Salary sacrificing your super

Contributing extra to your superannuation is a good way to boost your retirement funds.

One of the ways you can add more to your super is through salary sacrificing. Salary sacrifice is an arrangement with your employer to forego part of your salary or wages in return for your employer providing benefits of a similar value.

Salary sacrificing your super means your employer will redirect some of your salary or wages into your super fund instead of to you.

These salary sacrifice contributions are taxed at a maximum rate of 15 per cent, which is generally less than your marginal tax rate. The sacrificed amount will not be considered a fringe benefit if the super contributions are made to a complying super fund.

There is no limit to the amount you can salary sacrifice (provided there are no limitations in your terms of employment); however, you must be wary of the concessional (before-tax) contribution cap. If you go over the cap, you may have to pay additional tax.

Keep in mind, the salary sacrificed amounts count towards your concessional contributions cap, in addition to your employer’s contributions (i.e. compulsory employer contributions).

Generally, excess contributions will be included as taxable income, taxed at your marginal tax rate plus an excess contributions charge. Note, that your age may affect the concessional contributions cap, how the cap applies and what options you may have.

Individuals should also consider whether the amount sacrificed will attract Division 293 tax. This tax applies when you have an income and concessional super contributions of more than $300,000, or over $250,000 from 1 July 2017. Division 293 tax levies 15 per cent tax on taxable contributions above this threshold.

If you do choose to salary sacrifice into super, remember contributions don’t count when the payment is sent, only when it is received by your fund. Make sure your fund receives all your contributions by 30 June.

Guide to tax-deductible gifts

Giving to charity this Christmas is a great way to give to those less fortunate while receiving some extra tax perks.

Charitable donations are tax deductible which only adds to the incentive to be generous this holiday season.

Here are some tips for maximising your tax breaks on charitable donations:

The charity must be registered
Make sure the charity you donate to has been endorsed by the ATO as a deductible gift recipient (DGR) organisation. It is important to note that not all charities are endorsed as a DGR.

The gift must truly be a gift
The donation must be a gift, not an exchange for something material. This means if you have received items in return that provide you with some personal benefit, such as raffle tickets, you cannot claim the deduction as a gift or donation.

Check relevant gift conditions
The ATO considers a gift as a voluntary transfer of money or property, including financial assets such as shares. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive. If you are considering a sizeable donation, discuss the tax implications with your accountant.

How to become a leader in your industry

Becoming a leader in your industry is neither easy or straightforward; it requires perseverance and passion.

Fortunately, there are ways to influence your market and become a well-respected leader. Here are three ways to get involved in your industry and establish yourself as a leader:

• Develop relationships with influencers

Start reaching out to established industry experts or influential peers to discover how they operate in their businesses. Don’t be afraid to share their content or reference them in your own content (just be sure to tag them in the post). Once you start to establish a relationship, consider interviewing them or asking them for feedback on your ideas etc.

• Research your market

Understanding your audience, direct and indirect competitors and key thought leaders in your industry is essential. Join trade associations, networking groups and business organisations to learn more about your industry and meet others in it. Once you have a thorough insight into your market and where your business fits, you can start to develop a strategy based on your business’ stage in the life cycle.

• Utilise social media

Social networks are ideal platforms to connect with other influencers and share your own ideas and vision. Social media provides a chance to establish your own personal brand which helps to make you stand out as a key influencer. Leverage off sites such as LinkedIn to connect with other professionals and showcase your experience. Regular blogging is a good starting point for those who are trying to establish themselves in the industry.

Improving your accounts receivable

Freeing up working capital can help businesses fund growth, reduce debt levels and lower costs. One way to improve working capital is by managing your accounts receivable.

Many businesses fall into the trap of poor accounts receivable management – from extending credit to customers to ignoring payment terms to guarantee a new sale, these types of behaviour can quickly bring your cash flow to a halt.

Here are a few ways to improve your accounts receivable process:

• Create a clear customer credit approval policy

Assign credit limits, payment terms, discounts and return policies to specific customers. Introduce a system to determine a new customer’s creditworthiness, such as background and credit history checks.

Determine situations where credit can be issued and circumstances where credit should be rejected. It is critical to review your credit approval process from time to time, as a customer’s financial situation may change warranting a reviewal of their credit terms.

• Establish a billing/invoicing process

Generating timely invoices is a major part of collecting account receivables on time. To ensure billing and invoicing is consistent and sent promptly, consider using an automated system. Sending electronic invoices can also fast track the process as they reduce delivery time.

• Streamline the collection process

Prioritise collections by establishing a concise collections process for all staff members to follow. Ensure staff have the skills to collect owing amounts (especially from uncooperative customers) and understand the collections system. To ensure accurate collection of receivables all team members should be informed of any discounts that need to be applied, when payment plans can be negotiated and the overall process i.e. mail or electronic invoices etc.

Are you short-changing your employees on super?

A new report has revealed around 2.4 million or almost one third of Australian workers are missing out on some or all of their super entitlements and little is being done about it.

Under the Superannuation Guarantee (SG) employers must contribute 9.5 per cent into the super account of every worker over the age of 18 earning $450 a month.

But, according to data from the Australian Taxation Office and Australian Bureau of Statistics, many Australian employers are dodging compulsory superannuation payments to the tune of $3.6 billion a year (2013-2014). This equates to $1,489 or close to four months of super for the average worker affected.

Small and medium-sized businesses were found to be least likely to pay SG and workers under the age of 30 were more likely to miss out; 37 per cent of 20-24 year-olds compared to 23 per cent of 50-54 year-olds.

Currently, employers have up to four months to pay SG. SG payments must be made to complying funds or retirement savings accounts (RSAs) by the quarterly due dates, which are 28 days after the end of each quarter.

Employers who don’t pay the minimum amount of SG for their employee into the correct fund by the due date, may have to pay the super guarantee charge (SGC).

The SGC is made up of: SG shortfall amounts calculated on the employee’s salary or wages; interest on those amounts (currently 10 per cent) and an administration fee ($20 per employee, per quarter).

Employers who fail to meet their SG obligations may also be liable for a range of penalties or charges on top of the super guarantee charge.

Paying super is an important part of being an employer. To ensure your business remains compliant, remember to: pay the right amount (9.5 per cent) of employee ordinary time earnings; pay on time; pay the right way and keep records to show you have met your obligations.

Benefits of a flexible working space

Although flexible work spaces are not suitable for everyone or every business, there are significant benefits to offering flexible working arrangements.

Businesses can deliver better results from allowing employees to work from where they need – whether it be home, a cafe or even on their daily commute.

Flexible working can increase employee productivity as it gives employees the option to determine their best working arrangement to meet their personal needs. This can lead to higher levels of engagement, commitment to the business and more motivation to achieve results.

Offering flexible working arrangements can also help when looking to recruit new staff. Flexible working is a highly desirable benefit, especially for younger generations. Flexible policies demonstrate that your business is willing to adapt to changing environments, which can help attract top talent.

For many businesses, flexible working also results in less office space, providing the potential to save money on desk space. In addition, flexible workers are shown to have higher levels of job satisfaction and are more likely to stay with your business, leading to lower turnover rates and hiring costs.

Common GST mistakes

Despite the Australian Tax Office’s education campaign on GST reporting, many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.

The vast majority of errors are easily unavoidable and relate to the over-claiming of GST credits. Here are the top ten common GST mistakes:

Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.

Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and therefore can be claimed.

Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.

Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.

The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.

Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.

GST-free purchases: Incorrectly claiming a GST credits on purchases without GST, such as basic food items, exports and certain health services is a common mistake. Remember not all suppliers are registered for GST, so check the tax invoice before claiming a credit.

Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. Only 50 per cent of the GST credits can be claimed.

Wages and superannuation payments: Both of these do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.

Sole traders and partnerships: When claiming expenses that are used for private and business use, you must apportion the expenditure to exclude private usage.

What’s in a name?

The name of your business can have a quite an impact when it comes to marketing your brand, how you are perceived by customers and whether or not you stand out from the competition.

Strong business names send a clear message to the public to help customers identify with the business. They also make a business stand out from the competition.

When choosing a new business name or tweaking an old one, business owners should try and choose a short and punchy name that is easy to remember. Consider the success of brands like Nike, Apple and Twitter – companies with names that are catchy and are only made up of two or three syllables.

Owners should also stick with the traditional way of spelling as well. While it is great to think ‘outside the box’ when thinking of a name, try to avoid being too quirky by spelling your business name incorrectly. This can often confuse and even deter customers, especially if they are searching for your business online.

Benefits of franking credits in a SMSF

Dividend franking turns 30 in 2017. Despite this, many are unfamiliar with the benefits franking credits can bring, especially to SMSFs.

SMSF trustees who invest in Australian shares can benefit from franking credit refunds which can offset the fund’s expenses, such as tax payable or any lump sums. A franking credit, also known as an imputation credit, is the amount of tax paid by a company of the dividend to the SMSF.

Franking credits are particularly beneficial for SMSFs as the tax rate for the fund is 15 per cent, while franking credits can be equal to 30 per cent of the gross dividend – leaving a significant excess to offset any tax payable on the other taxable income earned by the fund.

When the fund is in pension phase, there are even more benefits as the tax rate is reduced to zero per cent. If the franking credits are larger than the SMSFs tax liabilities, the fund will receive a refund for the excess credits.

A company will only distribute franking credits if a SMSF satisfies the holding period rule, where the fund retains the shares “at risk” for at least 45 days, excluding the day your fund acquires or sells its shares. This is extended to at least 90 days for some preference shares.

When to charge GST

If your small business is registered for GST (Goods & Services Tax), most of your sales in Australia will include GST.

Sales which include GST (taxable sales) are:
– made for payment (monetary or other)
– made in the course of operating your business (including any capital assets sold)
– connected with Australia

For these taxable sales, the business must:
– include GST in the price
– issue a tax invoice to the buyer
– pay the GST it’s collected when it lodges its activity statement

When not to charge GST
A business does not include GST in the price of goods and services that are:
– GST free – such as most basic foods, some education courses and healthcare products and services
– Input taxed – such as lending money and renting out residential premises.

Claiming GST credits
You can claim a credit for any GST included in the price of goods and services that you purchase for your business and use to make either taxable or GST-free sales. This is called a GST credit. You can’t claim a GST credit for the GST included in the price of purchases you use to make your input taxed sales.