intermediary’s platform (when the investors first use the Intermediary’s application facility to apply).
16. Australian Market Licence (AML)
In some circumstances, the operations of a CSF Intermediary may require it to hold an Australian Market Licence (AML).
17. The Obligation of a CSF Intermediary
The obligations of the Intermediary include:
• Gatekeeper obligations, which require the Intermediary to conduct certain checks (which are prescribed in the regulations) to a reasonable standard before publishing an issuer’s Offer Document on its platform and not to publish an offer if the Intermediary:
- is not satisfied about the identity of the company making the offer, or of any of the company’s directors or other officers;
- has reason to believe that any of the company’s directors or other officers are not of good fame or character;
- has reasons to believe that the company, or any of its directors or senior managers or officers, has knowingly engaged in misleading or deceptive conduct in relation to the offer, for instance, by providing misleading information in response to a post on the communications facility;
- has reason to believe that the offer is not eligible to be a CSF Offer (for instance, if it does not comply with the issuer cap);
• to have adequate arrangements, recorded in writing, to ensure that it complies with its gatekeeper obligations;
• to provide an application facility, reject applications not made via that facility (to ensure that applicant investors are aware of, and receive, the various investor protections) and not allow an application to be made while an Offer is suspended or when it has closed;
• to provide a communication facility to allow potential investors, the issuer and the Intermediary to communicate with each other about a particular CSF Offer. This facility should enable:
- investors to make and see posts relating to the offer and ask the issuer or the intermediary questions relating to the offer;
- the company or the Intermediary to make posts responding to questions and other posts (officers, agents and employees of the issuer or the Intermediary must disclose their status when making posts on the facility);
• to display prominently on the offer platform:
- the CSF risk warning (the terms of which, to be specified in the regulations, will include the potential risks associated with, and high failure rates of, start-ups and emerging companies);
- information on investors’ cooling-off rights (including the means by which investors can exercise these rights);
- fees charged to, and interests that the intermediary has or intends to take in, an issuer company;
• to comply with the prohibition on giving financial assistance to a retail client to purchase securities pursuant to the CSF Offer;
• to close or suspend the offer as required;
• to deal with application money appropriately.
The provision of a crowd-funding service includes all these Intermediary’s obligations. This wide meaning of ‘crowd-funding service’ will ensure that all the Intermediary’s activities will be subject to the general obligations of a licensee (s.912A), such as the obligation to provide the service ‘efficiently, honestly and fairly’.
Intermediaries have particular responsibilities when a CSF Offer Document is found to be defective. Refer to Section 22.
18. Stages of a CSF Offer
CSF Intermediaries play a key role in determining when CSF Offers are made, open, closed, suspended and complete.
The maximum duration for a CSF Offer is three months from the time the Offer was made. This maximum offer period ensures that the information contained in the CSF Offer Document remains current and is consistent with the notion of CSF as a simpler, faster way of raising funds with streamlined disclosure.
When an Offer is complete (that is, when the minimum subscription condition is met, disregarding any withdrawn applications), the Intermediary must pay the application money to the issuer following the issue of the securities. If the minimum subscription amount is not raised, the Intermediary must refund the application money to the applicants.
19. CSF Investors
CSF Investors must:
• make their applications in response to a CSF Offer via the Intermediary’s offer platform, to ensure that they have the various protections of the CSF regime (such as the communication facility, the risk warning and cooling-off rights);
• provide the application money via the Intermediary, to ensure that the money is handled according to the client money provisions and is subject to the CSF rules for when money is paid to the issuer and refunded to applicants.
20. General Investor Protections
Issuers and Intermediaries must comply with the stipulated advertising rules. For instance, an advertisement or publication about a CSF Offer must include a statement that a person should, in deciding whether to make an application under the offer, consider the CSF Offer Document and general CSF risk warning.
There is an exception from the advertising rules for publishers and the publication of certain reports and notices.
There is also an exception for statements made in good faith on the Intermediary’s communication facility. However, the onus is on the person making the statement to show that it is made in good faith.
Persons will be prevented from offering securities for issue or sale through an unsolicited meeting or telephone call (a practice known as “securities hawking”), regardless of whether the offer is identified as a CSF Offer.
ASIC will have “stop order powers” in relation to advertising and publications that are misleading or deceptive or that do not draw attention to the CSF Offer Document or the general CSF risk warning.
21. Investor Protections For “Retail Clients” Only
When providing a crowd-funding service to a person, the Intermediary must determine whether the person is a “retail client” (i.e. not a “sophisticated investor”), as retail clients have additional protection both under the current law (Financial Services Guide, access to dispute resolution and compensation arrangements) and under the CSF provisions.
The tests for determining whether an investor is a retail client are, for the most part, the same as under the current licensing provisions.
Additional protection applicable to retail clients only under the CSF provisions are:
• an investor cap of $10,000 per issuer via a particular Intermediary’s platform within a twelve month period (this amount is to be apportioned equally if there are joint applicants for securities);
• an unconditional ‘cooling off’ right for a retail investor to withdraw from a CSF Offer within five business days of making an application;
• a prohibition on the company and its related parties, and the CSF Intermediary and its associates, providing retail investors with the financial assistance to acquire securities under CSF Offers;
• the requirements for a CSF Intermediary to obtain a risk acknowledgment from a retail investor before accepting a CSF application from the investor.
Investors have particular rights when a CSF Offer Document is found to be defective. Refer to Section 22.
22. When is a CSF Document Defective?
A CSF Offer Document is defective where:
• it contains a misleading or deceptive statement;
• it omits information that is required to be included;
• since the document was published, a new circumstance has arisen that would have been required to be included if it had arisen before the document was published.
23. Obligations in Relation to Defective Documents
The following obligations arise when the relevant person becomes aware, while a CSF Offer is open, that the Offer Document was defective:
• the issuer must notify the Intermediary as soon as practicable;
• the Intermediary must:
- notify the issuer as soon as practicable;
- remove the Offer Document from the platform and either close or suspend the offer
• a person liable on the Offer Document must notify the issuer and the Intermediary as soon as practicable.
The issuer need not do anything other than notify the Intermediary: it has the option of providing a replacement or Supplementary Offer Document, but no obligation. The Intermediary is not obliged to publish a replacement or supplementary document, as the Intermediary’s gatekeeper obligations apply to these types of document in the same way as to the original Offer Document.
24. Investor Rights – Defective Documents
Prospective investors who have already applied for securities under the document will either:
• receive a supplementary or replacement Offer Document that corrects the defect and then have the right, for fourteen days, to withdraw their acceptance; or
• be refunded any application money paid as soon as practicable.
25. Criminal and Civil Liability
An issuer that offers securities under a defective CSF Offer Document is criminally liable if the relevant statement, omission or new circumstance is materially adverse from the point of view of an investor.
An Intermediary that publishes an Offer Document that it knows to be defective is criminally liable.
An investor can recover from various persons associated with a CSF Offer the amount of loss or damage suffered. The investor has six years from the day the cause of action arose to commence recovery proceedings.
26. ASIC
Unlike other disclosure documents, a CSF Offer Document will not need to be lodged with ASIC. However, ASIC will have “stop order powers” where a company offers securities under a defective CSF Offer Document.
27. Professional Advice
Please contact your accountant for further advice if you are interested in raising capital utilising Crowd Funding.
AN IMPORTANT MESSAGE
The forms and commentaries contained in this paper are provided as a guide only and should not form the sole basis for any advice in relation to the particular situation of any person without first obtaining proper professional advice.
Mih Accounting Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

End Of Year Tips

Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
A The 2021 Financial Year Is Coming To An End 1
B End Of Year Tips 1
C Taxing Of Trading Income 1
D Small Business Entities 2
E Stock - All Businesses 3
F Assets 4
G Employment Issues 4
H Income Issues 4
I Utilising Tax-Free Threshold 5
J Entities Not Defined As Small Business 5
K Primary Producers 8
L Companies 8
M Capital Gains Tax 8
N Reportable Payment Report 8
O Superannuation Funds 9
P Early Stage Innovation Company Report On Shares Issued 9
Q Property Investments 9
R End Of Financial Year Review 9
S Business Review 9
T Individuals 10
End Of Year Tax Planning - June 2021
A The 2021 Financial Year Is Coming To An End
This special edition of the Business Plus newsletter contains commentary on many of the items you may encounter as part of your end of financial year deliberations. Please contact us for a copy of our end of financial year tax planning paper and checklist. Both will assist you in identifying items which you might like to discuss with us.
B End Of Year Tips
• Prepayments - if you’re business’ turnover is under $10 million for 2020/21, consider any prepayments that you could make prior to 30th June 2021.
During 2020/21 the Australian government has had two depreciation/asset write off policies overlapping – “Instant Asset Write Off” and “Temporary Full Expensing”:
• Instant Asset Write Off - if your business had an annual turnover of less than $500 million, you can write off expenditure on individual assets new and second-hand first used or installed ready for use between 1st July 2020 and 30th June 2021 and purchased by 31st December 2020. The instant asset write off threshold amount for each asset is $150,000.
• Temporary Full Expensing - the business portion of the cost of new or second hand assets acquired after 6th October 2020 and installed ready for use by 30th June 2021, by businesses with an aggregated turnover under $500 million can be deducted in full.
• The balance of the small business pool at the end of each income year for businesses with an aggregated turnover under $10 million can be deducted.
C Taxing Of Trading Income
There are two forms of taxation treatment for trading income, depending on whether the business is assessed on a:
1. “Cash” Basis - businesses are assessed when income is received and payments are deductible when they are paid, if the business’ income is less than $10 million for the year (see Section D).
2. “Accruals” Basis - businesses are assessed when a legally recoverable debt arises, usually at the point of invoicing and payments are deductible when the supplier’s invoice is received and entered into the business’ accounting records, irrespective of the date of payment (see Section D).
D Small Business Entities
• Aggregated Turnover (relates to annual turnover received by your business, plus the annual turnover of any business connected to you or that is an affiliate of yours) of less than $10 million. “Aggregated Turnover” is calculated on a group basis and must be “business income”. Please ignore this section if it is not applicable to you. In that case, if you are in business, please refer to “Section J - Entities Not Defined as a Small Business”.
• The Small Business Entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $10 million in the previous year, or likely to be less than $10 million in the current year.
• Depreciation Rules - for “new or second hand assets” first used, or installed ready for use, between 1st July 2020 until 30th June 2021 and purchased by 31st December 2020, businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For new or second hand assets first used or installed ready for use by 30th June 2021 and purchased after 6th October 2020, these assets can be written off under the “Temporary Full Expensing Rules”.
• There is a restriction on the availability of the Instant Asset Write Off for passenger vehicles.
Car Limit:
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than 1 tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business activities, the maximum write-off for that vehicle would be $59,136 x 70% = $41,395.
• If a vehicle has a payload of more than one tonne and is used 100% for business the claim under the Instant Asset Write Off can be up to $150,000 and, if the claim is being made under the “Temporary Asset Expensing Provision”, the claim can be the cost of the vehicle.
• Assets excluded from the “Temporary Full Expensing Rules” include:
- capital works, horticultural plants, assets allocated to a software development pool, buildings, intangible assets including customer lists and Goodwill.
• Prepayments - Small business entity taxpayers are entitled to a deduction for prepayments where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationery, rent and advertising etc.
General Deductions:
• Staff Bonuses - ensure that a cheque has been written or payments made prior to 30th June 2021 and PAYG Withholding Tax deducted.
• Staff Holidays - where practical, encourage staff to take holidays prior to 30th June 2021 or when cashing in holidays, the payment is made before 30th June 2021.
• Superannuation - for the year ending 30th June 2021, superannuation contributions can be paid for any eligible person:
- Up to 65 years of age - $25,000.
- People aged 65 - 74 must be working for a minimum of 40 hours in any 30 consecutive day to make voluntary contributions to their superannuation account. This is known as the “Superannuation Work Test”.
- Superannuation Guarantee – 9.5% in 2020/21 increasing to 10% from 1 July 2021.
- Self-Employed Persons - self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees.
• Salary Sacrifice Arrangements - salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
• Non-Concessional Contributions - the non-concessional contribution cap is $100,000 for 2020/21. If you are aged under 65, the Bring Forward Rule lets you make up to $300,000 (3 times the annual contribution cap in a single year) of non-concessional contributions over 3 years.
• If you are aged 67 to 74, you can make voluntary superannuation contributions for the first year after you retire without satisfying the work test provided that you have less than $300,000 in your superannuation account at the 30th June 2020.
• If you are over 65 years and you have recently sold your house in Australia or you are about to sell your house that you have lived in for more than 10 years, you are able to make a downsizer contribution of up to $300,000 to your superannuation fund within 90 days of settlement. This contribution is made from the proceeds of the sale of your house. If you provide your superannuation fund with a form before or while making the contribution, the downsizer contribution won’t be accounted for under the concessional or non-concessional contribution caps.
• You can only have $1.6 million in superannuation and retirement funds used to commence a retirement income stream.
• Superannuation Minimum Contributions - superannuation contributions have to be paid to all eligible employees who are paid, at least, $450 gross per month.
• Interest on Loan Funds - interest can be claimed on loans taken out for business purposes or to purchase income producing properties and shares in companies.
• Repairs and Maintenance - ensure that the work has been completed prior to 30th June 2021.
• Director’s Fees - ensure that cheques are drawn for payments made prior to 30th June 2021 and that PAYG withholding tax is deducted.
• Travel Deductions:
- Overseas - prepare a full itinerary and diarise this travel.
- Local away for more than 6 nights you are required to maintain a diary.
A ban on travel related tax deductions for most real estate investors now applies.
• Motor Vehicle Expenses - there are two methods available to calculate tax deductions for work-related motor vehicle expenses:
1. Cents Per Kilometre - $0.72 per kilometre (you can claim up to a maximum of 5,000 business kilometres per vehicle per annum).
2. Logbook Method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred.
• Donations - any promised tax-deductible donations should be made prior to 30th June 2021 to claim the deduction.
• Borrowing Costs - can be claimed over the shorter of 5 years or the term of the loan.
• Entertainment - is not deductible unless it is provided as a fringe benefit and the fringe benefit taxes have been paid.
• Gifts - ensure payment is made to a tax-deductible charity on or before 30th June 2021.
• Audit Fees - deductible if there is a contract that creates a presently existing liability before 30th June 2021.
• Salary Packages - ensure 2021/22 salary packages are negotiated and documented prior to 30th June 2021.
• Legal Costs - review any legal costs that have been incurred. If the legal costs relate to regular business operations (e.g. debt collection), separate these legal costs from the remaining legal costs which will relate to capital items which are not claimable for income tax purposes.
• Luxury Car Tax - the luxury car tax is 33% and applies to the GST inclusive value in excess of $68,740 (including GST). The luxury car tax for fuel efficient vehicles applies from a cost of $77,565 (including GST).
• Research and Development Expenditure for Companies with Turnovers Under $20 million - a company will receive the benefit of a refundable Research and Development Tax Incentive Rebate calculated at 43.5% of the eligible research and development expenditure spent during 2020/21. For companies with turnovers under $20m, the tax offset can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company’s income tax return, if the company elects to receive this payment in the company’s income tax return. It is important to note that, for the research and development claims in respect of the year ending 30th June 2021, the company must register with AusIndustry by 30th April 2022 or the date of lodgement of the company’s income tax return, whichever is the earlier. Companies must lodge any Overseas Finding Application relating to expenditure in 2020/21 with Australian Taxation Office by 30th June 2021.
• Stock
Trading Stock Rules - small business entities (turnovers under $10 million) do not have to account for changes in trading stock or prepare a stock-take for taxation purposes, where the difference between the opening value of stock in a reasonable estimate of the closing stock is $5,000 or less.
E Stock - All Businesses
• Stock on Hand - review stocktake lists in early June 2021. Determine whether to conduct “sales” prior to 30th June 2021. Conduct stocktake as at 30th June 2021. If you are conducting regular “rolling” stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2021. Stocktaking may not be necessary if you are a small business entity (refer Section D - Trading Stock Rules).
• Value of Stock - stock can be valued at different individual methods for each item of stock:
- stock
- sale value
- lower of market value or replacement cost
• Obsolete Stock - identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
F Assets
• Fixed Assets - determine if there are any benefits for scrapping any fixed assets to obtain a tax write off prior to 30th June 2021.
G Employment Issues
• Payment Summaries - if you’re using the Single Touch Payroll (STP) you are exempt from issuing payment summaries to your employees. The payment summaries will be made available to your employees online through MyGov. The finalisation declaration requires the employer to declare that all of the information relative to the financial year for each employee has been provided through your STP reporting. Finalisation declaration lodgement is required by 14th July.
If you have 20 or more employees, you should be reporting closely held payees each payday along with arm’s-length employees. The finalisation due date for closely held payees is 30th September each year.
For small employers (19 or fewer employees) who only have closely held payees, the due date for the end of year STP finalisation will be the payee’s income tax return due date.
If you are an employer with a mixture of both closely held payees and arm’s-length employees, the due date for the end of year STP finalisation for closely held payees is 30th September each year. All other employees are due by 14th July each year.
• Payment Summaries - if you are not using Single Touch Payroll, payment summaries have to be prepared and sent to all employees by 14th July 2021.
• PAYG Withholding Tax - if you are not using Single Touch Payroll, the annual summaries are due to be lodged with the Australian Taxation Office by 14th August 2021.
• Payroll Tax (if you are liable - this is a State/Territory government tax - if you have any questions, please contact us) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconciled this with the remittances that you have forwarded to your State/Territory government agency during the year.
• WorkCover - a WorkCover declaration is due by 31st August 2021 certifying wages paid for the year ending 30th June 2021.
H Income Issues
• Government Grants - if your business has received a grant from an Australian, State or Territory government department, other than the “cashflow boost payments”, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose the receipt of the government grant in your income tax return.
If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax deductible items prior to 30th June 2021 (if possible).
Please note: The “Job Keeper Payments” provided by the government are to be treated as taxable income by the business receiving the payments.
• Personal Services Income - taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the “Personal Services Income (PSI) Measures”. A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office’s strict approach to income retention and income splitting. If you have any questions relating to this item, please contact us.
• Non-Commercial Losses - for a business to be commercial, under the “Non-Commercial Losses Tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses, arising from the activities, have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/21.
• Trust Distributions - the Australian Taxation Offices indicated that it will be enforcing the full measure of the law, whereby trustee distributions/resolutions have to be made by 30th June each year.
I Utilising Tax-Free Threshold
• Every adult taxpayer has a tax-free threshold of $18,200. If a taxpayer is verging on losses, consideration should be given to the decisions being made in relation to the valuation of stock, bringing forward a delay of sales etc. to utilise the tax-free threshold. Otherwise, the benefit will be lost for ever.
J Entities Not Defined As Small Business
• Aggregated turnover (Refer Section D) of over $10M for the year. Please ignore this section if not applicable to you - refer to Section D - Small Business Entities.
• The prepayment rule for “other small businesses” applies to business taxpayers with a group turnover of $10M or more.
Depreciation Rules For Turnover Of $10 Million To $50 Million:
• Depreciation rules for “new or second-hand” assets first used, or installed ready for use, between 1st July 2020 until 30th June 2021 and purchased by 31st December 2020, businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For “new or second-hand assets” of any value first used, or installed ready for use, by 30th June 2021 and purchased after 6th October 2020, can be written off under the “Temporary Full Expensing Rules” (the application of which has been extended until 30th June 2023).
• Businesses can also apply “Temporary Full Expensing” to the business portion of the cost of “improvements made to eligible depreciating assets” from 1st January 2021 to 30th June 2021.
• There is a restriction on the availability of the Instant Asset Write Off for passenger vehicles.
Car Limit:
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business use, the total you can claim under the Instant Asset Write Off is activities, the maximum ride for that vehicle would be $59,136 x 70% = $41,395.
• If a vehicle has a payload more than one tonne and is used 100% the business, the claim under the “Instant Asset Write Off” can be up to $150,000 and, if the claim is being made under the “Temporary Asset Expensing Provision” the claim can be the cost of the vehicle.
Accelerated Depreciation For Turnover $50 Million To $500 Million:
• Depreciation rules for “new or second-hand assets” first used, or installed ready for use, between 1st July 2020 and 30th June 2021 and purchased by 31st December 2020 businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For new assets of any value first used, or installed ready for use, by 30th June 2021 and purchased after 6th October 2020, can be written off under the “Temporary Full Expensing Rules” (the application of which has been extended until 30th June 2023).
• Businesses can also apply “Temporary Full Expensing” to the business portion of the cost of “improvements made to eligible depreciating assets” from 1st January 2021 to 30th June 2021.
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business use, the total you can claim under the Instant Asset Write Off is activities, the maximum ride for that vehicle would be $59,136 x 70% = $41,395.
General Deductions:
• Staff Bonuses - ensure a cheque has been written with payment made prior to 30th June 2021 and tax deducted.
• Staff Holidays - where practical, encourage staff to take holidays prior to 30th June 2021 or if being cashed out, paid before 30th June 2021.
• Superannuation - for the year ended 30th June 2021 superannuation contributions can be paid for any eligible person:
- up to $25,000
- people aged 65 - 74 years must be working for a minimum of 40 hours in any 30 consecutive days to make a voluntary contribution to their superannuation account. This is known as the “Superannuation Work Test”.
• Superannuation Guarantee - 9.5% in 2020/21, increasing to 10% from 1 July 2021.
• Self-Employed Persons - can obtain a superannuation deduction on the same basis as that adopted for employees.
• Salary Sacrifice Arrangements - salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
• Non-Concessional Contributions - the non-concessional contribution cap is $100,000 for 2020/21. If you are aged under 65, the Bring Forward Rule lets you make up to $300,000 (3 times the annual contribution cap in a single year) of non-concessional contributions over 3 years.
If you are aged 67 to 74 years you can make voluntary superannuation contributions for the first year after you retire without satisfying the work test provided you have less than 300,000 in your superannuation account at 30th June 2020.
If you are over 65 years and you have recently sold your house or you’re about to sell your house that you have lived in for more than 10 years, you are able to make a downsizer contribution of up to $300,000 to your superannuation fund. The contribution is made from the proceeds of the sale of your house which you have owned for at least 10 years and is located in Australia. If you provide your superannuation fund with a form before/while making the contribution, the downsizer contribution won’t be accounted for under the concessional or non-concessional superannuation caps. You can only have $1.6 million in superannuation and retirement funds used to commence a retirement income stream.
• Superannuation Minimum Contributions - superannuation contributions have to be paid to all eligible employees who are paid, at least, $450 gross per month.
• Interest On Loan Funds - interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares.
• Repairs and Maintenance - ensure that the work has been completed prior to 30th June 2021.
• Directors Fees - ensure cheques are drawn for payment may prior to 30th June 2021 and that the appropriate tax is deducted.
• Travel Deductions:
- Overseas - prepare a full itinerary and diary.
- Local - for more than 6 nights you are required to maintain a diary.
A ban on travel related tax deductions for most real estate investors now applies.
• Motor Vehicle Expenses - there are two methods available to calculate tax deductions for work-related motor vehicle expenses:
- Cents Per Kilometre - $0.72 per kilometre (you can claim up to a maximum of 5,000 business kilometres per vehicle per annum.
- Logbook Method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred).
• Donations - any promised tax deductible donations should be made prior to 30th June 2021 to claim the deduction.
• Borrowing Costs - can be claimed over the shorter of 5 years or the term of the loan.
• Entertainment - entertainment is not deductible unless it is provided as a fringe benefit on the Fringe Benefit Taxes that have been paid.
• Gifts - ensure payment is made to a tax-deductible charity on or before 30th June 2021.
• Audit Fees - deductible if there is a contract that creates a presently existing liability before 30th June 2021.
• Salary Packages - ensure salary packages are negotiated and documented for 2021/22 prior to 30th June 2021.
• Legal Costs - review any legal costs that have been incurred. If the legal costs relate to regular business operations (e.g. debt collection), separate those legal costs from the remaining legal costs which will relate to capital items which are not claimable for income tax purposes.
• Luxury Car Tax - the Luxury Car Tax is 33% and applies to the GST inclusive value in excess of $68,740 (including GST). The Luxury Car Tax for fuel efficient vehicles applies from a cost of $77,565 (including GST).
• Research and Development - companies that incur research and development can claim additional taxation benefits. There are 2 components:
- Companies with turnovers under $20m
- Companies with turnovers over $20m
Companies must register their research and development projects with AusIndustry by 30th April 2022 or the date of lodgement of the company’s income tax return, whichever is the earlier.
• Research and development expenditure for companies with turnovers under $20m- a company will receive the benefit of a refundable research and development tax incentive calculated at 43.5% of the eligible research and development expenditure spent during 2020/21. The rebate can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company’s income tax return, if the company elects to receive this payment in the company’s income tax return.
• Companies with turnovers over $20m - the company will receive a 38.5% non-refundable tax offset of the eligible research and development expenditure. If you require further information of the treatment of research and development expenditure, please contact us.
Deductions on “Accruals” Basis:
(Subject to the income tax return being lodged on an “Accruals” Basis)
• Fringe Benefits Tax Payment (Accruals Basis) - if a Fringe Benefit Tax instalment is due on 21st July 2021, it can be accrued and claimed as a tax deduction in the year ending 30th June 2021.
• Commissions Owing (Accruals Basis) - where employees or another business are owed commission by your business for services rendered up to 30 June 2021, the accrued amount can be claimed as a tax deduction at 30th June 2021.
• Bad Debts (Accruals Basis) - actually write-off any bad debts prior to 30th June 2021 and prepare minutes authorising the write off.
• Interest (Accruals Basis) - any accrued interest outstanding on a business loan, that has not been paid at 30th June 2021, can be claimed as a tax deduction at 30th June 2021.
• Salaries and Wages (Accruals Basis) - the accrued expense for the days that employees have worked, but not paid at 30th June 2021, can be claimed as a tax deduction at 30 June 2021.
• Commercial Bills (Accruals Basis) - where the term of a commercial bill expires beyond 30th June 2021, the discount applicable to the period up to 30th June 2021 can be claimed as a tax deduction.
• Rent (Accruals Basis) - if rent is in arrears, the part that is owed up to 30th June 2021 can be claimed as a tax deduction.
Stock:
• Stock On Hand - review stocktake list in June 2021. Determine whether to conduct “sales” prior to 30th June 2021. Conduct stocktake as at 30th June 2021. If you are conducting regular “rolling” stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2021.
• Value Of Stock - stock can be valued at different individual methods for each item of stock:
- Cost
- Sale Value
- Lower of Market Value or Replacement Cost
• Obsolete Stock - identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
Assets:
• Fixed Assets - determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30th June 2021.
Employment / Contractor Issues:
• Payment Summaries - if you are not using Single Touch Payroll, payment summaries have to be prepared and sent to all employees by 14th July 2021.
• PAYG Withholding Tax - if you are not using Single Touch Payroll, the annual summaries are due to be lodged with the Australian Taxation Office by 14th August 2021.
• If you have made payments and withheld amounts from businesses which did not quote their ABN to you, the PAYG Withholding Where ABN Not Quoted Annual Report lodgement date is 31 October 2021.
• Payroll Tax (if you are liable - this is a State/Territory government tax - if you have any questions, please contact us) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconciled this with the remittances that you have forwarded to your State/Territory government agency during the year.
• WorkCover - a WorkCover declaration is due by 31st August 2021 certifying wages paid for the year ending 30th June 2021.
Income Issues:
• Government Grants - if your business has received a grant from an Australian, State or Territory government department, other than the “cashflow boost payments”, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose the receipt of the government grant in your income tax return.
If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax deductible items prior to 30th June 2021 (if possible).
Please note: The “Job Keeper Payments” provided by the government are to be treated as taxable income by the business receiving the payments.
• Bad Debts Recovered (On An Accruals Basis) - if a debtor owed an amount which has been written off, subsequently pays that amount you have to bring the amount paid to account as assessable income in the year of recovery.
• Personal Services Income - taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the “Personal Services Income (PSI) Measures”. A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office’s strict approach to income retention and income splitting. If you have any questions relating to this item, please contact us.
• Non-Commercial Losses - for a business to be commercial, under the “Non-Commercial Losses Tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses, arising from the activities, have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/21.
• Trust Distributions - the Australian Taxation Offices indicated that it will be enforcing the full measure of the law, whereby trustee distributions/resolutions have to be made by 30th June each year.
K Primary Producers
(In addition to small business entities [Section D] and entities not defined as small business [Section J])
Deductions:
• Non-Commercial Losses - for a business to be commercial, under the “non-commercial losses tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/2021.
L Companies
• Franking Account - a company’s dividend payments and franking profile should be reviewed before year-end to ensure sufficient credits are available. If you have any questions, please contact us for a review.
• Company Loans - the Law requires that a loan to a shareholder is properly documented. If there is no security offered, the term of the loan should not exceed 7 years. If security is offered, the loan should not exceed 25 years. The minimum rate to be charged during 2020/21 is 4.52% (this is the rate advised by the Reserve Bank). If loans being made to shareholders haven’t been supported by a properly documented loan agreements, then the Australian Taxation Office can treat these payments as being dividends, which are assessable to the shareholder.
M Capital Gains Tax
• Matching Capital Losses and Capital Gains - capital losses are not directly deductible. Capital losses have to be offset against any capital gains generated during 2020/2021.
• 50% Capital Gains Tax Discount - you should check your eligibility for the general 50% Capital Gains Tax discount for individuals. If you are a small business operator and are able to meet the $6 million net value asset test or have turnover of less than $2 million, you might be entitled to further Capital Gains Tax concessions. If you have any questions on the operation of these concessions, please contact us.
• “Wash Sales” - the Australian Taxation Office has issued a ruling that relates to “wash sales”. This is a situation where shares, in companies listed on the Stock Exchange, are sold to crystallise the capital loss and then shortly thereafter the taxpayer, or an associate of the taxpayer, purchases shares in that same corporation on the Stock Exchange.
N Reportable Payment Report
• If you are operating the following industries, you are required to submit a Summary of Payments made during 2020/2021 to the Australian Taxation Office by 28th August 2021:
- Building and Construction Industries
- Couriers Services
- Information Technology
- Road Freight
- Security, Investigation and Surveillance Services
- Cleaning
O Superannuation Funds
• Contributions to Superannuation Funds - for taxpayers with adjusted taxable income (ATI) less than $250,000 are taxed at 15% of the contribution by the superannuation fund. But taxpayers with ATI over $250,000 the contributions are taxed at 30%.
• Earnings Made In A Superannuation Fund - are taxed at 15% and paid by the superannuation fund.
• The people 60 years or over who have started drawing a pension, payments from the superannuation fund are, in the majority of cases, tax-free.
• Generally, monies invested in superannuation funds cannot be accessed until 55 years of age.
P Early Stage Innovation Company Report On Shares Issued
• Companies are required to complete an Early Stage Innovation Company Report if they issue new shares to one or more investors during 2020/21 that could lead to an investor being entitled to access the Early Stage Investor Tax Incentives.
• The report must be submitted to the Australian Taxation Office by 31st July 2021.
Q Property Investments
Deductions:
• Interest On Investment Loans - taxpayers who have borrowed money for a non-business investment (e.g. rental property) can check with their lenders to see if they can prepay interest prior to 30th June 2021.
• Building Allowance - the construction costs of income producing buildings may be written off at 2.5% or 4%, depending on the date of construction. Please contact us if you require additional details.
• General expenses - can include real estate agents fees; building allowance; depreciation of fixtures, fittings, plant and equipment; share of depreciation of common property in a strata-titled property; repairs and maintenance; pest control; interest on monies borrowed for investment in the property; bank charges on the property bank account; cleaning; electricity; rates; land tax; insurance.
• Negative Gearing - the net loss, which may include interest, borrowing costs, etc., may be deductible.
• Travel Expenses - a ban on travel related tax deductions for most real estate investors now applies.
Income Issues:
• Income Splitting - income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse’s name would therefore be taxed at a lower rate.
• All income from a rental property - should be declared.
R End Of Financial Year Review
If you have any queries on any other items not discussed in this newsletter, or you have general matters that you would like to discuss with us relative to your taxation affairs for the year ending 30th June 2021, please contact us urgently so that a convenient time for a meeting can be arranged.
S Business Review
Now is an ideal time to talk to us about Business Development Strategies for your business in 2021/22, particularly relating to:
• Developing a Strategic Plan to navigate the challenges of 2021/22.
• The establishment of a series of regular monthly or quarterly business review meetings to discuss your business' performance.
• What we could offer by performing a 'Chief Financial Officer' service for your business.
• Reviewing your business financing position and giving consideration to the possibility of raising capital via:
- Crowd Sourced Funding Equity Raising; or
- Section 708 of the Corporations Act capital raising; or
- Early Stage Innovation Company Capital Raising
• A business health check.
• An analysis of risks relating to your business particularly a Personal Property Securities Register Due Diligence Review.
• Cashflow including:
- debtors
- stock
- work in progress
• Business Plan development for 2021/2022.
• Budgets & Cashflow Forecasts for 2021/2022.
• Setting retail prices to achieve budget targets.
• Setting trades charge out rates to achieve budget targets.
• Setting professional fees to achieve budget targets.
• Accessing government grants.
• Analysing gross profit being achieved in your business.
• “What If” calculations relative to sales.
If you would like us to undertake a business review on your business, please contact us.
If you have been undertaking research activities and you would like to be able to claim expenditure as part of the Research and Development Tax Incentive Rebate please contact us prior to 30th June 2021.
If you are contemplating undertaking research activities in the future and you would like to understand how you could qualify for the Research and Development Tax Incentive Rebate please contact us for a discussion.
T Individuals
• Superannuation Co-Contribution - individuals with assessable income of below $54,838 may qualify for the government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 before 30th June 2021. To qualify for the co-contribution:
- At least 10% of assessable income must be received from employment or a self-employment arrangement.
- The individual must be below age 71 at the end of the financial year.
- They must have a total superannuation balance of less than $1.6 million on 30th June 2020 and they must lodge a tax return for the 2020/21 income year.
• Spouse Tax Offset For Superannuation - couples with one spouse earning a low income or no income, may benefit from the spouse tax offset if the high income earner makes a spouse contribution into the low income earner’s spouse’s superannuation, the maximum offset that can be claimed is $540 where the low income earner’s spouse’ is below $37,000 or less. The offset reduces when the spouse’s income is more than $37,000 and phases out completely when the spouse’s income reaches $40,000.
• Individuals Saving For Their First Home - Voluntary Superannuation Contributions - individuals saving for their first home may benefit from making voluntary contributions to superannuation before 30 June. This scheme allows first home buyers to make voluntary contributions of up to $15,000 to superannuation per financial year while saving towards the deposit in a tax effective environment. After contributing for a couple of years, they can withdraw these contributions (up to $30,000 per individual) and use the proceeds towards the acquisition of their first home.
• Taxation Advice - fees payable to an accountant or registered tax agent for taxation advice can be claimed.
• Expense Substantiation - ensure that you can justify all employment-related expense amounts incurred.
• Working from Home Expenses - expenses can be claimed for working from home (as distinct from having a home office) but full records need to be kept so that the claim can be substantiated. The Australian Taxation Office has issued a ruling relating to people working from home during the COVID-19 crisis. The temporary simplified method applicable, known as the "shortcut method", is $0.80 per hour for all additional running expenses.
• Expenses for Shareholding Investments - expenses incurred in gaining income from shares are a tax deduction.
• Sickness and Accident Insurance - premiums for Sickness and Accident Cover are tax deductible. Payments can be made by the employer without incurring Fringe Benefits Tax.
• Home Office Expenses - if you use an area in your home, you can claim the expenses of a home office. Items that could be claimed include:
- electricity (proportionate)
- rent (proportionate)
- cleaning (proportionate)
- repairs and maintenance for the office
- depreciation of fixtures and fitting and plant and equipment for the home office
• Work-Related Expenses - items such as travel (other than travel to and from work), uniforms, laundry of work clothes, subscriptions, union fees and self-education - but you must be able to substantiate your claim. A ban on travel related tax deductions for most real estate investors now apply. If you have used your own motor vehicle for business related purposes you can claim motor vehicle expenses:
- Cents per kilometre
- Logbook method
• End of Year Tax Schemes - the Australian Taxation Office produces product rulings on various investment products that are marketed particularly around 30 June each year. To avoid confrontation with the Australian Taxation Office, it is best to consider investing in products that have obtained a product ruling. Whilst these product rulings are not a guarantee or government endorsement on the likely success, or profitability, of the investment, you will have improved your prospects of being able to make these claims then if the product ruling had not been made. It is important that you abide by the wording within the product ruling.
• Managed Investment Schemes - it is recommended that you have a meeting with your professional accountant prior to committing to a Managed Investment Scheme (MIS) investment.
Social Security Issues:
• Social security recipients wishing to gift an amount or an asset within the allowable disposal amount can do so before 30th June 2021. These individuals can gift up to $10,000 before 30th June 2021 and another $10,000 after 1st July 2021.
• Individuals in receipt of government benefits can gift up to $10,000 on a single financial year or up to $30,000 over 5 rolling financial years. However, the amount gifted in any given financial year cannot exceed $10,000 or the deprivation rules will be applied.
Income Issues:
• Interest Earned - declare interest earned on bank accounts, loans, etc.
• Employee Share Schemes - if you are a member of an employee share scheme, you should ensure that any income earned is included in your income tax return.
• Scheme Formed After 1st July 2015 - Employee Share Scheme interests provided by eligible start-up companies will not be subject to up front taxation if the investment is held by the employee for at least three years. An eligible start-up company is one with aggregated turnover of less than $50M unlisted and incorporated for less than ten years.
• Scheme Formed After 1st July 2009 - the discount on Employee Share Schemes are taxed either upfront or on a deferred basis. For 'qualifying' schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.
• Dividends, Interest, Managed Funds Distributions, etc. - the ATO matches information provided in tax returns with information received from external sources, such as public companies, banks, managed funds etc.
Offsets:
• Zone Offset - This offset is based upon where you are considered to reside for the tax year, so your Zone Tax Offset is limited to where your main residence or home is considered to be.
• Salary Packaging - salary packaging can assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions and acquisition of assets that are not subject to Fringe Benefit Tax. Your employer is required to report the value of fringe benefits in your payment summary. That may have an effect on other government payments you receive.
If you have any questions relating to planning your taxation affairs at 30th June 2021, please do not hesitate to contact us.
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

Research & Development Assisted by Government Grants

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research & Development Assisted by Government Grants 1
Crowd Sourced Funding Might Be The Answer 1
The Business Planning Process Helps! 2
Predictive Accounting Identifies The “Financial Picture" 2
Virtual Chief Financial Officer Services Help SMEs 3
“Scale Up” To Implement Your Vision 3
Thinking About Being A Business Person? 3
Issue - July 2021
Happy New Financial Year - Best Wishes for 2021/22!!
Research & Development Assisted by Government Grants
The Research and Development Tax Incentive Rebate is of tremendous assistance to companies that have undertaken research activities.
The rebate amount was changed from 1st July 2021.
There was virtually no change for a company with a turnover under $20M. The new rebate, which is a refundable benefit, is the “appropriate corporate tax rate that applies for that company +18.5% premium”.
The government has indicated that, from 1st July 2021, the small company tax rate will be 25%, meaning that the Research and Development Tax Incentive Rebate will be 43.5%, which is the same amount as it has been for the last few years, but with a different set of components in the calculation.
There has been significant changes to the non-refundable rebate for companies with turnovers between $20M and $50M.
Companies which spend up to 2% of their total expenditure on research and development will be deemed to have a research and development intensity of 2%. This will be referred to as “2% Research and Development Intensity” and they will receive a non-refundable research and development tax offset of the appropriate corporate tax rate +8.5% premium.
With the corporate tax rate expected to be 25% the companies in this category, this will have an effective research and development rebate of 33.5% of the eligible research and development expenditure.
Where companies in the $20M – $50M category spend more than 2% of their total expenditure on research and development, they’ll have a research and development intensity of over 2% and the premium will be 16.5%.
Based on the corporate tax rate of 25%, companies in this category will have an effective research and development rebate of 41.5% of the eligible research and development expenditure.
The “refundable benefit” for companies with a turnover under $20M means that, if the company is trading at a loss, the company can elect, within its tax return, to receive a cash refund of the research and development rebate so long as the company’s losses exceed the amount of the research and development rebate.
If you are interested in finding out more information on the research and development scheme, please do not hesitate that to contact us for a discussion.
Crowd Sourced Funding Might Be The Answer
If your company needs additional funding and your group turnover is under $25M, your company may be able to utilise Crowd Sourced Funding Equity Raising to raise up to $5M, in a 12 month period, from the public.
You can raise this capital without having to mortgage assets or issue personal guarantees. The company has to allocate ordinary shares to the investors.
To go through this process the company will need a Business Plan that clearly articulates the directors’ and leadership team members’ vision for the company and the strategies that they intend to implement so that the vision can be achieved.
Crowd Sourced Funding Equity Raising has been introduced by the government making amendments to the Corporations Act so as to facilitate this type of capital raising.
There is a process for the directors and leadership team members to participate in to have a clear understanding of how this system of raising capital operates.
A company has to work with an accredited Crowd Sourced Funding Intermediary (who has been appointed by the Australian Securities and Investments Commission) who has the authority to approve a company to be able to use the Crowd Sourced Funding Equity Raising process.
If you have any interest in this process or questions, please do not hesitate to contact us.
The Business Planning Process Helps!
Business Plans are like maps for tourists – you need a plan for where you are intending to go, what you want to look at, where you are going to stay and, if you deviate off track, you need to be able to identify where you’re at and then navigate to get back onto your original path.
Planning a business activity is very similar.
The Business Plan should incorporate commentary from the people involved in the business – directors, owners, shareholders, leadership team and other team members, together with a summary of the strategies that have been developed, the tactics for the implementation of those strategies and the allocation of responsibilities for monitoring the supply of funding for the business.
A new financial year has just commenced. This is a great time to be planning what you’re going to do in your business during 2021/22. With the continuation of COVID-19 causing problems all over Australia, there is going to be ongoing problems, particularly for businesses, until the immunisation rates are at the level required for “herd immunity”. In the meantime preparing a “realistic but flexible” Business Plan can give you a map for the conduct of your business until something approaching “normal business conditions” emerges.
If you would like to discuss with us the development of a “realistic but flexible Business Plan” for your business, please contact us.
Predictive Accounting Identifies The “Financial Picture"
A good Business Plan contains a commentary on the strategies to be implemented over a range of activities as well as the business’ vision.
“Predictive Accounting” creates a “financial picture” of the visions and strategies by preparing four key documents:
1. Key Drivers – the key compilation data relative to the predictive reports:
- sales estimates
- raw materials required
- raw materials’ inventory
- labour team required
- labour cost estimates including productivity percentages
- labour on cost estimates
- electricity, gas, oil estimates
- overhead budget
- markup on external purchases for clients
- estimated outlay for client purchases that has to be funded through the cashflow forecast
- sales’ budget
- inventory of completed products
- work in progress
- research and development
- debtors’ budget
- creditors’ budget
- operational budgets for each business activity
- loan accounts
- taxation payments
- capital expenditure
- shareholder accounts
- cashflow forecast
- projected balance sheet
2. Budgets – prepared for each business activity.
3. Cashflow Forecast – reflects the financial figures shown in the budgets and from subaccounts within the key drivers – debtors, creditors, inventory etc.
4. Projected Balance Sheet – highlights the impact of the various financial decisions.
If you would like to discuss with us the concepts involved in the development of a “financial picture” for your business, please do not hesitate to contact the person in our organisation with whom you normally deal.
Virtual Chief Financial Officer Services Help SMEs
Virtual Chief Financial Officer (CFO) services are provided by accountants who have wide commercial experience in a range of business activities to assist growing SMEs.
A key aspect of the role is to be able to “dig down” into the business’ records other than just to extract key financial data.
Virtual CFOs are performing this function for small or growing businesses that haven’t yet reached the scale to justify the investment in a full-time CFO.
The engagement of a virtual CFO fills a void in SMEs’ commercial financial management capability by providing high value, essential strategic financial management advice and enabling business owners to focus on commercial matters within their business and in dealing with their own clients.
Any business that is contemplating “scaling up” possibly by approaching external investors, will benefit by being able to indicate to those investors that a virtual CFO engagement with their accounting firm is assisting the leadership team in the development of the key financial policies for the business.
If you are interested in exploring the concept of utilising a virtual CFO Service, please contact the person in our organisation with whom you normally deal.
“Scale Up” To Implement Your Vision
“Scaling up” is a process that normally follows after the Business Plan has been finalised incorporating the vision for the business.
“Scaling up” requires the following key items to be attended to:
• The business needs to assemble a “leadership team” that is committed to ongoing training and professional development and that are prepared to ensure that they conduct quality communications with the team members.
• Businesses that are attempting to scale up need enthusiastic “team members” who are well trained and who are committed to the culture of ongoing skills development. To achieve this, the business needs to have an ongoing commitment to the concept of succession planning in every segment of the business’ operations.
The leadership team needs to have been able to develop “workable strategies” for every aspect of the business.
We then come to the challenging part of a scaling up process and that is the “implementation of the strategies”. This is a major commitment to ensure that the business will operate in accordance with the vision. Unless there is commitment to implement the vision, it probably will not happen!
Businesses need “money” to implement their strategies. The leadership team needs to have a complete understanding of the financial position and to have developed strategies to raise additional funds, loans or capital from the public, if need be, to ensure that sufficient funding is available.
“Scaling up” is a process that is available for every company/business that has a vision. If you would like to have a discussion with us about the process to implement a scaling up strategy for your business, please contact the person in our office with whom you normally deal.
Thinking About Being A Business Person?
That’s great – but there are a few issues that you should think about before starting a business or purchasing a business.
Unfortunately, there is a high failure rate in the first 3 years of a business’ life. An accountant’s role is to advise you on systems and processes that will contribute to your business being successful. Some of the problems which confront new business operators include:
• Inadequate Planning – it is important that adequate consideration is given to planning when considering starting or acquiring a business. Will the lifestyle of running a business suit you and your family? Most small business people have to work longer hours than they would if they were in paid employment - sometimes on weekends and at nights. How will these working hours fit with your family and sporting commitments and perhaps studies?
• Lack of Professional Advice – the CEO of a public company, or even a larger business, has a team of in-house experts or other key advisors readily available to assist him/her in making decisions. Small business operators do not normally have this luxury of having key advisors readily available.
Successful small and medium-sized business operators establish a network of key advisors who can assist them very early in their business careers. The key professional advice areas include:
- Accountants who are offering proactive business advice – not just preparing annual accounts and income tax returns.
- Commercial solicitor to advise on agreements, leases, terms of trade agreements, personal property securities register requirements, retention of title agreements etc.
- Marketing consultant to advise on the establishment of a marketing strategy, social media strategy and general communications with clients/customers and prospects.
- Web consultant – to implement and maintain a suitable website for your business.
- Sales coach – to advise on the implementation of appropriate selling strategies for your business.
- Business mentor (who could be your accountant) – to assist in the setting of business strategies, business plans, budgets and cashflow forecasts.
- Experienced business people/directors – to be a board of advice and subsequently a board of directors for your business – this is a very important concept because even though it is your business, it introduces the “accountability function” for you by instigating a regular reporting function to your own board of advice/directors.
• Inadequate Capital – this is a big problem for many types of businesses – at the beginning you need to prepare an honest appraisal of your capital needs in your business. Discuss your calculations with your accountant. Your accountant would advise you of some of the financial issues to which you will have to give consideration.
• Not Establishing Appropriate Systems – this is where you should be heeding the advice from your accountant, relative to the establishment of appropriate systems and then implementing those systems so that your business receives prompt accurate monthly financial accounts and, in some businesses, weekly profitability estimates and key performance indicators for each business activity, daily, weekly and monthly, so that you are fully aware of your business performance.
• Not Understanding Working Capital Requirements – this relates to your business investment in stock (inventory), work in progress (applies to trades, manufacturing and professional firm businesses) debtors’ management (knowing who your customers are, prompt preparation of tax invoices, prompt dispatch of debtors’ statements at the end of a month, calculation of debtors’ days outstanding each month, having effective debtors follow-up processes in place.
• Periodic reviews of expenses in each of the business activities to ensure that “value for money” is being achieved from each purchase transaction.
• Preparation of the Business Plan which incorporates all aspects of the business and clearly identifies the strategy that the company wishes to implement.
If you are contemplating starting or buying a business, please don’t hesitate to contact any of the accountants within our firm for a discussion.
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

Research and Development Reminder

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research and Development Reminder 1
Reportable Payment Reports 1
Early Stage Innovation Company 1
Trustee Distribution Minutes 2
Payment Summaries, If Not Using Single Touch Payroll 2
Shareholders’ Loans 2
What Strategies Are You Considering For 2021/2022? 2
Charge Out Rate Calculations 3
Issue - June 2021
Happy End of Financial Year!!
Research and Development Reminder
• If your company has undertaken research and development activities during 2020/21, you have conducted part of the research and development activities in an overseas country and you wish to claim that expenditure under the Research and Development Tax Incentive Rebate, you must lodge your Overseas Finding application with the Australian Taxation Office by 30th June 2021. If you need any assistance with the preparation of this application, please do not hesitate to contact us.
• If your company commenced a research and development project during 2020/21 and you would like us to review the records that you have maintained, please contact the accountant in our organisation you deal with as soon as possible.
• If you are giving consideration to undertaking research and development activities during 2021/22, please contact us for a discussion on the research and development recording system that needs to be implemented so that your company complies with the research and development rules as advised by the Australian Taxation Office and AusIndustry.
Reportable Payment Reports
A reminder that, if you’re operating the following industries, you are required to submit a summary of payments, made during 2020/21, to the Australian Taxation Office by 28th August 2021:
• Building and Construction Industries
• Courier Services
• Information Technology
• Road Freight
• Security, Investigation and Surveillance Services
• Cleaning
If you require assistance with the preparation of these reports, please do not hesitate to contact the accountant in our organisation with whom you normally deal.
Early Stage Innovation Company
If your company has completed the due diligence requirements to be classified as an Early Stage Innovation Company during 2020/21 and you have to raise capital from new shareholders, you are reminded that you are required to lodge the company’s New Investor Statement with the Australian Taxation Office by 31st July 2021.
Trustee Distribution Minutes
The minutes of trustee meetings, relative to distribution of trust profits in 2020/21, should be signed by the chair or another of the trustees by 30th June 2021.
Payment Summaries, If Not Using Single Touch Payroll
These summaries are required to be lodged with the Australian Taxation Office by 14th July 2021.
Shareholders’ Loans
If your company has made loans to shareholders, the minimum interest rate to be charged in respect of those loans for 2020/21 is 4.52%.
A reminder that the company must have prepared Loan Agreements for each loan and, if the loans are for in excess of 7 years, the borrower is required to submit securities to the company.
What Strategies Are You Considering For 2021/2022?
The latest shutdown of State borders, the continual discontinuance of most International tourism to Australia and the shortage of labour to work in agricultural areas, highlights that many segments of the Australian economy are still finding it tough, even though the unemployment rate has decreased well below expectations for this time.
This is the background for business operators to be planning operations in this new financial year. As an accounting firm we are committed to offering our clients a broader range of professional services then just the preparation of annual accounts and income tax returns.
Some of our clients are already receiving some of these services to assist them in the implementation of their business strategies. If you are not currently receiving these services, we are interested in hearing from you as to whether you’d like to review the services that we’re providing to you. We have prepared the following summary of some of the strategies that you might like to discuss with us. Please don’t hesitate to contact the accountant in our organisation with whom you normally deal if you require further information on any of these strategies.
Strategic/Business Plan
This is a fundamental business document that basically every business should have. Our recommendation is that your Strategic/Business Plan should be updated each year so that it reflects your current vision for your business and outlines strategies as to how you’re going to implement that vision.
Budgets, Cashflow Forecasts, Predicted Balance Sheets (This is known as “Predictive Accounting”)
This trifecta of services is developed from the Business Plan and is the “financial picture” of the information contained within your Business Plan so that you can ascertain whether your business needs an injection of additional funding which would come via loans or capital raising direct from the public.
Loans
The special COVID-19 loan 50% guaranteed by the Australian government with a maximum loan of $250,000 to be utilised for working capital purposes, closes on 30th June 2021. If you intend to submit an application you will need to do so urgently. If you require assistance in the preparation of the application, please contact us.
Capital Raising
There are three opportunities for private companies to be able to raise capital direct from the public, without having to issue a Prospectus. These opportunities are:
1. Section 708 of the Corporations Act
A private company is able to raise up to $2,000,000, in a 12 month period, from a maximum of 20 investors. There can be no advertising for this capital raising and therefore investors normally come from family, close friends, customers and employees. Companies will need a Business Plan and Budgets and Cashflow Forecasts which clearly identify the company’s vision, to be able to raise capital in this manner.
2. Early Stage Innovation Company
A “young company” – under 3 years of age, but in some cases up to 6 years of age, with a turnover in the last 12 months of less than $200,000 (not including funding from an Accelerating Commercialisation Grant) and expenditure less than $1,000,000 in the last 12 months will have passed the first test to be and Early Stage Innovation Company.
The company is then required to pass one of two additional tests series which are:
- Gateway Test – the company has to accumulate more than 100 points relative to a series of eligibility criteria; or
- The Principles Test – which requires the company to submit written responses to five key questions relative to the company’s ability to be able to successfully develop for commercialisation a new product, process, service, marketing or management methodology.
There is a due diligence test requirement that we can conduct to ascertain whether the company meets the requirements for an Early Stage Innovation Company.
The government developed this type of company status to assist young companies to be able to attract investors.
The attraction for investors is that they receive a tax rebate calculated at 20% of their investment in the company with a maximum rebate of $200,000 for sophisticated investors (people with a net worth the $2.5 million or who have earned income of $250,000 in each of the last two years and who produce an Accountant’s Certificate that this information is correct).
If the investors retain their shares for more than 12 months and less than 10 years they do not have a liability for Capital Gains Tax when the shares are sold. If the shares are held for more than 10 years, the cost price of the shares can be revalued in the tenth year, to reflect a higher new cost price.
These benefits make an Early Stage Innovation Company very attractive for investors who have a keen interest in emerging companies which have been involved in the development of new technologies.
3. Crowd Sourced Funding Equity Raising
A private company, with a turnover less than $25,000,000 and gross value of assets less than $25,000,000, could consider the requirements for eligibility as a company that can seek to raise capital from the public as a Crowd Sourced Funding Equity Raising Company. These companies are able to raise up to $5,000,000, in a 12 month period, and can return to the market to raise a further $5,000,000 in the following year – subject to market support of course – if they wish.
We can guide you through this process and inform you of the roles and responsibilities of the Crowd Sourced Funding Intermediaries and assist you in the preparation of the documentation, primarily the Crowd Sourced Funding Offer Document, which is based on the company’s Business Plan, Budgets and Cashflow Forecasts.
If you are interested in having a discussion with us about any of these capital raising opportunities for companies, even if you are currently not incorporated as a company, please do not hesitate to contact us
Charge Out Rate Calculations
Tradies’ Manufacturing Businesses
Now is a good time to review the charge out rates that you are using within your business. The key requirements for establishing charge out rates for your team which will generate your targeted profit for the year include:
• Team member classification showing wages, working hours, holidays and other special leave and the productivity that you can reasonably expect.
• The markup that you intend to charge (if any) on materials that you have purchased on behalf of clients for installation on the client’s premises.
• The business’ overhead costs for the 12 month period.
• You can then indicate what your desired profit is for the year – this is normally based on the value of the business.
These factors are then brought together within a spreadsheet to determine appropriate charge out rates to be used based on the estimate of working hours, labour costs, productivity, mark-ups on external purchases and overhead costs to determine whether this mix of various factors will generate the targeted profit for the year.
Professional Services Firm
A similar approach is also taken for the determination of appropriate components of professional charge out rates.
Professional firms also relate to productivity being achieved by the individual team members.
In some professional firms there will not be the mark-up on materials purchased for clients.
The combination of estimated working hours, salaries, productivity, overhead costs are then factored into a spreadsheet to determine individual classification charge out rates that, when applied to the productive hours estimate for each person, will generate the targeted profit for the professional firm.
Retail Businesses
Retail businesses are not “selling labour hours” even though labour is a key cost in operating a retail business.
The key factor within a retail business is the “product mix” which comprises various types of stock that has variable potential units of sale and invariably significant different mark-up rates which can apply to those individual types of stock.
The business’ overhead costs and labour costs need to be budgeted for the year based on the anticipated level of sales.
We can then utilise our calculator to prepare an analysis on various levels of the stock mix over a range of products and mark-up percentages to determine one or more combinations which will generate the targeted profit for the retail business.
This type of approach gives the manager, responsible for an individual retail business, a guide to the type of product mix that they should be trying to generate so that the business will earn the targeted profit.
Business Review Meetings
A business review meeting is a worthwhile investment for a business to make to enable a full review to be undertaken of a business’ performance. This type of meeting is preferably held each month or quarter.
The leadership team should be the key participants in the business review meeting and each of them should have prepared a report on the “portfolio responsibilities” that they have in the business so that their peers can be informed and ask questions, if they wish. It is very desirable that an accurate set of financial accounts is prepared for each business activity so that the Profit and Loss Account and Key Performance Indicator Report for each business activity is available for review.
This process enables an evaluation of the performance within tradie, manufacturing and professional services businesses for which a charge out rate has been established to see whether those charge out rates, together with the productivity being achieved, has generated the targeted profit.
Retailers will benefit from analysing financial accounts to be able to judge the effectiveness of the manipulation of the product mix and charge out rates as part of the challenge of trying to achieve a targeted profit for the business. Other matters which can be considered at the business review meeting include:
• Cashflow Position – what has caused any variance?
• Projected cashflow position for the months ahead – is there a need to consult with the bank now?
• Debtors’ Aged Analysis and, in particular, what is the debtors’ days outstanding figure?
• How is the business performing, as compared to the vision included within the Business Plan?
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

EARLY STAGE INNOVATION COMPANIES

Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
BUSINESS ENTITIES
EARLY STAGE INNOVATION COMPANIES
Paper 003-045
CONTENTS
Page
1. Object Of Early Stage Innovation Company 2
2. Eligibility For Early Stage Innovation Company 2
3. Company Must Satisfy Two Limbs 3
4. Gateway Test 3
5. Commentary On Eligibility Requirements For 100 Points 4
6. Principles Based Test 5
7. Not Listed On A Stock Exchange 9
8. Taxation Returns 9
9. Determination Of Status 9
10. Investors Tax Treatment 10
11. Investors 10
12. Summary Of Offer 11
13. Qualification For Taxation Incentives 12
14. Company Reporting Requirements 12
15. Professional Advice 12
BUSINESS ENTITIES
EARLY STAGE INNOVATION COMPANIES
Paper 003-045
1. Object Of Early Stage Innovation Company
The object of an Early Stage Innovation Company (ESIC) is to encourage new investment in small Australian innovation companies with high growth potential by providing qualifying investors with a tax offset and a modified Capital Gains Tax treatment.
2. Eligibility For Early Stage Innovation Company
An Early Stage Innovation Company is a company that was:
• incorporated in Australia within the last three income years (the latest being the current year); or
• incorporated in Australia within the last six income years (the latest being the current year) and across the last three of those income years the company and its 100% subsidiaries (if any) incurred total expenses of $1M or less; or
• registered in the “Australian Business Register” within the last three income years (the latest being the current year); and
• the company and its 100% subsidiaries (if any) incurred total expenses of $1M or less in the income year before the current year; and
• the company and its 100% subsidiaries (if any) had a total assessable income of $200,000 or less in the income year before the current year. ( Assessable income does not include any Accelerating Commercialisation Grant received by the company); and
• at the test time none of the company’s equity interests are listed for “in the official list” of any stock exchange in Australia or a foreign country.
At the test time the company has at least 100 points under the 100 Point Innovation Test (Gateway Test) or the company qualifies under the principles based test.
Is involved in innovation by either:
• satisfying the Gateway Test through self-assessment; or
• satisfying the Principles Based Test through self-assessment; or
• receiving a determination from the Australian Taxation Office.
3. Company Must Satisfy Two Limbs
A company that wishes to be classified as an Early Stage Innovation Company must satisfy two limbs:
• The first limb determines that the company is "early stage" against criteria related to:
- expenditure;
- assessable income;
- stock exchange listing and incorporation. (Refer Item 2)
• The second limb determines that the company is involved in innovation by allowing the company to self-assess against either a Principles Based or Gateway Test or by receiving a determination from the Australian Taxation Office. (The ATO may need to consult with the Department of Industry Innovation and Science).
4. Gateway Test
The Gateway Test contains an objective set of tests to provide additional assistance to identify an Early Stage Innovation Company.
If a total of 100 points is achieved the company will be considered an eligible innovation company for the purpose of the legislation.
Points will be given for a range of activities including:
Innovation points potentially available at that time in the current year
Item Points Innovation Criteria
1 75 At least 50% of the company’s total expenses for the previous income year is expenditure that the company can notionally deduct for that income year under s.355-205 (about R&D expenditure).
2 75 The company has received an Accelerating Commercialisation Grant under the programme administered by the Commonwealth known as the Entrepreneurs’ Programme.
3. 50 At least 15%, but less than 50%, of the company’s total expenses for the previous income year is expenditure that the company can notionally deduct for that income year under s.355-205 (about R&D expenditure).
4. 50 (a) the company has completed or is undertaking an accelerator programme that:
(i) provides time-limited support for entrepreneurs with start-up businesses; and
(ii) is provided to entrepreneurs that are selected in an open, independent and competitive manner; and
(b) the entity providing that programme has been providing that, or other accelerator programmes for entrepreneurs, for at least six months; and
(c) such programmes have been completed by at least one cohort of entrepreneurs.
5. 50 (a) a total of at least $50,000 has been paid for equity interests that are shares in the company; and
(b) the company issued those shares to one or more entities that:
(i) were not associates of the company immediately before the issue of those shares; and
(ii) did not acquire those shares primarily to assist another entity become entitled to a tax offset (or a modified CGT treatment) under this Subdivision; and
(c) the company issued those shares at least one day before the test time.
6. 50 (a) the company has rights (including equitable rights) under a Commonwealth law as:
(i) the patentee, or a licensee, of a standard patent; or
(ii) the owner, or a licensee, of a plant breeder’s right;
Granted in Australia within the last five years (ending at the test time); or
(b) the company has equivalent rights under a foreign law.
7. 25 Unless item 6 applies to the company at the test time:
(a) the company has rights (including equitable rights) under a Commonwealth law as:
(i) the patentee, or a licensee, of an innovation patent granted and certified in Australia; or
(ii) the owner, or a licensee, of a registered design registered in Australia;
Within the last five years (ending at the test time); or
(b) the company has equivalent rights under a foreign law.
8. 25 The company has a written agreement with:
(a) an institution or body listed in Schedule 1 to the Higher Education Funding Act 1988 (about institutions or bodies eligible for special research assistance); or
(b) an entity registered under s. 29A of the Industry Research and Development Act 1986 (about research service providers);
To co-develop and commercialise a new, or significantly improved, product, process, service or marketing or organisational method.
5. Commentary On Eligibility Requirements For 100 Points
Research and Development Claims About A Certain Threshold
.1 A company will be awarded 75 points if it has at least 50% of its total expenses for the previous income year constituting expenses which are eligible for the tax offset for research and development activities provided under Division 355 of the Income Tax Act.
.2 A company will be awarded 50 points if it has at least 15% and less than 50% of its total expenses for the previous income year constituting expenses which are eligible for the tax offset for research and development activities provided under Division 355.
.3 Companies can only claim points under one of the research and development tax offset categories.
Received an Accelerating Commercialisation Grant
A company will be awarded 75 points if at any time it has received an Accelerating Commercialisation Grant under the Accelerating Commercialisation Programme.
Accelerate Programme
A company will be award be 50 points if it is undertaking or has completed an eligible accelerator programme. An eligible accelerator programme is a programme that provides time-limited support for start-ups for which an open independent and competitive application process is required for entry provided the entity running that programme has been operating for at least a six months period and has provided a complete programme of this kind to at least one cohort of entrepreneurs. Accelerator programmes that cannot provide value adding support (mentorship, training, education and networks) to the accepted companies or have had no successful companies coming through the programme are unlikely to be effective accelerator programmes.
A Third Party Has Previously Invested $50,000
A company will be awarded 50 points if it has previously (at least one day before) issued shares to a third party provided that the third party has:
• paid at least $50,000 for those shares;
• was not an associated (within the meaning of s.31A of the ITAA 1936) with the company immediately before the time those shares were issued; and
• did not acquire those shares primarily to assist another entity to become entitled to the TIFESI (Tax Incentives for Early Stage Investors).
Hold Certain Enforceable Intellectual Property Rights
.1 A company will be awarded 50 points if it has one or more enforceable rights on an innovation through a standard patent or plant breeders’ right that has been granted in Australia or an equivalent intellectual property right granted in another country. The property right must have been granted in the last five years.
.2 A company will be awarded 25 points if it has one or more enforceable rights on an innovation through an innovation patent or design right or an equivalent intellectual property right granted in another country. Where the property right relates to an innovation patent or foreign equivalent, the right must have been granted and certified within the last five years. Where the property right relates to a design or foreign equivalent, it must have been registered within the last five years.
A company cannot rely on this section if it has been able to claim 50 points through holding a standard patent or plant breeders’ right.
Collaborative Agreement With Research Organisations Or University To Commercialise An Innovation
The company will be awarded 25 points if it:
.1 has a written agreement to co-develop and commercialise an innovation with either an institution or body listed in Schedule 1 to the Higher Education Funding Act 1988; or
.2 is an entity registered under s.29A of The Industry Research and Development Act 1986 to co-develop and commercialise a new or significantly improved product, process, service or marketing or organisational method.
6. Principles Based Test
The Principles Based Test applies if:
.1 the company is generally focused on developing for commercialisation one or more new or significantly improved products, processes, services or marketing or organisational methods; and
.2 the business relating to those products, processes, services or methods have a high growth potential; and
.3 the company can demonstrate that it has the potential to be able to successfully scale that business; and
.4 the company can demonstrate that it has the potential to be able to address a broader than local market including global markets through that business; and
.5 the company can demonstrate that it has the potential to be able to have competitive advantages for that business.
The Principles Based Test provides guidance to help determine if a company will be an Early Stage Innovation Company through self-assessment of whether it is genuinely focused on developing for commercialisation one or more new or significantly improved products, processes, services or marketing or organisational methods.
Prescriptive rules and tests can only accommodate the types of activities and ideas that are foreseen, however, innovation is also about the creation, disruption or improvement that has not been foreseen or achieved by others.
Principles that could be used to define innovation could for example include the following:
• the company would need to be the developer of a new idea or significantly improved upon an existing idea that:
- changes the way an organisation, service, delivery or process operates;
- creates a new product or service that other organisations or consumers could use;
- creates a new platform for the delivery of products and services;
- changes the way an organisation, service, delivery or process operates and creates a new organisational or marketing method.
The innovation company would need to have the capability to commercialise or bring to market and generate value from the ideas that it has developed.
The innovation company will also need to pursue global or broader opportunities rather than have a focus on only local markets.
The definition of an “innovation company” requires it to exhibit high growth potential through a management team being able to successfully scale the business as it grows and maintain competitive advantages over incumbents or new competitors.
A qualifying Early Stage Innovation Company will need to be genuinely focused on developing its new or significantly improved innovation for the purpose of commercialisation and show that the business relating to that innovation:
• has the potential for high growth;
• has scalability;
• can address a broader than local market; and
• has competitive advantages.
Further comments on these elements are as follows:
• a qualifying ESIC could demonstrate how it satisfies the different elements of this test through the use of its existing documentation such as Business Plans, Commercialisation Strategies, Competition Analysis or other company documents;
• in addition the company must show that tangible steps have been or will be undertaken in relation to that focus or capability.
(a) New Or Significantly Improved
The innovation that is being developed by a qualifying ESIC must either be new or significantly improved for the applicable addressable market. A company’s addressable market refers to the available revenue opportunity or market demand arising from the innovation, or the business relating to that innovation. The addressable market identified by the ESIC must be objective and realistic. For example, if the addressable market for the innovation was the Australian market then the innovation must be new or significantly improved for that market.
(b) Not New Or Significantly Improved
Improvements resulting from the customisation of existing products, minor extensions such as updates to existing equipment or software, changes to pricing strategies, changes to goods resulting from cyclical or seasonal change and the trading of new products for a wholesaler, retail outlet or distribution business where activities are similar to the approach of competitors are unlikely to satisfy the significantly improved threshold. Further ceasing to utilise a process or method will not satisfy the new or significantly improved thresholds.
Example 1
PAM One Co is a start-up clothing company that has developed a new organisational method where the company utilises an integrated cross-functional structure resulting in reduced response times to shifting customer styles. PAM One Co has also identified that the company’s addressable market is the Australian market.
As existing clothing companies in PAM One Co’s addressable market are typically organised around individual functions, the integrated cross-functional structure is new to that addressable market. As a result, PAM One Co has developed a new or significantly improved organisation method.
Example 2
JM Technology Co is a new wholesale distribution company which specialises in personal technology products. If JM Technology Co begins to sell a new personal technology product which was released by one of their offshore suppliers, JM Technology Co has not developed a new or significantly improved service or innovation.
(c) Commercialisation
The company must be focussed on developing its innovation for a commercial purpose, or in other words, for the purpose of generating economic value and revenue for the ESIC. This requirement draws the distinction between simply having an idea and generating economic value from that idea. Commercialisation encompasses a spectrum of activities including those leading to the sale of new or significantly improved product, process or service as well as activities involving the implementation of a new, or significantly improved, process or method, where the process or method directly leads to the generation of economic value for the company.
Example 3
JS & RD Co is a small start-up company in the pharmaceutical industry seeking funding to develop a new process to manufacture a known pain relief medication. If the company can successfully scale up its process, the new process promises to be more efficient and more environmentally friendly than the conventional manufacturing process used by incumbents.
Even though JS & RD Co does not intend to licence the innovation to another company, the innovation has the potential to provide the company with a direct competitive advantage over its rivals and generate significant economic value. As a result, JS & RD Co has developed the innovation for a commercial purpose.
(d) High Growth Potential
The TIFESI (The Incentives For Early Stage Inventors) is specifically designed to encourage capital investment into innovative companies with high growth potential, as distinct from typical small to medium enterprises such as cafes, local trade stores, local service providers that service a single local market. Specifically, a qualifying ESIC would need to show that it has the potential for high growth within a broad addressable market.
Example 4
Sheng Da Co is a company developing a new mobile application which provides specialised on demand concierge services for the convenience of its users. While the company initially aims to test the service in Melbourne, it shows its high growth potential through its ability to expand the use of its mobile platform and the location of the services to include all major cities in Australia and beyond. The company has outlined this expansion strategy in its Business Plan and has started to contact service providers in other major cities. As a result, Sheng Da Co has high growth potential.
(e) Scalability
A qualifying ESIC must have the potential to successfully scale its business. As the company increased its share of the market or enters into new markets, the company needs to have operating leverage, where existing revenues can be multiplied through incurring or reducing a minimal increase in operating costs.
Example 5
R Ting Co, a start-up manufacturing company is developing a new formula for a perishable consumer goods product which allows the product to have an extended shelf life.
The company has outlined its strategy to acquire its own manufacturing plant as the demand for the product grows. If production of the product is increased, the company has further indicated that the cost per unit can be reduced by leveraging the existing operating costs of the plant as it sells the product into new markets. As a result, R Ting Co has the potential to successfully scale its business.
Example 6
Yien-Yih Co is a new local service provider of dental care. The company’s strategy for high growth is to expand the number of clinics to increase its revenue. However, the company’s operating costs (new premises, staff, etc.) increase by the same amount as the additional revenue generated for each clinic and so Yien-Yih Co does not possess the potential to successfully scale the business.
(f) Broader Than Local Market
A qualifying ESIC would need to demonstrate that it has the potential to address a market that is broader than a local city, area or region. While the company does not need to have a serviceable market at a national, multinational or global scale at the test time, it does need to show the capability to address a market that is broader than a local market and also show that this business can be adapted to a national, multinational or global scale in the future.
Example 7
Further to Example 5, R Ting Co plans to initially test and sell its new product to the Victorian market and has an expansion strategy to sell to the broader Australian market and if successful, eventually adapt its product for the Asia-Pacific market. As a result R Ting Co has the potential to service a broader than local market and adapt to a global scale.
(g) Competitive Advantages
A qualifying ESIC will need to demonstrate that it has the potential to have competitive advantages, such as a cost or differential advantage over its competitors which are sustainable for the business. A method of evaluating a competitive advantage can be through the measures of the level of value for customers, rarity, imitability and substitutability of the advantage.
Example 8
SLIS Tech Co is developing a new peer to peer service providing websites for the Australian market. After conducting a competition analysis of the marketplace, a differentiating competitive advantage identified was the website’s use of a marketplace platform.
SLIS Tech Co has identified that this attribute will allow the company to outperform its competition. In addition, the company has taken initial steps in developing the platform and has also started to engage with the service providers to be part of the websites network. As a result, SLIS Tech Co has the potential to have competitive advantages.
7. Not Listed On A Stock Exchange
The company must not be listed on any stock exchange either in Australia or overseas. These tax incentives target companies experiencing difficulty accessing equity finance and without access to fundraising via listed securities.
8. Taxation Returns
The Australian Taxation Office’s company tax return requires companies to report “total expenses” at item six as part of the total profit or loss calculation. A company that has submitted a company tax return in the previous income year must rely on the amount reported in item six for the purposes of this test. Alternatively, if the company was not required to submit a company tax return, it may use the amount corresponding to this item.
Total Expenses Of $1M Or Less
The company and any of its wholly-owned subsidiaries must have not incurred “total expenses” of more than $1M in the previous income year.
Assessable Income of $200,000 Or Less
The company and any of its wholly-owned subsidiaries must have derived assessable income of no more than $200,000 in the previous income year.
Companies that had no assessable income in the previous income year will satisfy this test.
In determining the company’s assessable income, the company may disregard the value of an Accelerating Commercialisation Grant it received in that year.
9. Determination Of Status
If the company is unable to satisfy itself as to whether it meets the requirements of the ESIC legislation under the Principles Based Test or the Gateways Test, the company may seek advice from the Australian Taxation Office (who could liaise with AusIndustry) on whether it qualifies.
There are explicit exclusions for certain investment activities. Exclusions include:
• dealing in land; in commodities or futures in shares, securities or other financial instruments;
• banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;
• leasing (including letting ships on charter or other assets on hire);
• receiving royalties or licence fees;
• providing legal or accounting services;
• property development;
• holding, managing or occupying woodlands, any other forestry activities or timber production;
• producing coal;
• producing steel;
• operating or managing hotels or comparable establishments;
• operating or managing nursing homes or residential care homes;
• subsidised generation or export of electricity;
• provision of services or facilities for another business;
• dealing in goods otherwise than in the course of an ordinary trade or wholesale or retail distribution;
• farming or market gardening; and
• shipbuilding.
However, the intention is not to exclude the high-growth potential industries like financial technology.
10. Investors Tax Treatment
.1 Tax Offset
A taxpayer may be entitled to a tax offset under the Early Stage Innovation Company if the taxpayer is, or a trust or a partnership of which the taxpayer is a member is issued with certain kinds of equity interest in a small Australian company with high growth potential that is engaging in innovative activities.
The Early Stage Innovation Company legislation provides eligible investors with a 20% non-refundable tax offset for the amount paid for newly issued shares in an innovation company where the amount is paid either directly to the innovation company or indirectly through a qualifying innovation fund. An investor can invest in innovation companies, innovation funds or into both. Where an investor cannot use the tax offset in the relevant income year, the investor may carry the tax offset forward to use in a future year. The tax offset is available to both resident and non-residents of Australia.
Where the tax offset is carried forward and further eligible investments are made by the taxpayer, the offset that may be claimed in any one year is capped at $200,000.
Investment amounts greater than $1M in an income year, do not increase the amount of the tax offset available.
.2 Capital Gains Tax
A modified Capital Gains Tax treatment may also apply to those equity interests.
An investor may disregard any “capital gain” it makes from an investment in an Early Stage Innovation Company if the CGT event happens on or after the first anniversary of the investment but before the tenth anniversary.
Investments over $1M still benefit from exempt capital gains. The cap applies on an affiliate-inclusive basis in order to prevent entities entering into arrangements to circumvent the cap.
The investor must disregard any “capital loss” makes from any CGT event that occurs before the tenth anniversary of the issue of the share.
11. Investors
(a) Retail Investor
A retail investor can only invest up to $50,000 per annum per company. This means that the maximum tax offset is $10,000 for a retail investor. A retail investor who invests more than $50,000 is not entitled to any tax offsets. Nor will a retail investor investing more than $50,000 be eligible for the modified CGT treatment.
(b) Sophisticated Investors
There is no restriction on the amount an entity may invest if the entity meets the requirements of the Sophisticated Investor Test in s.708 of the Corporations Act 2001 in relation to a relevant offer of shares at any time in the income year.
In the Corporations Act 2001 the Sophisticated Investor Test is used for investment opportunities that has reduced disclosure requirements on the basis that investors that meet this criteria are more likely to be able to evaluate offers of securities and other financial products without needing the protection of disclosure documents.
There are no restrictions on the amount a sophisticated investor may invest subject to only being able to access $200,000 cap on the value of the tax offset.
s.708(8)(c) states:
“It appears from a certificate given to by a qualified accountant, no more than six months before the offer is made that the person to whom the offer is made: then
(i) has net assets of at least $2.5M; or
(ii) has a gross income for each of the last two financial years of at least $250,000 a year.
This person is deemed to be a sophisticated investor.
(c) Thirty Percentage Equity Restriction
In order to qualify for the tax offset, the investor entity must not hold more than 30% of the equity interests of an ESIC, including any entities connected with the ESIC, tested immediately after the time relevant equity interests are issued.
This restriction encourages investors to spread their investments across more than one ESIC.
An ESIC is connected with another entity if the ESIC controls the other entity (or vice versa) or both are controlled by the same third entity. The connected with test is used in this context to ensure that the policy intentions behind the 30% cap is not circumvented by an investor that invests in multiple related ESICs, holding less than 30% of the issued capital in each, but has not, in reality, spread their investments, as there is a control relationship between the ESIC’s.
(d) Widely Held Shares
The tax incentives are not available in a widely held company or a wholly owned subsidiary of a widely held company. A widely held company is either a company on a stock exchange or a company with more than fifty shareholders.
12. Summary Of Offer
An Early Stage Innovation Company should disclose information in its capital raising document.
The information to be disclosed could include:
• identify the company and the nature of the security;
• describe the company’s business;
• describe what the funds raised by this offer are to be used for;
• state the nature of the risks involved in investing in the security;
• give details of all amounts payable in respect of the securities (including any amounts by way of fee, commission or charge);
• state that the statement is not a Prospectus and that it has a lower level of disclosure requirements then a Prospectus;
• state that investors should obtain professional investment advice before accepting the offer;
• include a copy of the Financial Report for the company;
• include any other information that the regulations require to be included in any such statement;
• the Financial Report included as part of the disclosure should be a report for a twelve month period and have a balance date that occurred within the last six months before the securities are first offered;
• be prepared in accordance with accounting standards.
13. Qualification For Taxation Incentives
At the date that an investor finalises an investment in a company that believes it is an ESIC will be the date for the determination as to whether that investor has qualified for an investment in a company that was assessed as being an Early Stage Innovation Company.
If subsequently, something changes that would affect whether the company was entitled to deem itself to be an ESIC, this would not affect the prior determination that had been made as at that stage the company was an ESIC and therefore the investor was entitled to the benefit of the tax offset and the Capital Gains Tax exemption on that particular investment made at that earlier date.
14. Company Reporting Requirements
Early Stage Innovation Companies will be required to report information about their investors to the Australian Taxation Office so that the Australian Taxation Office can assess whether those investors may qualify for the tax offset and the modified CGT treatment. This information needs to be provided thirty-one days after the end of the financial year. For most companies this would be the 31st July of the following financial year.
Early Stage Innovation Companies will need to provide this information in the “approved form” when it is issued by the Australian Taxation Office.
15. Professional Advice
Before acquiring a company or purchasing shares in a company, it is recommended that you obtain appropriate professional accounting and legal advice.
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
AN IMPORTANT MESSAGE
The forms and commentaries contained in this paper are provided as a guide only and should not form the sole basis for any advice in relation to the particular situation of any person without first obtaining proper professional advice.

liverpool business accountat

Mihcaccounting

Liverpool Business Accountant
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
A The 2021 Financial Year Is Coming To An End 1
B End Of Year Tips 1
C Taxing Of Trading Income 1
D Small Business Entities 2
E Stock - All Businesses 3
F Assets 4
G Employment Issues 4
H Income Issues 4
I Utilising Tax-Free Threshold 5
J Entities Not Defined As Small Business 5
K Primary Producers 8
L Companies 8
M Capital Gains Tax 8
N Reportable Payment Report 8
O Superannuation Funds 9
P Early Stage Innovation Company Report On Shares Issued 9
Q Property Investments 9
R End Of Financial Year Review 9
S Business Review 9
T Individuals 10
End Of Year Tax Planning - June 2021
A The 2021 Financial Year Is Coming To An End
This special edition of the Business Plus newsletter contains commentary on many of the items you may encounter as part of your end of financial year deliberations. Please contact us for a copy of our end of financial year tax planning paper and checklist. Both will assist you in identifying items which you might like to discuss with us.
B End Of Year Tips
• Prepayments - if you’re business’ turnover is under $10 million for 2020/21, consider any prepayments that you could make prior to 30th June 2021.
During 2020/21 the Australian government has had two depreciation/asset write off policies overlapping – “Instant Asset Write Off” and “Temporary Full Expensing”:
• Instant Asset Write Off - if your business had an annual turnover of less than $500 million, you can write off expenditure on individual assets new and second-hand first used or installed ready for use between 1st July 2020 and 30th June 2021 and purchased by 31st December 2020. The instant asset write off threshold amount for each asset is $150,000.
• Temporary Full Expensing - the business portion of the cost of new or second hand assets acquired after 6th October 2020 and installed ready for use by 30th June 2021, by businesses with an aggregated turnover under $500 million can be deducted in full.
• The balance of the small business pool at the end of each income year for businesses with an aggregated turnover under $10 million can be deducted.
C Taxing Of Trading Income
There are two forms of taxation treatment for trading income, depending on whether the business is assessed on a:
1. “Cash” Basis - businesses are assessed when income is received and payments are deductible when they are paid, if the business’ income is less than $10 million for the year (see Section D).
2. “Accruals” Basis - businesses are assessed when a legally recoverable debt arises, usually at the point of invoicing and payments are deductible when the supplier’s invoice is received and entered into the business’ accounting records, irrespective of the date of payment (see Section D).
D Small Business Entities
• Aggregated Turnover (relates to annual turnover received by your business, plus the annual turnover of any business connected to you or that is an affiliate of yours) of less than $10 million. “Aggregated Turnover” is calculated on a group basis and must be “business income”. Please ignore this section if it is not applicable to you. In that case, if you are in business, please refer to “Section J - Entities Not Defined as a Small Business”.
• The Small Business Entity rules apply to a sole trader, partnership, company or trust which has a group turnover of less than $10 million in the previous year, or likely to be less than $10 million in the current year.
• Depreciation Rules - for “new or second hand assets” first used, or installed ready for use, between 1st July 2020 until 30th June 2021 and purchased by 31st December 2020, businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For new or second hand assets first used or installed ready for use by 30th June 2021 and purchased after 6th October 2020, these assets can be written off under the “Temporary Full Expensing Rules”.
• There is a restriction on the availability of the Instant Asset Write Off for passenger vehicles.
Car Limit:
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than 1 tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business activities, the maximum write-off for that vehicle would be $59,136 x 70% = $41,395.
• If a vehicle has a payload of more than one tonne and is used 100% for business the claim under the Instant Asset Write Off can be up to $150,000 and, if the claim is being made under the “Temporary Asset Expensing Provision”, the claim can be the cost of the vehicle.
• Assets excluded from the “Temporary Full Expensing Rules” include:
- capital works, horticultural plants, assets allocated to a software development pool, buildings, intangible assets including customer lists and Goodwill.
• Prepayments - Small business entity taxpayers are entitled to a deduction for prepayments where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationery, rent and advertising etc.
General Deductions:
• Staff Bonuses - ensure that a cheque has been written or payments made prior to 30th June 2021 and PAYG Withholding Tax deducted.
• Staff Holidays - where practical, encourage staff to take holidays prior to 30th June 2021 or when cashing in holidays, the payment is made before 30th June 2021.
• Superannuation - for the year ending 30th June 2021, superannuation contributions can be paid for any eligible person:
- Up to 65 years of age - $25,000.
- People aged 65 - 74 must be working for a minimum of 40 hours in any 30 consecutive day to make voluntary contributions to their superannuation account. This is known as the “Superannuation Work Test”.
- Superannuation Guarantee – 9.5% in 2020/21 increasing to 10% from 1 July 2021.
- Self-Employed Persons - self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees.
• Salary Sacrifice Arrangements - salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
• Non-Concessional Contributions - the non-concessional contribution cap is $100,000 for 2020/21. If you are aged under 65, the Bring Forward Rule lets you make up to $300,000 (3 times the annual contribution cap in a single year) of non-concessional contributions over 3 years.
• If you are aged 67 to 74, you can make voluntary superannuation contributions for the first year after you retire without satisfying the work test provided that you have less than $300,000 in your superannuation account at the 30th June 2020.
• If you are over 65 years and you have recently sold your house in Australia or you are about to sell your house that you have lived in for more than 10 years, you are able to make a downsizer contribution of up to $300,000 to your superannuation fund within 90 days of settlement. This contribution is made from the proceeds of the sale of your house. If you provide your superannuation fund with a form before or while making the contribution, the downsizer contribution won’t be accounted for under the concessional or non-concessional contribution caps.
• You can only have $1.6 million in superannuation and retirement funds used to commence a retirement income stream.
• Superannuation Minimum Contributions - superannuation contributions have to be paid to all eligible employees who are paid, at least, $450 gross per month.
• Interest on Loan Funds - interest can be claimed on loans taken out for business purposes or to purchase income producing properties and shares in companies.
• Repairs and Maintenance - ensure that the work has been completed prior to 30th June 2021.
• Director’s Fees - ensure that cheques are drawn for payments made prior to 30th June 2021 and that PAYG withholding tax is deducted.
• Travel Deductions:
- Overseas - prepare a full itinerary and diarise this travel.
- Local away for more than 6 nights you are required to maintain a diary.
A ban on travel related tax deductions for most real estate investors now applies.
• Motor Vehicle Expenses - there are two methods available to calculate tax deductions for work-related motor vehicle expenses:
1. Cents Per Kilometre - $0.72 per kilometre (you can claim up to a maximum of 5,000 business kilometres per vehicle per annum).
2. Logbook Method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred.
• Donations - any promised tax-deductible donations should be made prior to 30th June 2021 to claim the deduction.
• Borrowing Costs - can be claimed over the shorter of 5 years or the term of the loan.
• Entertainment - is not deductible unless it is provided as a fringe benefit and the fringe benefit taxes have been paid.
• Gifts - ensure payment is made to a tax-deductible charity on or before 30th June 2021.
• Audit Fees - deductible if there is a contract that creates a presently existing liability before 30th June 2021.
• Salary Packages - ensure 2021/22 salary packages are negotiated and documented prior to 30th June 2021.
• Legal Costs - review any legal costs that have been incurred. If the legal costs relate to regular business operations (e.g. debt collection), separate these legal costs from the remaining legal costs which will relate to capital items which are not claimable for income tax purposes.
• Luxury Car Tax - the luxury car tax is 33% and applies to the GST inclusive value in excess of $68,740 (including GST). The luxury car tax for fuel efficient vehicles applies from a cost of $77,565 (including GST).
• Research and Development Expenditure for Companies with Turnovers Under $20 million - a company will receive the benefit of a refundable Research and Development Tax Incentive Rebate calculated at 43.5% of the eligible research and development expenditure spent during 2020/21. For companies with turnovers under $20m, the tax offset can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company’s income tax return, if the company elects to receive this payment in the company’s income tax return. It is important to note that, for the research and development claims in respect of the year ending 30th June 2021, the company must register with AusIndustry by 30th April 2022 or the date of lodgement of the company’s income tax return, whichever is the earlier. Companies must lodge any Overseas Finding Application relating to expenditure in 2020/21 with Australian Taxation Office by 30th June 2021.
• Stock
Trading Stock Rules - small business entities (turnovers under $10 million) do not have to account for changes in trading stock or prepare a stock-take for taxation purposes, where the difference between the opening value of stock in a reasonable estimate of the closing stock is $5,000 or less.
E Stock - All Businesses
• Stock on Hand - review stocktake lists in early June 2021. Determine whether to conduct “sales” prior to 30th June 2021. Conduct stocktake as at 30th June 2021. If you are conducting regular “rolling” stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2021. Stocktaking may not be necessary if you are a small business entity (refer Section D - Trading Stock Rules).
• Value of Stock - stock can be valued at different individual methods for each item of stock:
- stock
- sale value
- lower of market value or replacement cost
• Obsolete Stock - identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
F Assets
• Fixed Assets - determine if there are any benefits for scrapping any fixed assets to obtain a tax write off prior to 30th June 2021.
G Employment Issues
• Payment Summaries - if you’re using the Single Touch Payroll (STP) you are exempt from issuing payment summaries to your employees. The payment summaries will be made available to your employees online through MyGov. The finalisation declaration requires the employer to declare that all of the information relative to the financial year for each employee has been provided through your STP reporting. Finalisation declaration lodgement is required by 14th July.
If you have 20 or more employees, you should be reporting closely held payees each payday along with arm’s-length employees. The finalisation due date for closely held payees is 30th September each year.
For small employers (19 or fewer employees) who only have closely held payees, the due date for the end of year STP finalisation will be the payee’s income tax return due date.
If you are an employer with a mixture of both closely held payees and arm’s-length employees, the due date for the end of year STP finalisation for closely held payees is 30th September each year. All other employees are due by 14th July each year.
• Payment Summaries - if you are not using Single Touch Payroll, payment summaries have to be prepared and sent to all employees by 14th July 2021.
• PAYG Withholding Tax - if you are not using Single Touch Payroll, the annual summaries are due to be lodged with the Australian Taxation Office by 14th August 2021.
• Payroll Tax (if you are liable - this is a State/Territory government tax - if you have any questions, please contact us) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconciled this with the remittances that you have forwarded to your State/Territory government agency during the year.
• WorkCover - a WorkCover declaration is due by 31st August 2021 certifying wages paid for the year ending 30th June 2021.
H Income Issues
• Government Grants - if your business has received a grant from an Australian, State or Territory government department, other than the “cashflow boost payments”, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose the receipt of the government grant in your income tax return.
If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax deductible items prior to 30th June 2021 (if possible).
Please note: The “Job Keeper Payments” provided by the government are to be treated as taxable income by the business receiving the payments.
• Personal Services Income - taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the “Personal Services Income (PSI) Measures”. A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office’s strict approach to income retention and income splitting. If you have any questions relating to this item, please contact us.
• Non-Commercial Losses - for a business to be commercial, under the “Non-Commercial Losses Tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses, arising from the activities, have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/21.
• Trust Distributions - the Australian Taxation Offices indicated that it will be enforcing the full measure of the law, whereby trustee distributions/resolutions have to be made by 30th June each year.
I Utilising Tax-Free Threshold
• Every adult taxpayer has a tax-free threshold of $18,200. If a taxpayer is verging on losses, consideration should be given to the decisions being made in relation to the valuation of stock, bringing forward a delay of sales etc. to utilise the tax-free threshold. Otherwise, the benefit will be lost for ever.
J Entities Not Defined As Small Business
• Aggregated turnover (Refer Section D) of over $10M for the year. Please ignore this section if not applicable to you - refer to Section D - Small Business Entities.
• The prepayment rule for “other small businesses” applies to business taxpayers with a group turnover of $10M or more.
Depreciation Rules For Turnover Of $10 Million To $50 Million:
• Depreciation rules for “new or second-hand” assets first used, or installed ready for use, between 1st July 2020 until 30th June 2021 and purchased by 31st December 2020, businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For “new or second-hand assets” of any value first used, or installed ready for use, by 30th June 2021 and purchased after 6th October 2020, can be written off under the “Temporary Full Expensing Rules” (the application of which has been extended until 30th June 2023).
• Businesses can also apply “Temporary Full Expensing” to the business portion of the cost of “improvements made to eligible depreciating assets” from 1st January 2021 to 30th June 2021.
• There is a restriction on the availability of the Instant Asset Write Off for passenger vehicles.
Car Limit:
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business use, the total you can claim under the Instant Asset Write Off is activities, the maximum ride for that vehicle would be $59,136 x 70% = $41,395.
• If a vehicle has a payload more than one tonne and is used 100% the business, the claim under the “Instant Asset Write Off” can be up to $150,000 and, if the claim is being made under the “Temporary Asset Expensing Provision” the claim can be the cost of the vehicle.
Accelerated Depreciation For Turnover $50 Million To $500 Million:
• Depreciation rules for “new or second-hand assets” first used, or installed ready for use, between 1st July 2020 and 30th June 2021 and purchased by 31st December 2020 businesses can utilise the “Instant Asset Write Off” for assets costing up to $150,000.
• For new assets of any value first used, or installed ready for use, by 30th June 2021 and purchased after 6th October 2020, can be written off under the “Temporary Full Expensing Rules” (the application of which has been extended until 30th June 2023).
• Businesses can also apply “Temporary Full Expensing” to the business portion of the cost of “improvements made to eligible depreciating assets” from 1st January 2021 to 30th June 2021.
• For passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers, the limit is $59,136 (this is the limit of depreciation allowed on a passenger vehicle).
• The passenger vehicle limit does not apply to vehicles modified for use by people with a disability.
• The “Instant Asset Write Off” is limited to the business portion of the car limit. If a passenger vehicle is used for 70% business use, the total you can claim under the Instant Asset Write Off is activities, the maximum ride for that vehicle would be $59,136 x 70% = $41,395.
General Deductions:
• Staff Bonuses - ensure a cheque has been written with payment made prior to 30th June 2021 and tax deducted.
• Staff Holidays - where practical, encourage staff to take holidays prior to 30th June 2021 or if being cashed out, paid before 30th June 2021.
• Superannuation - for the year ended 30th June 2021 superannuation contributions can be paid for any eligible person:
- up to $25,000
- people aged 65 - 74 years must be working for a minimum of 40 hours in any 30 consecutive days to make a voluntary contribution to their superannuation account. This is known as the “Superannuation Work Test”.
• Superannuation Guarantee - 9.5% in 2020/21, increasing to 10% from 1 July 2021.
• Self-Employed Persons - can obtain a superannuation deduction on the same basis as that adopted for employees.
• Salary Sacrifice Arrangements - salary sacrifice arrangements can be utilised to maximise superannuation contributions subject to the overall deduction limits.
• Non-Concessional Contributions - the non-concessional contribution cap is $100,000 for 2020/21. If you are aged under 65, the Bring Forward Rule lets you make up to $300,000 (3 times the annual contribution cap in a single year) of non-concessional contributions over 3 years.
If you are aged 67 to 74 years you can make voluntary superannuation contributions for the first year after you retire without satisfying the work test provided you have less than 300,000 in your superannuation account at 30th June 2020.
If you are over 65 years and you have recently sold your house or you’re about to sell your house that you have lived in for more than 10 years, you are able to make a downsizer contribution of up to $300,000 to your superannuation fund. The contribution is made from the proceeds of the sale of your house which you have owned for at least 10 years and is located in Australia. If you provide your superannuation fund with a form before/while making the contribution, the downsizer contribution won’t be accounted for under the concessional or non-concessional superannuation caps. You can only have $1.6 million in superannuation and retirement funds used to commence a retirement income stream.
• Superannuation Minimum Contributions - superannuation contributions have to be paid to all eligible employees who are paid, at least, $450 gross per month.
• Interest On Loan Funds - interest can be claimed on loans taken out for business purposes or to buy income producing properties and/or shares.
• Repairs and Maintenance - ensure that the work has been completed prior to 30th June 2021.
• Directors Fees - ensure cheques are drawn for payment may prior to 30th June 2021 and that the appropriate tax is deducted.
• Travel Deductions:
- Overseas - prepare a full itinerary and diary.
- Local - for more than 6 nights you are required to maintain a diary.
A ban on travel related tax deductions for most real estate investors now applies.
• Motor Vehicle Expenses - there are two methods available to calculate tax deductions for work-related motor vehicle expenses:
- Cents Per Kilometre - $0.72 per kilometre (you can claim up to a maximum of 5,000 business kilometres per vehicle per annum.
- Logbook Method - you can claim your actual business kilometres as a percentage of the total kilometres that the motor vehicle has travelled and then utilise that percentage as the claimable percentage of the total motor vehicle expenses incurred).
• Donations - any promised tax deductible donations should be made prior to 30th June 2021 to claim the deduction.
• Borrowing Costs - can be claimed over the shorter of 5 years or the term of the loan.
• Entertainment - entertainment is not deductible unless it is provided as a fringe benefit on the Fringe Benefit Taxes that have been paid.
• Gifts - ensure payment is made to a tax-deductible charity on or before 30th June 2021.
• Audit Fees - deductible if there is a contract that creates a presently existing liability before 30th June 2021.
• Salary Packages - ensure salary packages are negotiated and documented for 2021/22 prior to 30th June 2021.
• Legal Costs - review any legal costs that have been incurred. If the legal costs relate to regular business operations (e.g. debt collection), separate those legal costs from the remaining legal costs which will relate to capital items which are not claimable for income tax purposes.
• Luxury Car Tax - the Luxury Car Tax is 33% and applies to the GST inclusive value in excess of $68,740 (including GST). The Luxury Car Tax for fuel efficient vehicles applies from a cost of $77,565 (including GST).
• Research and Development - companies that incur research and development can claim additional taxation benefits. There are 2 components:
- Companies with turnovers under $20m
- Companies with turnovers over $20m
Companies must register their research and development projects with AusIndustry by 30th April 2022 or the date of lodgement of the company’s income tax return, whichever is the earlier.
• Research and development expenditure for companies with turnovers under $20m- a company will receive the benefit of a refundable research and development tax incentive calculated at 43.5% of the eligible research and development expenditure spent during 2020/21. The rebate can be paid to the company by the Australian Taxation Office within 30 days of lodgement of the company’s income tax return, if the company elects to receive this payment in the company’s income tax return.
• Companies with turnovers over $20m - the company will receive a 38.5% non-refundable tax offset of the eligible research and development expenditure. If you require further information of the treatment of research and development expenditure, please contact us.
Deductions on “Accruals” Basis:
(Subject to the income tax return being lodged on an “Accruals” Basis)
• Fringe Benefits Tax Payment (Accruals Basis) - if a Fringe Benefit Tax instalment is due on 21st July 2021, it can be accrued and claimed as a tax deduction in the year ending 30th June 2021.
• Commissions Owing (Accruals Basis) - where employees or another business are owed commission by your business for services rendered up to 30 June 2021, the accrued amount can be claimed as a tax deduction at 30th June 2021.
• Bad Debts (Accruals Basis) - actually write-off any bad debts prior to 30th June 2021 and prepare minutes authorising the write off.
• Interest (Accruals Basis) - any accrued interest outstanding on a business loan, that has not been paid at 30th June 2021, can be claimed as a tax deduction at 30th June 2021.
• Salaries and Wages (Accruals Basis) - the accrued expense for the days that employees have worked, but not paid at 30th June 2021, can be claimed as a tax deduction at 30 June 2021.
• Commercial Bills (Accruals Basis) - where the term of a commercial bill expires beyond 30th June 2021, the discount applicable to the period up to 30th June 2021 can be claimed as a tax deduction.
• Rent (Accruals Basis) - if rent is in arrears, the part that is owed up to 30th June 2021 can be claimed as a tax deduction.
Stock:
• Stock On Hand - review stocktake list in June 2021. Determine whether to conduct “sales” prior to 30th June 2021. Conduct stocktake as at 30th June 2021. If you are conducting regular “rolling” stocktakes throughout the year, it may not be necessary to conduct a stocktake as at 30th June 2021.
• Value Of Stock - stock can be valued at different individual methods for each item of stock:
- Cost
- Sale Value
- Lower of Market Value or Replacement Cost
• Obsolete Stock - identify any obsolete stock and decide whether to clear or dump that stock prior to stocktake.
Assets:
• Fixed Assets - determine if there are any benefits in scrapping any fixed assets to obtain the tax write off prior to 30th June 2021.
Employment / Contractor Issues:
• Payment Summaries - if you are not using Single Touch Payroll, payment summaries have to be prepared and sent to all employees by 14th July 2021.
• PAYG Withholding Tax - if you are not using Single Touch Payroll, the annual summaries are due to be lodged with the Australian Taxation Office by 14th August 2021.
• If you have made payments and withheld amounts from businesses which did not quote their ABN to you, the PAYG Withholding Where ABN Not Quoted Annual Report lodgement date is 31 October 2021.
• Payroll Tax (if you are liable - this is a State/Territory government tax - if you have any questions, please contact us) - you have to prepare a reconciliation of total payroll for the year showing the total amount of payroll tax payable and then reconciled this with the remittances that you have forwarded to your State/Territory government agency during the year.
• WorkCover - a WorkCover declaration is due by 31st August 2021 certifying wages paid for the year ending 30th June 2021.
Income Issues:
• Government Grants - if your business has received a grant from an Australian, State or Territory government department, other than the “cashflow boost payments”, it is most likely paid to you on the basis that it is taxable income and therefore you need to disclose the receipt of the government grant in your income tax return.
If you are lodging your income tax return on a cash basis, this highlights the desirability of ensuring that all of the government grant funds have been expended on tax deductible items prior to 30th June 2021 (if possible).
Please note: The “Job Keeper Payments” provided by the government are to be treated as taxable income by the business receiving the payments.
• Bad Debts Recovered (On An Accruals Basis) - if a debtor owed an amount which has been written off, subsequently pays that amount you have to bring the amount paid to account as assessable income in the year of recovery.
• Personal Services Income - taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole trader or through a company, trust or partnership; these are known as the “Personal Services Income (PSI) Measures”. A taxpayer, who meets certain specified tests, will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office’s strict approach to income retention and income splitting. If you have any questions relating to this item, please contact us.
• Non-Commercial Losses - for a business to be commercial, under the “Non-Commercial Losses Tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses, arising from the activities, have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/21.
• Trust Distributions - the Australian Taxation Offices indicated that it will be enforcing the full measure of the law, whereby trustee distributions/resolutions have to be made by 30th June each year.
K Primary Producers
(In addition to small business entities [Section D] and entities not defined as small business [Section J])
Deductions:
• Non-Commercial Losses - for a business to be commercial, under the “non-commercial losses tests”, the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities have to be carried forward as an offset in a later year against future income from the same type of source. If you have non-commercial losses, please contact us for advice on the treatment of the losses in 2020/2021.
L Companies
• Franking Account - a company’s dividend payments and franking profile should be reviewed before year-end to ensure sufficient credits are available. If you have any questions, please contact us for a review.
• Company Loans - the Law requires that a loan to a shareholder is properly documented. If there is no security offered, the term of the loan should not exceed 7 years. If security is offered, the loan should not exceed 25 years. The minimum rate to be charged during 2020/21 is 4.52% (this is the rate advised by the Reserve Bank). If loans being made to shareholders haven’t been supported by a properly documented loan agreements, then the Australian Taxation Office can treat these payments as being dividends, which are assessable to the shareholder.
M Capital Gains Tax
• Matching Capital Losses and Capital Gains - capital losses are not directly deductible. Capital losses have to be offset against any capital gains generated during 2020/2021.
• 50% Capital Gains Tax Discount - you should check your eligibility for the general 50% Capital Gains Tax discount for individuals. If you are a small business operator and are able to meet the $6 million net value asset test or have turnover of less than $2 million, you might be entitled to further Capital Gains Tax concessions. If you have any questions on the operation of these concessions, please contact us.
• “Wash Sales” - the Australian Taxation Office has issued a ruling that relates to “wash sales”. This is a situation where shares, in companies listed on the Stock Exchange, are sold to crystallise the capital loss and then shortly thereafter the taxpayer, or an associate of the taxpayer, purchases shares in that same corporation on the Stock Exchange.
N Reportable Payment Report
• If you are operating the following industries, you are required to submit a Summary of Payments made during 2020/2021 to the Australian Taxation Office by 28th August 2021:
- Building and Construction Industries
- Couriers Services
- Information Technology
- Road Freight
- Security, Investigation and Surveillance Services
- Cleaning
O Superannuation Funds
• Contributions to Superannuation Funds - for taxpayers with adjusted taxable income (ATI) less than $250,000 are taxed at 15% of the contribution by the superannuation fund. But taxpayers with ATI over $250,000 the contributions are taxed at 30%.
• Earnings Made In A Superannuation Fund - are taxed at 15% and paid by the superannuation fund.
• The people 60 years or over who have started drawing a pension, payments from the superannuation fund are, in the majority of cases, tax-free.
• Generally, monies invested in superannuation funds cannot be accessed until 55 years of age.
P Early Stage Innovation Company Report On Shares Issued
• Companies are required to complete an Early Stage Innovation Company Report if they issue new shares to one or more investors during 2020/21 that could lead to an investor being entitled to access the Early Stage Investor Tax Incentives.
• The report must be submitted to the Australian Taxation Office by 31st July 2021.
Q Property Investments
Deductions:
• Interest On Investment Loans - taxpayers who have borrowed money for a non-business investment (e.g. rental property) can check with their lenders to see if they can prepay interest prior to 30th June 2021.
• Building Allowance - the construction costs of income producing buildings may be written off at 2.5% or 4%, depending on the date of construction. Please contact us if you require additional details.
• General expenses - can include real estate agents fees; building allowance; depreciation of fixtures, fittings, plant and equipment; share of depreciation of common property in a strata-titled property; repairs and maintenance; pest control; interest on monies borrowed for investment in the property; bank charges on the property bank account; cleaning; electricity; rates; land tax; insurance.
• Negative Gearing - the net loss, which may include interest, borrowing costs, etc., may be deductible.
• Travel Expenses - a ban on travel related tax deductions for most real estate investors now applies.
Income Issues:
• Income Splitting - income splitting can be highly tax effective, especially if investments have been placed in the name of a lower income earner. This can be applicable where a spouse is not working and the income in the spouse’s name would therefore be taxed at a lower rate.
• All income from a rental property - should be declared.
R End Of Financial Year Review
If you have any queries on any other items not discussed in this newsletter, or you have general matters that you would like to discuss with us relative to your taxation affairs for the year ending 30th June 2021, please contact us urgently so that a convenient time for a meeting can be arranged.
S Business Review
Now is an ideal time to talk to us about Business Development Strategies for your business in 2021/22, particularly relating to:
• Developing a Strategic Plan to navigate the challenges of 2021/22.
• The establishment of a series of regular monthly or quarterly business review meetings to discuss your business' performance.
• What we could offer by performing a 'Chief Financial Officer' service for your business.
• Reviewing your business financing position and giving consideration to the possibility of raising capital via:
- Crowd Sourced Funding Equity Raising; or
- Section 708 of the Corporations Act capital raising; or
- Early Stage Innovation Company Capital Raising
• A business health check.
• An analysis of risks relating to your business particularly a Personal Property Securities Register Due Diligence Review.
• Cashflow including:
- debtors
- stock
- work in progress
• Business Plan development for 2021/2022.
• Budgets & Cashflow Forecasts for 2021/2022.
• Setting retail prices to achieve budget targets.
• Setting trades charge out rates to achieve budget targets.
• Setting professional fees to achieve budget targets.
• Accessing government grants.
• Analysing gross profit being achieved in your business.
• “What If” calculations relative to sales.
If you would like us to undertake a business review on your business, please contact us.
If you have been undertaking research activities and you would like to be able to claim expenditure as part of the Research and Development Tax Incentive Rebate please contact us prior to 30th June 2021.
If you are contemplating undertaking research activities in the future and you would like to understand how you could qualify for the Research and Development Tax Incentive Rebate please contact us for a discussion.
T Individuals
• Superannuation Co-Contribution - individuals with assessable income of below $54,838 may qualify for the government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 before 30th June 2021. To qualify for the co-contribution:
- At least 10% of assessable income must be received from employment or a self-employment arrangement.
- The individual must be below age 71 at the end of the financial year.
- They must have a total superannuation balance of less than $1.6 million on 30th June 2020 and they must lodge a tax return for the 2020/21 income year.
• Spouse Tax Offset For Superannuation - couples with one spouse earning a low income or no income, may benefit from the spouse tax offset if the high income earner makes a spouse contribution into the low income earner’s spouse’s superannuation, the maximum offset that can be claimed is $540 where the low income earner’s spouse’ is below $37,000 or less. The offset reduces when the spouse’s income is more than $37,000 and phases out completely when the spouse’s income reaches $40,000.
• Individuals Saving For Their First Home - Voluntary Superannuation Contributions - individuals saving for their first home may benefit from making voluntary contributions to superannuation before 30 June. This scheme allows first home buyers to make voluntary contributions of up to $15,000 to superannuation per financial year while saving towards the deposit in a tax effective environment. After contributing for a couple of years, they can withdraw these contributions (up to $30,000 per individual) and use the proceeds towards the acquisition of their first home.
• Taxation Advice - fees payable to an accountant or registered tax agent for taxation advice can be claimed.
• Expense Substantiation - ensure that you can justify all employment-related expense amounts incurred.
• Working from Home Expenses - expenses can be claimed for working from home (as distinct from having a home office) but full records need to be kept so that the claim can be substantiated. The Australian Taxation Office has issued a ruling relating to people working from home during the COVID-19 crisis. The temporary simplified method applicable, known as the "shortcut method", is $0.80 per hour for all additional running expenses.
• Expenses for Shareholding Investments - expenses incurred in gaining income from shares are a tax deduction.
• Sickness and Accident Insurance - premiums for Sickness and Accident Cover are tax deductible. Payments can be made by the employer without incurring Fringe Benefits Tax.
• Home Office Expenses - if you use an area in your home, you can claim the expenses of a home office. Items that could be claimed include:
- electricity (proportionate)
- rent (proportionate)
- cleaning (proportionate)
- repairs and maintenance for the office
- depreciation of fixtures and fitting and plant and equipment for the home office
• Work-Related Expenses - items such as travel (other than travel to and from work), uniforms, laundry of work clothes, subscriptions, union fees and self-education - but you must be able to substantiate your claim. A ban on travel related tax deductions for most real estate investors now apply. If you have used your own motor vehicle for business related purposes you can claim motor vehicle expenses:
- Cents per kilometre
- Logbook method
• End of Year Tax Schemes - the Australian Taxation Office produces product rulings on various investment products that are marketed particularly around 30 June each year. To avoid confrontation with the Australian Taxation Office, it is best to consider investing in products that have obtained a product ruling. Whilst these product rulings are not a guarantee or government endorsement on the likely success, or profitability, of the investment, you will have improved your prospects of being able to make these claims then if the product ruling had not been made. It is important that you abide by the wording within the product ruling.
• Managed Investment Schemes - it is recommended that you have a meeting with your professional accountant prior to committing to a Managed Investment Scheme (MIS) investment.
Social Security Issues:
• Social security recipients wishing to gift an amount or an asset within the allowable disposal amount can do so before 30th June 2021. These individuals can gift up to $10,000 before 30th June 2021 and another $10,000 after 1st July 2021.
• Individuals in receipt of government benefits can gift up to $10,000 on a single financial year or up to $30,000 over 5 rolling financial years. However, the amount gifted in any given financial year cannot exceed $10,000 or the deprivation rules will be applied.
Income Issues:
• Interest Earned - declare interest earned on bank accounts, loans, etc.
• Employee Share Schemes - if you are a member of an employee share scheme, you should ensure that any income earned is included in your income tax return.
• Scheme Formed After 1st July 2015 - Employee Share Scheme interests provided by eligible start-up companies will not be subject to up front taxation if the investment is held by the employee for at least three years. An eligible start-up company is one with aggregated turnover of less than $50M unlisted and incorporated for less than ten years.
• Scheme Formed After 1st July 2009 - the discount on Employee Share Schemes are taxed either upfront or on a deferred basis. For 'qualifying' schemes, if the employee is earning less than $180,000 taxable income plus reportable fringe benefits, reportable superannuation contributions and total investment losses, then the employee can claim a $1,000 exemption from the inclusion of the assessable discount.
• Dividends, Interest, Managed Funds Distributions, etc. - the ATO matches information provided in tax returns with information received from external sources, such as public companies, banks, managed funds etc.
Offsets:
• Zone Offset - This offset is based upon where you are considered to reside for the tax year, so your Zone Tax Offset is limited to where your main residence or home is considered to be.
• Salary Packaging - salary packaging can assist in the minimisation of income tax, particularly in the areas of voluntary superannuation contributions and acquisition of assets that are not subject to Fringe Benefit Tax. Your employer is required to report the value of fringe benefits in your payment summary. That may have an effect on other government payments you receive.
If you have any questions relating to planning your taxation affairs at 30th June 2021, please do not hesitate to contact us.
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

Happy End of Financial Year!!

esearch and Development Reminder 1
Reportable Payment Reports 1
Early Stage Innovation Company 1
Trustee Distribution Minutes 2
Payment Summaries, If Not Using Single Touch Payroll 2
Shareholders’ Loans 2
What Strategies Are You Considering For 2021/2022? 2
Charge Out Rate Calculations 3
Issue - June 2021
Mihcaccounting
Research and Development Reminder
• If your company has undertaken research and development activities during 2020/21, you have conducted part of the research and development activities in an overseas country and you wish to claim that expenditure under the Research and Development Tax Incentive Rebate, you must lodge your Overseas Finding application with the Australian Taxation Office by 30th June 2021. If you need any assistance with the preparation of this application, please do not hesitate to contact us.
• If your company commenced a research and development project during 2020/21 and you would like us to review the records that you have maintained, please contact the accountant in our organisation you deal with as soon as possible.
• If you are giving consideration to undertaking research and development activities during 2021/22, please contact us for a discussion on the research and development recording system that needs to be implemented so that your company complies with the research and development rules as advised by the Australian Taxation Office and AusIndustry.
Reportable Payment Reports
A reminder that, if you’re operating the following industries, you are required to submit a summary of payments, made during 2020/21, to the Australian Taxation Office by 28th August 2021:
• Building and Construction Industries
• Courier Services
• Information Technology
• Road Freight
• Security, Investigation and Surveillance Services
• Cleaning
If you require assistance with the preparation of these reports, please do not hesitate to contact the accountant in our organisation with whom you normally deal.
Early Stage Innovation Company
If your company has completed the due diligence requirements to be classified as an Early Stage Innovation Company during 2020/21 and you have to raise capital from new shareholders, you are reminded that you are required to lodge the company’s New Investor Statement with the Australian Taxation Office by 31st July 2021.
Trustee Distribution Minutes
The minutes of trustee meetings, relative to distribution of trust profits in 2020/21, should be signed by the chair or another of the trustees by 30th June 2021.
Payment Summaries, If Not Using Single Touch Payroll
These summaries are required to be lodged with the Australian Taxation Office by 14th July 2021.
Shareholders’ Loans
If your company has made loans to shareholders, the minimum interest rate to be charged in respect of those loans for 2020/21 is 4.52%.
A reminder that the company must have prepared Loan Agreements for each loan and, if the loans are for in excess of 7 years, the borrower is required to submit securities to the company.
What Strategies Are You Considering For 2021/2022?
The latest shutdown of State borders, the continual discontinuance of most International tourism to Australia and the shortage of labour to work in agricultural areas, highlights that many segments of the Australian economy are still finding it tough, even though the unemployment rate has decreased well below expectations for this time.
This is the background for business operators to be planning operations in this new financial year. As an accounting firm we are committed to offering our clients a broader range of professional services then just the preparation of annual accounts and income tax returns.
Some of our clients are already receiving some of these services to assist them in the implementation of their business strategies. If you are not currently receiving these services, we are interested in hearing from you as to whether you’d like to review the services that we’re providing to you. We have prepared the following summary of some of the strategies that you might like to discuss with us. Please don’t hesitate to contact the accountant in our organisation with whom you normally deal if you require further information on any of these strategies.
Strategic/Business Plan
This is a fundamental business document that basically every business should have. Our recommendation is that your Strategic/Business Plan should be updated each year so that it reflects your current vision for your business and outlines strategies as to how you’re going to implement that vision.
Budgets, Cashflow Forecasts, Predicted Balance Sheets (This is known as “Predictive Accounting”)
This trifecta of services is developed from the Business Plan and is the “financial picture” of the information contained within your Business Plan so that you can ascertain whether your business needs an injection of additional funding which would come via loans or capital raising direct from the public.
Loans
The special COVID-19 loan 50% guaranteed by the Australian government with a maximum loan of $250,000 to be utilised for working capital purposes, closes on 30th June 2021. If you intend to submit an application you will need to do so urgently. If you require assistance in the preparation of the application, please contact us.
Capital Raising
There are three opportunities for private companies to be able to raise capital direct from the public, without having to issue a Prospectus. These opportunities are:
1. Section 708 of the Corporations Act
A private company is able to raise up to $2,000,000, in a 12 month period, from a maximum of 20 investors. There can be no advertising for this capital raising and therefore investors normally come from family, close friends, customers and employees. Companies will need a Business Plan and Budgets and Cashflow Forecasts which clearly identify the company’s vision, to be able to raise capital in this manner.
2. Early Stage Innovation Company
A “young company” – under 3 years of age, but in some cases up to 6 years of age, with a turnover in the last 12 months of less than $200,000 (not including funding from an Accelerating Commercialisation Grant) and expenditure less than $1,000,000 in the last 12 months will have passed the first test to be and Early Stage Innovation Company.
The company is then required to pass one of two additional tests series which are:
- Gateway Test – the company has to accumulate more than 100 points relative to a series of eligibility criteria; or
- The Principles Test – which requires the company to submit written responses to five key questions relative to the company’s ability to be able to successfully develop for commercialisation a new product, process, service, marketing or management methodology.
There is a due diligence test requirement that we can conduct to ascertain whether the company meets the requirements for an Early Stage Innovation Company.
The government developed this type of company status to assist young companies to be able to attract investors.
The attraction for investors is that they receive a tax rebate calculated at 20% of their investment in the company with a maximum rebate of $200,000 for sophisticated investors (people with a net worth the $2.5 million or who have earned income of $250,000 in each of the last two years and who produce an Accountant’s Certificate that this information is correct).
If the investors retain their shares for more than 12 months and less than 10 years they do not have a liability for Capital Gains Tax when the shares are sold. If the shares are held for more than 10 years, the cost price of the shares can be revalued in the tenth year, to reflect a higher new cost price.
These benefits make an Early Stage Innovation Company very attractive for investors who have a keen interest in emerging companies which have been involved in the development of new technologies.
3. Crowd Sourced Funding Equity Raising
A private company, with a turnover less than $25,000,000 and gross value of assets less than $25,000,000, could consider the requirements for eligibility as a company that can seek to raise capital from the public as a Crowd Sourced Funding Equity Raising Company. These companies are able to raise up to $5,000,000, in a 12 month period, and can return to the market to raise a further $5,000,000 in the following year – subject to market support of course – if they wish.
We can guide you through this process and inform you of the roles and responsibilities of the Crowd Sourced Funding Intermediaries and assist you in the preparation of the documentation, primarily the Crowd Sourced Funding Offer Document, which is based on the company’s Business Plan, Budgets and Cashflow Forecasts.
If you are interested in having a discussion with us about any of these capital raising opportunities for companies, even if you are currently not incorporated as a company, please do not hesitate to contact us
Charge Out Rate Calculations
Tradies’ Manufacturing Businesses
Now is a good time to review the charge out rates that you are using within your business. The key requirements for establishing charge out rates for your team which will generate your targeted profit for the year include:
• Team member classification showing wages, working hours, holidays and other special leave and the productivity that you can reasonably expect.
• The markup that you intend to charge (if any) on materials that you have purchased on behalf of clients for installation on the client’s premises.
• The business’ overhead costs for the 12 month period.
• You can then indicate what your desired profit is for the year – this is normally based on the value of the business.
These factors are then brought together within a spreadsheet to determine appropriate charge out rates to be used based on the estimate of working hours, labour costs, productivity, mark-ups on external purchases and overhead costs to determine whether this mix of various factors will generate the targeted profit for the year.
Professional Services Firm
A similar approach is also taken for the determination of appropriate components of professional charge out rates.
Professional firms also relate to productivity being achieved by the individual team members.
In some professional firms there will not be the mark-up on materials purchased for clients.
The combination of estimated working hours, salaries, productivity, overhead costs are then factored into a spreadsheet to determine individual classification charge out rates that, when applied to the productive hours estimate for each person, will generate the targeted profit for the professional firm.
Retail Businesses
Retail businesses are not “selling labour hours” even though labour is a key cost in operating a retail business.
The key factor within a retail business is the “product mix” which comprises various types of stock that has variable potential units of sale and invariably significant different mark-up rates which can apply to those individual types of stock.
The business’ overhead costs and labour costs need to be budgeted for the year based on the anticipated level of sales.
We can then utilise our calculator to prepare an analysis on various levels of the stock mix over a range of products and mark-up percentages to determine one or more combinations which will generate the targeted profit for the retail business.
This type of approach gives the manager, responsible for an individual retail business, a guide to the type of product mix that they should be trying to generate so that the business will earn the targeted profit.
Business Review Meetings
A business review meeting is a worthwhile investment for a business to make to enable a full review to be undertaken of a business’ performance. This type of meeting is preferably held each month or quarter.
The leadership team should be the key participants in the business review meeting and each of them should have prepared a report on the “portfolio responsibilities” that they have in the business so that their peers can be informed and ask questions, if they wish. It is very desirable that an accurate set of financial accounts is prepared for each business activity so that the Profit and Loss Account and Key Performance Indicator Report for each business activity is available for review.
This process enables an evaluation of the performance within tradie, manufacturing and professional services businesses for which a charge out rate has been established to see whether those charge out rates, together with the productivity being achieved, has generated the targeted profit.
Retailers will benefit from analysing financial accounts to be able to judge the effectiveness of the manipulation of the product mix and charge out rates as part of the challenge of trying to achieve a targeted profit for the business. Other matters which can be considered at the business review meeting include:
• Cashflow Position – what has caused any variance?
• Projected cashflow position for the months ahead – is there a need to consult with the bank now?
• Debtors’ Aged Analysis and, in particular, what is the debtors’ days outstanding figure?
• How is the business performing, as compared to the vision included within the Business Plan?
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

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