John Peiper from Peiper Signs

Peiper Signs is a long-standing business which has built an excellent reputation. In this article, John shares his secrets to success and longevity.

1. J&J Peiper has been in business since 1981; what’s your secret to business success?

Working hard and trying to do the best possible job for the client that you would want to be done for yourself.

2. J&J Peiper is a family owned business. Many people shy away from working with their family. What is your advice about successfully working with family members?

All of our boys (4) have worked for me and my wife Jennifer, through schooling and beyond at various stages, we have enjoyed their involvement immensely.  They have all moved on to their chosen fields now with Jennifer, I am still working in the business. My advice would be to listen to their ideas and work as a team.

3. What challenges do you face as a small business owner?

The challenges of a small business are trying to juggle the workload when you are really busy. You have to learn to prioritise the jobs which need to be completed first.

4. How has McPhail & Partners helped you over the years?

Wayne Durdin has been tremendously helpful through our journey, offering advice and knowledge freely.

5. Technology has changed dramatically since you first started the business – how do you remain at the forefront of your industry?

When I started in the signage field as a 17-year-old most signage was done with a brush and paint which was time-consuming, but enjoyable. Overtime machines came into play that cut vinyl letters then going to machines that print the total sign.  Signwriters have always picked up whatever was new to aid us in the production of signs.

6. Who inspires you?

My father was most likely my inspiration at the beginning teaching me to work hard and be honest.

7. What marketing activities have you found over the years have worked?

Having your vehicle sign written is a great way to promote your business. Always have business cards printed and ready. Have a web page and online presence.

8. How have customers’ expectations changed over the years?

I don’t think customers have changed over the years as long as you give them value for money and honest personal touch.

9. What advice would you give to someone that wanted to start a business in today’s world?

Network and give people the best advice that you can. Have business cards and signage to promote yourself.  Always remember word of mouth is valued highly.

10. What have been three valuable lessons you have learned since growing the business?

Don’t be money hungry, do the right things, and the money will look after itself. Always keep track of invoices and follow up to make sure all is paid in a reasonable time. Look after your clients, and they will look after you.

For more information about John and his business, click here.


What small business owners can learn from the recent election

Not only did all the opinion polls get the recent federal election result wrong, but all the bookies got it wrong too. How did it happen? It’s hard to say definitively, but maybe the pollsters didn’t pay enough attention to the way we make decisions.

The study of behavioural economics analyses how we make decisions and the biases that influence our decision-making and a lot of them may have influenced behaviour during the election period.

Here are four biases that likely played a part in the recent federal election – they’re worth reflecting on because they could be affecting your daily decisions about small business and your money as well:

Confirmation bias

Confirmation bias describes how we often put the conclusion first, search for evidence to support the conclusion, and discount anything that differs from the conclusion. Many people were probably guilty of assuming that Labor would win, without looking for the indicators that suggested it could be closer than it was.

The lesson: Confirmation bias can be dangerous in small businesses if you start with a conclusion. You might believe that a new product will be well-received because you like it, but that doesn’t mean your clients will. Try to test your opinions before making decisions by encouraging your team to share a different view, or by holding a group pre-mortem together (where you imagine why a new initiative might fail in the future).

Loss aversion

Our fear of loss is twice as powerful as the feeling we get when we gain something. There were many policies discussed in the lead-up to the election, including Labor’s proposal for franking credit reform that would have removed benefits for a portion of Australian investors. In reality, this was only likely to affect a small number of investors but all people knew was that they might lose something called a “credit”. It’s likely that loss aversion bias influenced voters who were worried about losing something.

The lesson: Getting something extra is always great, but behavioural economics reminds us how clients feel if they lose something. It’s a very powerful emotion and businesses need to consider how they can use it as an opportunity rather than a negative.

Status quo bias

Status quo bias describes how we often, rightly or wrongly, favour the status quo and anything that differs is often incorrectly perceived as a loss. Perhaps the experts underestimated the power of status quo bias in the election.

The lesson: In business and life, this bias can affect us in many ways, including not scrutinising our utility companies, service providers and super funds as closely or regularly as we should because it’s easier to remain with someone we know. Regularly review the fees you’re paying for services, investing, superannuation and insurance – yes, it takes time but it’s easier than it used to be to shop around and make sure you’re getting the best deal available.

Present bias

Present bias describes how most people favour more immediate benefits over benefits that may affect us in the future. Some benefits politicians proposed wouldn’t be seen for a long time, whereas changes to tax policy can really tap into our desire for an immediate benefit.

The lesson: This bias particularly influences our money and investments and can severely affect our retirement savings. While it can be very tempting to spend today instead of saving for tomorrow (or to borrow so you can spend today) remember the benefits of compounding interest on your savings and investments. Your future self will thank you.

Ted Richards, Director of Business Development, Six Park


News, views and clues June 2019

Requirement registered to lodge 2019 tax and other returns

The Notice of Requirement to Lodge a Return for Income Year Ended 30 June 2019 has been registered. This covers income tax returns and other lodgments for franking account returns, including special rules for late balancing corporate tax entities that elect to use 30 June as a basis for determining their franking deficit tax liability; venture capital deficit tax returns; ancillary fund returns; trustees of SMSFs; and member information statements by superannuation providers.

The Notice also covers use of approved forms for lodgment, lodgment deferrals, lodgment exemptions, and penalties for non-lodgment.

The Notice of Requirement for Parents with a Child Support Assessment to Lodge for the Income Year Ended 30 June 2019 has also been registered.

Payment summaries and STP this tax time – taxpayers may need a myGov account

While it is being reported that many businesses are not ready for Single Touch Payroll (STP), one report suggests that 70% of small and medium-sized entities (SMEs) are not ready, the employees of businesses that are operating STP face some changes.

As a result of the introduction of STP, taxpayers may need a myGov account in order to get the payment summary details they need to complete their 2019 tax returns. How taxpayers receive their payment summary or income statement from their employer depends on how their employer reports their income, tax and super information to the ATO.

Employers need to let employees know if they won't be giving them a payment summary this year.

Employees with more than one employer may receive both a payment summary and an income statement. In that situation, employees will need to check that income from their payment summaries is included in their tax return.

TIP: This major change for 2019 will see many taxpayers needing to set up a myGov account and link it to the ATO. This is not necessarily a straightforward process. If taxpayers have a myGov account already linked to other services such as Centrelink or Medicare, adding the ATO can be problematic. For example, the name on each account must match exactly – the ATO is likely to have a taxpayer's full name whereas a Centrelink account may only have first and last name. This may prevent the ATO from being added to a taxpayer's myGov account. The situation can be rectified but may require a trip to a Centrelink office.

STP exemptions and deferrals – ATO reminders

With reported unpreparedness for Single Touch Payroll (STP), mainly among small businesses, and with employers having less than 19 employees needing to report their employees' tax and super information through STP from 1 July 2019, the ATO has reminded businesses about the STP exemptions and deferrals that are available.

There are exemptions for reporting through STP for a particular financial year, for certain payments, or for certain employees.

TIP: Where there are extenuating circumstances that impact an employer's ability to regularly report on or before pay day (eg regular intermittent internet connectivity issues that result in the ATO receiving its report a couple of days after pay day), they can apply for a recurring deferral.

Ombudsman calls on ATO to cease small business recovery action where tax disputes are before AAT

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has issued a report into the ATO's enforcement of debt recovery. In a press release, the ASBFEO called for the ATO to immediately cease debt recovery action where tax disputes were before the Administrative Appeals Tribunal (AAT).

The report contains three key conclusions and seven recommendations. The ASBFEO also reminds small business taxpayers in dispute with the ATO of its Small Business Concierge Service, which started on 1 March 2019. This service provides legal assistance for AAT appeals for a limited cost.

The ATO issued a press release outlining its response to the report stating its long standing policy on debt recovery for cases in dispute at the AAT is to only pursue disputed debt in "exceptional circumstances" and that there are only ''very rare cases'' (eg in 2017-18, it took garnishee action against small business in just four cases).

The ATO further stated that it will give consideration to the report's recommendations while it awaits the Australian National Audit Office's review of how the ATO manages tax debts for small business.

Cryptocurrency: record keeping requirements and data matching program

The Commissioner has published a gazette notice setting out the record keeping requirements for cryptocurrency owners and traders. The ATO advises that it is undertaking a data matching program for 2014-15 to 2019-20 for such entities.

The data obtained from cryptocurrency designated service providers (DSPs) is being (and will continue to be) used to identify the buyers and sellers of crypto-assets and quantify the related transactions. Data will be matched against ATO records to identify individuals who may not be meeting their registration, reporting, lodgment and/or payment obligations.

The ATO will be working with other regulators, in particular, the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the Australian Securities and Investments Commission (ASIC) to ensure that tax law requirements align with a whole of system approach.

Super death benefit for de facto partner upheld

The Federal Court has dismissed an appeal against a decision to pay a superannuation death benefit pension to a fire fighter's de facto partner instead of a lump sum to his estate in Howard v Batistich [2019] FCA 525.

The trustee of the Crown Employees Superannuation Fund determined that the respondent, Ms Batistich, was a "de facto partner" of the deceased at the date of his death under the Superannuation Act 1916(NSW) and the Interpretation Act 1987(NSW). Accordingly, the trustee determined that Ms Batistich was entitled to a fortnightly pension. If there was no spouse (including a de facto), a lump sum death benefit of $350,000 would have been payable to the deceased estate.

The deceased's parents, as the administrators of his estate, complained to the Superannuation Complaints Tribunal that Ms Batistich did not meet the definition of de facto partner.

In dismissing the appeal, the Court said it was not satisfied that the SCT had misunderstood its task or failed to take into account all the circumstances of the relationship.

Protecting Your Super – how new law may affect SMSFs

The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019introduces a number of reforms to protect individual's super savings from undue erosion by fees and unnecessary insurance. The ATO says it will now be able to proactively consolidate eligible unclaimed super money into eligible active super accounts, including SMSFs and small APRA funds, if an individual hasn't requested a direct payment of this money or for it to be rolled over to a fund of their choice. Under the Protecting Your Superpackage, the ATO says SMSFs may receive a rollover of consolidated unclaimed super money for members.

ATO reminds SMEs about paying super for backpackers

The ATO has reminded businesses that employ backpackers that they may need to pay superannuation guarantee (SG) for them.

Backpackers on working holidays are considered temporary residents, and are entitled to superannuation guarantee if they are paid $450 or more before tax in a calendar month. Once they leave Australia, they can claim the super paid to them as a Departing Australia superannuation payment (DASP) providing all requirements are met.

TIP: Determine if backpackers on working holidays are eligible for super by using the ATO's Super guarantee eligibility decision tool.

Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.


Single touch payroll - are you ready?

From 1 July 2018 businesses with 20 or more employees were required to report payments such as salaries and wages, pay as you go (PAYG) withholding and super information to the ATO directly from their payroll solution when they pay their employees. From 1 July 2019, all employers -regardless of your number of employees- will be required to report through Single Touch Payroll (STP).

Through STP, your business is required to submit your employee’s payroll and super information to the ATO directly from your chosen payroll software upon completion of each pay run.

Some key information to note:

  • Pay cycles can remain as they are. You can still choose to pay your employees weekly, fortnightly or monthly.
  • Employees weekly, fortnightly or monthly.
  • The due date for payment of PAYG withholding and super contributions will remain unchanged; however, your business will now have the option to make payments earlier.
  • Payments which are reported through STP will be pre-filled into your monthly or QuarterlyBusinesses Activity Statements
  • There will be no need to provide your employees with a payment summary at the end of the financial year as current salary, and wage information will be made available to them via their myGov account, or their accountant can access this information via the Tax Agent Portal.

If you’d like to know more about Single Touch Payroll, please contact us, as we can help you prepare and ensure your accounting software is STP compliant.


Our goals and our progress so far!

At the beginning of the year we shared what our individual goals were because when we meet with you, we ask you what your goals and aspirations are so we thought it only fair to share ours too! With the EOFY soon approaching many of us take the time to reflect and measure our progress against our set goals. In this article, we do just that! We're keeping ourselves accountable. You can see below what each of our goals was and how we are progressing. As you scroll down you'll see some great achievements and a few excuses [stumbling blocks!] but what's important to note is that we are sharing our goals and research shows that by writing our goals down and sharing them means we increase our chance of achieving them.

Brian McPhail

Goals
Catching up more with friends by arranging lunches every fortnight together.
Visiting our daughter in Oxford in July.
Help organise the volunteers for the Presidents Cup Golf in December.

Update - I have not been able to catch up with friends as planned as I have had multiple priorities at work. Have booked the flights in July to visit my daughter and I am in the process of organising the volunteers for the Presidents Cup.

Wayne Durdin

Goals
To declutter.
Having recently moved (downsized) I now have boxes of things that I have not seen or used in years & need to decide what to keep, what to donate & what to throw out by April 2019.

Update -I have effectively achieved my goal. I do still have a few “family” items that need sorting & which are out of my control, otherwise, I believe I have achieved my goal.

Matthew Drew

Goals
To turn back the clock and run another half marathon by following a 12-week running plan by March 2019.

Update - My training was going well, however, I found my progress was moving slower than I had expected.  I had to reassess my strategy to focus on general health and fitness first to enable me to meet my goal which meant a change in my timeframe.  Unfortunately, a burst appendix put an end to the training for the time being however the goal is still to achieve a half marathon by the end of the year.

Andrew Beltramello

Goals
Build a deck in the backyard by July 2019.

Update - Unfortunately I will have to reassess my goal and postpone the building of a deck until next year.

Rebecca Rosario

Goals
Increasing the days I volunteer to two days a week next year.
Recommence dance classes once a week.
Connect more with relatives by catching up with them at least once a month.

Update - I volunteer almost regularly twice a week - I am on a team for Alpha which runs for 11 weeks and I do my current volunteer work at Careline once a fortnight. Also in April, I joined the Brotherhood of St Lawrence where I do occasional volunteer work as an urban camp leader. Re-commenced dance classes in May 2019. Have not had a chance to achieve my goal and connect more with the family will focus on it in the next 6 months.

Monika Murti

Goals
Design and renovate the laundry area by June 2019.

Update - We have ripped out old cabinets and sink area. We had a plumber come in and reallocate taps and plumbing. We have booked in the plastering to waterproof the walls. Next step is to get a cabinet maker to fit out the laundry.

Stephen Howard

Goals
Travel to Italy by July 2019 and win a cricket premiership by March 2019.

Update - We didn’t manage to win a cricket premiership but was selected in my club’s team of the year. Italy trip postponed until 2020.

Lewis Morgan

Goals
My 2019 goals are to increase my knowledge surrounding accounting topics and improve my efficiency and accuracy when completing tasks at work.

Update - Since I wrote my last goal I feel that I’ve made great progress in my knowledge, efficiency, as well as accuracy, but I still have a long way to go. I would like to thank the managers and partners for supporting me throughout my time here so I can continue to improve.

Prisca Languila

Goals
By saving $200 every fortnight and go back to Mauritius by December 2019.

Update - My savings are on track for the trip in December and have started looking at flights to find the best dates for travel.

Louise Davey

Goals
Travel to New Zealand by July 2019.

Update - I have successfully achieved my goal by travelling to the North Islands of New Zealand between 19th – 29th of April.

Chathu DeSilva

Goals
To get ripped 6 pack abs by September 2019 by exercising at least 4 times a week and by eating healthy at least 5 days a week.

Update - Although I have not achieved my goal yet, progressing towards the goal I have set has made me feel more fit and healthy. I have been going to the gym at least 4 times a week and eating healthy at least 5 days week.

Goals don't need to be complicated, but they do need to be written down, shared and worked towards otherwise they are just a dream!

Do you have a new goal that we don't know about yet that we can help you achieve? Perhaps you know someone who could benefit from our advice and support? Please feel free to contact us.


Tax news, views and clues, May 2019

ATO to ramp up ABN investigations and cancellations

As part of the ATO’s work to ensure the integrity of the Australian Business Register, it investigates the business activities of Australian Business Number (ABN) holders when it seems their ABN is no longer being used – for example, if business income isn’t being reported, or where the Australian Securities and Investments Commission (ASIC) deregisters a company. The ATO may then cancel the ABN where there’s sufficient evidence the business is inactive. An ABN will also be cancelled when the taxpayer themselves advises they’ve stopped their business activities, or when they lodge their final tax return.

The ATO is ramping up its focus on cancelling inactive ABNs over the coming months, saying it’s refined its models to help identify businesses that are no longer active or whose owners have forgotten to cancel their ABN when they ceased business.

If an ABN is cancelled and the holder is still running a business, or an ABN application is refused, the taxpayer can object to the decision within 60 days.

TIP:If your ABN seems to be inactive, the ATO may ask you for evidence that you’re setting up or still running a business. We can help you with putting together this information, or with applying to have your ABN reinstated if it’s incorrectly cancelled.

Fringe benefits tax: rates, thresholds and ATO focus for 2019–2020

The ATO has issued its annual rulings about rates and thresholds that apply for the new FBT year (1 April 2019 to 31 March 2020), including the benchmark interest rate, the cents-per-kilometre amounts for calculating the value of a fringe benefit from private use of a motor vehicle other than a car, the threshold for the FBT record-keeping exemption, state-by-state amounts for valuing housing benefits, and the the weekly amounts the ATO considers reasonable for food and drink expenses incurred by employees who receiving a living-away-from-home allowance.

TIP:We can help you reduce your business’s FBT liability with useful strategies like providing employee benefits that are tax-deductible or FBT-exempt, using employee contributions or providing cash bonuses.

The ATO will focus on monitoring a range of FBT issues this year, including looking for employers who fail to report motor vehicle fringe benefits or incorrectly apply exemptions for vehicles; identifying mismatches between amounts on FBT returns and the income amounts on the employer’s tax return; looking for incorrect classifications of entertainment expenses; monitoring issues around car parking fringe benefits; and following up with taxpayers who don’t lodge FBT returns on time.

Guidance on when a company carries on a business

With reduced company tax rates available for some businesses in recent years, and changes in eligibility for capital gains tax (CGT) small business concessions, it’s become increasingly important for us to understand how the law and the ATO deal with concepts like “small business entity” and “carrying on a business”.

New guidance is now available on the types of factors the ATO considers when deciding whether a company “carries on a business in a general sense”, and how the scope and nature of the business come into play when the ATO determines the tax consequences of a company’s activities and transactions.

The guidance emphasises that it’s not possible to definitively state whether a company is carrying on a business, but it’s a question of fact that the ATO must decide on a case-by-case basis by looking at a range of indicators across the company’s features and activities. One key indicator is whether the company’s activities have the purpose of making a profit. The ATO accepts that where a profit-making purpose exists, it’s likely the other indicators will support a conclusion that the company carries on a business.

Super guarantee amnesty not yet law, but $100 million recovered

The ATO has recovered around $100 million in unpaid superannuation from employers since the 12-month super guarantee amnesty was proposed on 24 May 2018, even though the law hasn’t yet changed to put the amnesty in place.

At a Senate Economics Legislation Committee hearing in April, ATO Deputy Commissioner, Superannuation Mr James O’Halloran estimated that there has been a 10–15% increase in the number of employers coming forward to self-report unpaid super guarantee amounts in response to the announcement of the amnesty, despite it not yet being law. Mr O’Halloran said 19,000 employers have come forward within the normal super guarantee charge process for reporting unpaid contributions.

The Bill to implement the amnesty lapsed on 11 April when the Federal Election was called, so the ATO must keep applying the existing law. This means employers who make a voluntary disclosure of historical non-compliance won’t be entitled to the proposed concessional treatment, unless and until the amnesty is legislated by a future Parliament. The ATO has said if this eventually happens, it will apply the new law retrospectively to voluntary disclosures made up until 23 May 2019.

TIP:Employers who’ve missed a super payment or haven’t paid employees’ super on time must lodge a superannuation guarantee charge statement and, while the current law applies, pay all of the relevant amounts, including interest and administration fees.

Instant asset write-off with Budget changes now law

Changes to the instant asset write-off rules have now become law, including measures recently announced in the government’s Federal Budget.

The write-off has been extended to medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million), where it previously only applied to small business entities (with aggregated annual turnover of less than $10 million).

The second important change is that the instant asset write-off threshold increases to $30,000, where it was previously $25,000.

The changes apply from 2 April 2019 to 30 June 2020, and the write-off works on a per-asset basis, so eligible businesses can instantly write off multiple assets.

Rental deductions: ATO audits to double

The ATO has warned that it will increase its scrutiny of rental-related deductions this year. It says some people are still claiming travel to residential rental properties, but from 1 July 2017 taxpayers (aside from excluded entities) have no longer been permitted to claim tax deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

The ATO expects to more than double the number of its in-depth audits this year to 4,500, with a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others and omitted income from accommodation sharing.

Shortfall penalties reduced under new ATO initiative

The ATO has heard from community and tax professionals that people should have a chance to correct their mistakes when they get their tax wrong, provided there isn’t dishonest intent behind their errors, and is taking a new approach that seems to be having positive effects.

Under this new approach, if the ATO finds an error on a tax return or an activity statement during an audit or review, the taxpayer may be eligible for automatic penalty relief. This means the ATO will show the taxpayer where they made the error, won’t apply a penalty and will educate the taxpayer on getting it right in future.

In the first six months of the initiative, the ATO has assisted thousands of people and small businesses and individuals with errors on their tax returns or activity statements, and shortfall penalties for “failure to take reasonable care” and “not having a reasonably arguable position” have been reduced by 89.2% for individuals and 83.8% for small businesses.

How the ATO identifies wealthy individuals and their businesses

The ATO uses sophisticated data matching and analytic models, drawing on tax returns and referrals from other government agencies or the community, to identify wealthy and high wealth individuals and link them to associated businesses.Given the importance of this group to community confidence in the tax and super systems, the ATO says it has an ongoing focus on engaging with such taxpayers, letting them know what information the ATO holds about them, and offering assistance and services to help “get things right up front”. This early engagement is part of the ATO’s commitment to improving the client experience, increasing transparency and reducing red tape.

Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.


Tax news, views and clues April 2019

Things to get right this FBT season

Fringe benefits tax (FBT) returns will soon be due and as always, it’s vital to make sure you use the latest rates and rely on the correct information.

FBT rates have recently been updated for the year, and a range of other factors may be need to be considered, including using the best car parking valuations, correctly identifying which travel expenses are deductible, considering how FBT applies to your arrangements with employees and independent contractors, and making sure you keep within the entertainment benefits rules. Another issue to keep an eye on is employees’ private use of work vehicles.

TIP:We can provide advice on these matters and more, and help get your FBT return lodged on time.

Tax concierge service available to small businesses

The Small Business Ombudsman, Kate Carnell, has announced that taxpayers wanting an external review of an adverse tax decision by the ATO through the Administrative Appeals Tribunal (AAT) can now contact the office of the Australian Small Business and Family Enterprise Ombudsman for assistance.

From 1 March 2019, small business owners without legal representation can access an hour with an experienced small business tax lawyer at a significantly reduced cost, subsidised by the office of the Ombudsman. Lawyers can review relevant documents and provide advice on the viability of an appeal. And should an appeal progress, the Ombudsman’s case managers will help the small business owner through the process.

Small business taxation decisions will be finalised within 28 days from the date of a hearing at the AAT.

ATO small business benchmarks updated

The ATO has released its latest small business benchmarks, providing over 100 different industries with average cost of sales and average total expenses. Businesses can see clearly what the relevant benchmarks are for their industry. The benchmark data is drawn from over 1.5 million small businesses around Australia.

Business owners can use the benchmarks to gauge the strength of their business and keep an eye on their competition.

The benchmarks also help the ATO identify small businesses that may be doing the wrong thing and not properly reporting some or all of their income.

TIP:Using the business performance check tool in the ATO app is the quickest and easiest way to work out how your small business compares to the benchmarks. Search for “Australian Taxation Office” on the App Store or Google Play.

Early recovery of small business tax debts: ATO to be scrutinised

Minister for Small and Family Business Michaelia Cash has asked Australian Small Business and Family Enterprise Ombudsman Kate Carnell to look into the ATO’s practices in pursuing early recovery of tax debts from small businesses who are in dispute with the ATO.

The Minister said she was determined to make sure the ATO treats small businesses fairly.

“Early recovery can be devastating for a small business, and is particularly damaging when the small business disputes the recovery and then goes on to win the case,” she said.

The Ombudsman will look into the extent of the problem to gather a holistic picture of how current systems impact people running small businesses. The scrutiny will focus on historical cases and will not include live cases currently before the Administrative Appeals Tribunal.

Compensation for defective ATO administration: review announced

Mr Robert Cornall, a former Secretary of the Attorney-General’s Department, will lead a review of the Scheme for the Compensation for Detriment Caused by Defective Administration (the CDDA Scheme).

The CDDA Scheme allows Commonwealth Government agencies (including the ATO) to pay discretionary compensation when a person or an organisation suffers as a result of defective administration but there is no legal requirement to make a payment.

Mr Cornall’s review will consider the consistency of the ATO’s CDDA Scheme processes for small businesses, the timeliness of decisions, how effectively findings are communicated, how independent decision-making can be best achieved in future, and the adequacy of compensation for small businesses that have suffered an economic and/or personal loss as a consequence of the ATO’s actions.

Single Touch Payroll: low-cost solutions now available

Single Touch Payroll (STP) is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO from their payroll or accounting software each time they pay their employees. STP reporting started gradually from 1 July 2018, and it will be required for all small employers (with fewer than 20 employees) from 1 July 2019.

A range of no-cost and low-cost STP solutions are now coming into the market. The solutions are required to be affordable (costing less than $10 per month), take only minutes to complete each pay period and not require the employer to maintain the software. They will best suit micro employers (with one to four employees) who need to report through STP but do not currently have payroll software.

Super guarantee amnesty not yet law: ATO will apply existing law

The ATO reminds businesses to be aware that under the current law, if they have missed a superannuation payment or haven’t paid employees’ super on time, they are required to lodge a superannuation guarantee (SG) charge statement.

Until law giving effect to the proposed superannuation guarantee amnesty is enacted, the ATO says it will continue to apply the existing law, including applying the mandatory administration component ($20 per employee per period) to SG charge statements lodged by employers.

The Bill containing the amnesty was still before the Senate when Parliament most recently concluded on 22 February 2019.

If it is eventually passed into law, the proposed amnesty will be a one-off opportunity for employers to self-correct their past SG non-compliance without penalty. It is intended to be available for 12 months from 24 May 2018 to 23 May 2019. The ATO will apply the new law (if it is passed) retrospectively to eligible voluntary disclosures made during this period.

ATO finds 90% error rate in sample of rental property claims

ATO Commissioner Chris Jordan has advised that as part of the ATO’s broad random enquiry program, its auditors have recently completed over 300 audits on rental property tax deduction claims and “found errors in almost nine out of 10 returns reviewed”.

The ATO is seeing incorrect interest claims for entire investment loans where the loan has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.

The ATO’s next area of focus will be rental income and related deductions, to help taxpayers report the right information, claim only the amounts they are entitled to, and “close the tax gap”.

Property used for storage an active asset for small business CGT concession purposes

The Administrative Appeals Tribunal (AAT) has decided that a property a small business owner used to store materials, tools and other equipment was an active asset for the purpose of the small business capital gains tax (CGT) concessions.

The taxpayer carried on a business of building, bricklaying and paving through a family trust. He owned a block of land used to store work tools, equipment and materials, and to park work vehicles and trailers. There was no business signage on the property.

After the property was sold in October 2016, the ATO issued a private ruling that the taxpayer was not entitled to apply the small business CGT concessions to the capital gain because the property was not an “active business asset”.

However, the AAT concluded that the business use of the land was far from minimal, and more than incidental to carrying on the business. This meant the CGT concessions could be applied.

Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.


Secret productivity business

Productivity is more than just doing more with the time you have. Unless what you produce is linked to what you are trying to achieve, doing more in your allotted time frame risks using up your energy on irrelevant activity.

If you’re going to be busy, be busy with a purpose.

Purpose

Defining your purpose makes productivity relevant and easy. Define your daily purpose (what gets you out of bed each day?) and your long-term purpose (what is the big picture that you are working towards?). Break your purpose down into concrete goals, then into specific action steps. If you do it this way, your everyday actions become filled with meaning, energy and direction.

Here’s another way to look at purpose. What is your “product” purpose and what is your “process” purpose? A product purpose includes the concrete, tangible results you are creating, such as goods and services. Process purposes are intangibles, such as bringing enjoyment, satisfaction, kindness and enthusiasm to the people you encounter. If you wake up every day with this kind of process purpose, you can achieve it every day.

Make sure your big picture is high enough up the chain. For example, you may think that your one business idea is your big picture. Dig a little deeper, and you might discover that it’s financial security for your family. This a helpful because it means that if your one business idea fails to deliver, your big picture is not smashed. It just needs different brush strokes. An incidental benefit of this method is that you can relax a little: you can keep your commitment to your big picture, but you don’t have to hold on for grim death to one method of achieving your goal.

High Participation / Low Attachment

I constantly use the Participation/Attachment model. It’s useful when you want to play big without the stress of all-or-nothing thinking. There are four quadrants in this model. I’ll use an analogy to explain it.

  1. You are watching a football match from the sidelines and you don’t care who wins. This is Low Participation (you are not playing) and Low Attachment (you don’t care about the outcome).
    2. You are a spectator, but you have a $10,000 bet on the outcome. This is Low Participation (you have no influence over the game) and High Attachment (you really care about the outcome).
    3. You are playing on the team, and your entire football career depends on the outcome of this one game. This is High Participation and High Attachment.

This leaves the High Participation/Low Attachment quadrant, which is where you want to play and work. Give your one business idea your best shot but let go of the outcome. There are plenty of ways to achieve your big picture purpose, and you can enjoy your daily process purpose along the way.

Once you’ve got your purpose(s) sorted, keep it simple. Get your priorities straight, then label items on your “to-do” list with A or B. A’s must get done today. B’s get done if time allows. Some B’s that miss out today will become A’s tomorrow.

Getting frustrated when things go wrong or don’t happen in your preferred time frame can be a sign that you are playing the wrong quadrant. Impatience and frustration will not make you more productive. In fact, they can slow you down and impact your judgement. Not to mention your relationships with coworkers, staff and family members.

Keep your eyes on the prize, but slow down and enjoy the journey. Otherwise, what’s the point? After all, if you lose the “game” you’re in, there are always other games, other teams, other sports.

This article was written by Les Watson, The Time Lord.

 

 

 

 

 


Federal budget April 2019

PERSONAL TAXATION

Personal tax cuts: low–mid tax offset increase now; more rate changes from 2022

In the 2019–2020 Federal Budget, the Coalition Government announced its intention to provide further reductions in tax through the non-refundable low and middle income tax offset (LMITO).

Under the changes, the maximum reduction in an eligible individual’s tax from the LMITO will increase from $530 to $1,080 per year. The base amount will increase from $200 to $255 per year for 2018–2019, 2019–2020, 2020–2021 and 2021–2022 income years. In summary:

  • The LMITO will now provide a tax reduction of up to $255 for taxpayers with a taxable income of $37,000 or less.
  • Between taxable incomes of $37,000 and $48,000, the value of the offset will increase by 7.5 cents per dollar to the maximum offset of $1,080.
  • Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.
  • From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

Individuals will receive the LMITO on assessment after lodging their tax returns for 2018–2019, 2019–2020, 2020–2021 and 2021–2022. This is designed to ensure that taxpayers receive a benefit when lodging returns from 1 July 2019.

Rate and threshold changes from 2022 and beyond

From 1 July 2022, the Government proposes to increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000.

Also from 1 July 2022, the Government proposes to increase the low income tax offset (LITO) from $645 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated). LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Together, the increased top threshold of the 19% personal income tax bracket and the changes to LITO would lock in the tax reduction provided by LMITO, when LMITO is removed.

From 2024–2025, the Government intends to reduce the 32.5% marginal tax rate to 30%. This will more closely align the middle personal income tax bracket with corporate tax rates. In 2024–2025 an entire tax bracket – the 37% tax bracket – will be abolished under the Government’s already-legislated plan. With these changes, by 2024–2025 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Therefore, under the changes announced in the Budget, from 2024–2025 there would only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

The Government says these changes will maintain a progressive tax system. It is projected that in 2024–2025 around 60% of all personal income tax will be paid by the highest earning 20% of taxpayers – which is broadly similar to that cohort’s share if 2017–2018 rates and thresholds were left unchanged. The share of personal income tax paid also remains similar for the top 1%, 5% and 10% of taxpayers.

Under its Budget announcements, the Government says an individual with taxable income of $200,000 may be earning 4.4 times more income than an individual with taxable income of $45,000, but in 2024–2025 the higher-income person will pay around 10 times more tax.

Medicare levy low-income thresholds for 2018–2019

For the 2018–2019 income year, the Medicare levy low-income threshold for singles will be increased to $22,398 (up from $21,980 for 2017–2018). For couples with no children, the family income threshold will be increased to $37,794 (up from $37,089 for 2017–2018). The additional amount of threshold for each dependent child or student will be increased to $3,471 (up from $3,406).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $35,418 (up from $34,758 for 2017–2018). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385), plus $3,471 for each dependent child or student.

The increased thresholds will apply to the 2018–2019 and later income years. Note that legislation is required to amend the thresholds, so a Bill will be introduced shortly.

Social security income automatic reporting via Single Touch Payroll

The Government intends to automate the reporting of individuals’ employment income for social security purposes through Single Touch Payroll (STP).

From 1 July 2020, income support recipients who are employed will report income they receive during the fortnight, rather than calculating and reporting their earnings. Each fortnight, income data received through an expansion of STP data-sharing arrangements will also be shared with the Department of Human Services, for recipients with employers utilising STP.

This measure will assist income support recipients by greatly reducing the likelihood of them receiving an overpayment of income support payments (and subsequently being required to repay it).

The measure is expected to save $2.1 billion over five years from 2018–2019. The Government says the efficiencies from this measure will be derived through more accurate reporting of incomes. This measure will not change income support eligibility criteria or maximum payment rates. The resulting efficiencies will be redirected by the Government to repair the Budget and fund policy priorities.

STP expansion

The Government will provide $82.4 million over four years from 2019–2020 to the ATO and the Department of Veterans’ Affairs to support the expansion of the data collected through STP by the ATO and the use of this data by Commonwealth agencies.

STP data will be expanded to include more information about gross pay amounts and other details. These changes will reduce the compliance burden for employers and individuals reporting information to multiple Government agencies.

BUSINESS TAXATION

Instant asset write-off extended to more taxpayers; threshold increased

The Budget contains important changes to the instant asset write-off rules. These changes are in addition to the measures contained in a Bill currently before Parliament.

There are two key changes.

First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.

The second important change is that the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.

The threshold increase will apply from 2 April 2019 to 30 June 2020.

Small businesses

Small business entities (ie those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current “lock out” laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium sized businesses

Medium sized businesses (ie those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

The asset purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Arrangements before 2 April 2019

The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019was introduced in Parliament on 13 February 2019. It proposes to amend the tax law to increase the threshold below which amounts can be immediately deducted under these rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules (instant asset write-off). The Bill is still before the House of Representatives.

The changes in the Bill interact with the Budget changes. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 and first used or installed ready for use over the period from 29 January 2019 until 2 April 2019. The changes outlined above will take affect from then (with access extended to medium sized businesses).

Date of effect

The changes announced in the Budget will apply from 2 April 2019 to 30 June 2020.

Accordingly, the threshold is due to revert to $1,000 on 1 July 2020. Although it is not spelt out in the Budget papers, a Treasury official confirmed to Thomson Reuters on Budget night that from that time the concession will only be available to small business entities (ie the instant asset write-off will not be available to medium sized businesses).

REGULATION, COMPLIANCE AND INTEGRITY

Tax integrity focus on larger businesses’ unpaid tax and super

The Government will provide ATO funding of $42.1 million over four years to to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. However, the measure will not extend to small businesses.

Tax Avoidance Taskforce on Large Corporates: more funding

The Government will also provide the ATO with $1 billion in funding over four years from 2019–2020 to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce’s programs and market coverage.

The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure is intended to allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

The Government has also provided $24.2 million to Treasury in 2018–2019 to conduct a communications campaign focused on improving the integrity of the Australian tax system.

Black Economy Taskforce: strengthening the ABN rules

The Government intends to strengthen the Australian Business Number (ABN) system by imposing new compliance obligations for ABN holders to retain their ABN.

Currently, ABN holders can retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.

From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually.

These new requirements will make ABN holders more accountable for meeting their government obligations, while minimising the regulatory impact on businesses complying with the law.

This measure stems from the 2018–2019 Budget measure Black Economy Taskforce: consultation on new regulatory framework for ABNs.

Funding for Government response to Banking Royal Commission

The Government will provide $606.7 million over five years from 2018–2019 to facilitate its response to the Hayne Banking Royal Commission.

On 4 February 2019, the Government proposed measures to take action on all 76 of the Royal Commission’s final report recommendations, including:

  • designing and implementing an industry-funded compensation scheme of last resort for consumers and small business ($2.6 million over two years from 2019–2020);
  • providing the Australian Financial Complaints Authority (AFCA) with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018–2019);
  • paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations ($30.7 million in 2019–2020);
  • resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles in accordance with the recommendations of the Royal Commission ($404.8 million over four years from 2019–2020);
  • resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration ($145 million over four years from 2019–2020);
  • establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives ($7.7 million over three years from 2020–2021);
  • undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission ($1 million in 2018–2019);
  • establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government’s response to the Royal Commission, and coordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee ($11.2 million in 2019–2020); and
  • providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government’s response ($0.9 million in 2019–2020).

The Government said these costs will be partially offset by revenue received through ASIC’s industry funding model and increases in the APRA Financial Institutions Supervisory Levies.

ATO analytics: increased funding

The Government will also provide funding designed to increase the ATO’s analytical capabilities.

First, the Government will provide $70 million over two years from 2018–2019 to undertake preparatory work required for the ATO to migrate from its existing data centre provider to an “alternative data centre facility”. The funding will also be used to prepare a second-pass business case that will identify the full cost of activities required to complete the data centre migration project.

The Government will also provide $6.9 million over four years from 2019–2020 to support additional analytical capabilities within the Treasury and other agencies.

SUPERANNUATION

Super contributions work test exemption extended; spouse contributions age limit increased

The Budget confirmed the Treasurer’s announcement on 1 April 2019 that individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test. The age limit for making spouse contributions will also be increased from 69 to 74.

Super contributions work test

Currently, individuals aged 65–74 must work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the “work test”) in order to make voluntary personal contributions.

The proposed extension of the work test exemption means that individuals aged 65 or 66 who don’t meet the work test – because they may only work one day a week or volunteer – will be able to make voluntary contributions to superannuation, giving them greater flexibility as they near retirement. Around 55,000 people aged 65 and 66 are expected to benefit from this reform in 2020–2021.

The Treasurer said the proposed change will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.

The tax law will also be amended to extend access to the bring-forward arrangements for non-concessional contributions to those aged 65 and 66. The bring-forward rules currently allows individuals aged less than 65 years to make three years’ worth of non-concessional contributions (which are generally capped at $100,000 a year) in a single year. This will be extended to those aged 65 and 66. Otherwise, the existing annual caps for concessional contributions and non-concessional contributions ($25,000 and $100,000 respectively) will continue to apply.

Spouse contributions age limit increase

The age limit for making spouse contributions will be increased from 69 to 74. Currently, those aged 70 and over cannot receive contributions made by another person on their behalf.

The proposed increased age limit for spouse contributions may enable more taxpayers to obtain a tax offset for spouse contributions from 1 July 2020. A tax offset is currently available up to $540 for a resident taxpayer in respect of eligible contributions made on behalf of their spouse. The spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions must be less than $37,000 in total to obtain the maximum tax offset of $540, and less than $40,000 to obtain a partial tax offset. Of course, if the spouse in respect of whom the contribution is made is aged 67–74 from 1 July 2020, the spouse may still need to satisfy the requisite work test in order for the super fund to accept the contribution.

Exempt current pension income calculation to be simplified for super funds

Superannuation fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating exempt current pension income (ECPI).

The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

Background

There are two methods to work out the ECPI for a complying superannuation fund:

  • segregated method – the segregation of specific assets (segregated current pension assets) which are set aside to meet current pension liabilities; or
  • proportionate method – a proportion of assessable income attributable to current pension liabilities is exempt.

Since 1 July 2017, SMSFs and small APRA funds (SAFs) are prevented from using the segregated method to determine their ECPI if there are any fund members in retirement phase with a total superannuation balance that exceeds $1.6 million on 30 June of the previous income year. Such SMSFs and SAFs with “disregarded small fund assets” are instead required to use the proportionate method. This is currently the case even if the fund’s only member interests are retirement phase superannuation income streams whereby an actuarial certificate will provide a 100% tax exemption for the income in any event.

Where a SMSF is 100% in pension phase for all or part of an income year, the ATO considers that all of the fund’s assets are “segregated current pension assets” and the fund cannot choose to use the alternative proportionate method. The ATO has previously acknowledged that this legal view is at odds with an industry practice whereby some SMSFs have used the proportionate method even if the fund was solely in pension phase. The ATO therefore granted an administrative concession whereby SMSF trustees did not face compliance action for 2016–2017 and prior years for ECPI calculations based on an industry practice. However, for 2017–2018 and later years, the ATO has expected funds that are 100% in pension phase to only use the segregated method.

Super insurance opt-in rule for low balances: delayed start date confirmed

The Government has confirmed that it will delay the start date to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

That delayed start day of 1 October 2019 was previously announced as part of the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, which was introduced in the House of Reps on 20 February 2019. That Bill (currently before Parliament) proposes to amend the super law to
prevent insurance within superannuation from being provided on an opt-out basis for account balances less than $6,000 and members under 25 years old (who begin to hold a new product on or after 1 October 2019).

Members will still be able to obtain insurance cover within their superannuation by electing to do so (ie opting in). The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover.

The Putting Members’ Interests First Bill essentially re-introduced the Government’s policy proposal that was previously contained in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. That Bill received Royal Assent on 12 March 2019, after being passed with Greens’ amendments that removed aspects of the insurance opt-in rule for account balances less than $6,000 and members under 25. The Government agreed to those amendments in the Senate to ensure the prompt passage of the other measures in that Bill. As enacted, that Bill requires a trustee to stop providing insurance on an opt-out basis from 1 July 2019 to a member who has had a product that has been inactive for 16 months or more, unless the member has directed the trustee to continue providing insurance.

 


How can I protect my business in the event of my death?

We believe that protecting you and your business is important which is why we would like to share this article with you. This article was written by Dr Linsday Stoddart.

While it may be a morbid thought, it is important to be prepared for the inevitable. You may have prepared to take care of your family in the event of your death, but what will happen to your small business? If you fail to plan, however, something you spent years building could easily disappear.

What steps and which documents you should have in place will depend on the legal structure of your business. You should also be mindful of three things:

  • Your business succession plan should coordinate closely with your personal estate plan;
  • You must keep both of them up-to-date in order to reflect changes in business, life and law; and
  • This is not a do-it-yourself project. Get some professional help.

Are you doing business as a sole director and shareholder?

The Corporations Act 2001 provides that in the event of the death of a single member and director of a proprietary company, the executor or other personal representative appointed to administer the deceased’s estate may appoint a new director to the company. The director will then have all of the powers, rights, and duties of the deceased director and can keep the company running. Once the company shares are transferred to the deceased’s beneficiaries, they can appoint a new director.

If there is no will, the court may grant Letters of Administration to a family member. That person may then appoint a director, but the risk of delay is substantial and may itself damage an ongoing business. At worst, the company may be deregistered or wound up.

In this situation, the most important document that you must have in place is a valid will that appoints an executor. Supplemental guidance to an executor about the appointment of a director may also be useful.

Are you doing business as a partnership?

Many businesses that begin as sole enterprises eventually become partnerships as the organisation’s need for capital grows. Hopefully, this is done in line with the terms of a formal partnership agreement that spells out what would happen on the death or permanent disability of either partner. There are several possible options. Please contact us for more information about your personal situation.