Articles

Too good to be true?

Ponzi is a term you would have heard bandied about again recently. It paints a picture of investor fraud where investors capital is repaid to them under the false guise of earnings. The recent death of fraudster Bernie Madoff in a US prison – 12 years into his 150 year sentence – for a $25 billion Ponzi scheme, should remind us of the timely catchphrase "if it sounds too good to be true, it usually is…".

Perhaps I live a sheltered existence, but lots of my client's investment portfolios that cross my desk every day are from those who seemingly apply conservative balanced risk, seeing investment returns around 5%. I regularly test my observations with Tammy, our in house financial planner, and she says "…yep, that's about right…".

Whether it's your gut or your head, I'm sure you can tell if something sounds too good to be true. The spruikers wanting to get their hands on your hard earned cash will forever prey on the human emotions greed, fear, and even the combination of both – FOMO – the fear of missing out.

Back yourself - that deep down feeling says it all.

If you would like to talk to one of our financial advisors, contact us to discuss your specific requirements.


The Outsourced CFO

Over the past few years the rapid development of cloud based software systems has seen the rise of outsourced roles within many businesses. COVID has accelerated this even further, highlighting the need for businesses to create efficiencies, remain agile and to scale up or scale down in a short time span. 

As businesses continue to seek additional ways to create these efficiencies and push further towards cloud based software systems, this has opened the path for the role of Chief Financial Officer to be outsourced. 

Many businesses, especially those in the start up or growth phase don't necessarily have the financial resources to employ a full time CFO. The average salary for an experienced CFO across Australia is upwards of $200,000, which is quite prohibitive for many businesses. 

With the resources that are available it is likely that the full time employees would be operational / sales staff or internal accountants/bookkeepers to ensure that the day to day operations of the business are running smoothly and the statutory requirements are met.

Whilst this may be the case, many businesses would benefit from the services a CFO would provide. 

The list of services an outsourced CFO can provide, along with the benefits include;

Substantial cost savings: CFO's can be engaged for the specific services that the business requires, with the flexibility of additional services to be added or removed as required;
  1. Forecasting: Cash Flow forecasting/Budgets gives the business owners/management a great insight as to the expected performance of the business, and the ability to make critical, informed decisions on upcoming expenditure and strategy. Key Performance Indicators can be developed as part of this process, including Industry Benchmarking and KPI analysis; 
  2. Management Reporting: To make timely decisions for the business, it is important to have up to date, accurate and relevant financial reports available. Reviewing the monthly or quarterly reports for the business, in conjunction with the Cash Flow forecast should form part of the management/board meeting agenda to give the business the best chance of thriving;
  3. Risk Review & Mitigation: With the uncertainty of the current economic climate, it is imperative that businesses are safeguarded as best as possible against the various risks posed to both the business and the business owners. Conducting a risk review, whether it be financial, banking, employment, insurance, IT or contractual risks can be vital in strengthening the business. Having robust systems in place allows business owners to focus their energies on running and growing the business;
  4. Strategy / Planning: CFO's can provide advice or commentary on a range of topics, and quite often a fresh perspective can be beneficial. Whether it be ad hoc, or at management/board meetings CFO's can assist in formulating a business strategy or growth plan, assessing opportunities as well as updating the Cash Flows/Budgets to accommodate the 'what if' scenarios;
  5. Business Acquisitions: The process of buying a new business can be daunting, however an experienced CFO can provide tremendous support through this process via conducting Due Diligence, preparing Financial Forecasts, reviewing draft Agreements and Term Sheets, communicating with various stakeholders including the vendor, the vendor's Accountants and Legal advisors, business valuers, bankers and settlement agents. 
  6. Internal Procedures, Processes: Businesses that have gone through a growth phase typically find that the procedures required to run smoothly increase exponentially. Having an external consultant review these processes can provide the direction and support to ensure the business is adequately covered with appropriate internal controls;
  7. Business Structure review: Quite often as businesses develop, the internal structure remains the same for a period of time and business owners and employees take on more wide ranging tasks and responsibilities, all the while getting further away from their core role. Although the employees can develop new skills, quite often inefficiencies can occur as there may not be clear delineation between roles, reporting lines and responsibilities. Conducting a review can identify where improvement is required and realign the business. 
Ryan McLaren is a Chartered Accountant who has worked as a CFO for the past 4+ years and also has over 15 years' experience in public practice. 

Would you like to find out more about outsourcing CFO services? Don't hesitate to call Smith Thornton to discuss your needs. 


Agtech helping farmers solve problems

Did you see the 'Remote Access' article in November 2020's AgJournal (with Roger Fletcher on the cover) by Sue Neales?

It is a fascinating read for those looking to increase profits through utilisation of agtech and automation. Did you know that in 2019, more than $90 million of capital flowed into new agtech ventures? In the article, Sue Neales predicts the 10 biggest ag changes in the next decade as:
  1. Smart interactive livestock eartags
  2. Virtual fencing and eShepherd
  3. BioGenetics
  4. FutureFeed
  5. The Yield and Internet of Things
  6. Circular Farming
  7. Complementary cropping and regenerative agriculture
  8. Urban, vertical and soil-free farming
  9. Fewer Livestock
  10. Carbon and soil farming
From SwarmFarm robots, to automated headers, water analytics and drones to satellite spatial images, agtech success lies in helping farmers solve their problems.

The big question is, does the investment justify the outcome? We can help you to look at the financial outcome of different scenarios so that you can make an informed decision about which direction to head in when it comes to improving your farm operations.

Subscribe to AgJournal at www.weeklytimesnow.com.au/agribusiness

Our team is very experienced in working with rural businesses, please contact our team on 08 9842 5155 if you would like to find out more.

If you have inherited or are likely to inherit an asset in your lifetime, keep reading...

It is important to understand the tax implications of selling inherited assets like property and shares so that you can make informed financial decisions.

Capital Gains Tax is calculated on the difference between the sale proceeds of an asset and its cost base. This is where things get complicated. The sale proceeds will be easily calculated, but what about the cost base?

Calculating the cost base can be quite challenging depending upon the deceased level of record keeping. 

So what exactly do you need to know?

The first thing you need to ascertain is the date that the asset was acquired by the deceased person.

If the date of acquisition was before 20th September 1985, your cost base becomes the market value of the asset at the date of death.

If the date of acquisition was after 20th September 1985, your cost base becomes the original cost of the asset plus or minus any applicable adjustments to the cost base.

And what if the asset was originally inherited by the deceased person?

In that case, you need to firstly work out the acquisition date (date of death of the previous benefactor). If the acquisition date was before 20th September 1985, your cost base becomes the market value at date of death as in the earlier example.

If the date of inheritance was after 20th September 1985 and the original date of purchase was also after 20th September 1985, you need to ascertain the original cost of the asset by the previous benefactor plus or minus any applicable adjustments to the cost base.

If the date of inheritance was after 20th September 1985 but the asset was purchased by the previous benefactor before that date, cost base will be market value at the previous benefactor's date of death.

And what if you inherited half an asset from your deceased spouse (having already owned the other half)? Once again, we go back to acquisition date. If you and your spouse originally acquired the asset before 20th September 1985, the cost base of the inherited half will be market value at date of death and your original half will be exempt from Capital Gains tax when you sell. If you originally acquired the asset after 20th September 1985, the cost base for both halves will be original cost price plus or minus adjustments but each half will have a different acquisition date.

Confusing right?!

Add into the mix CGT exemptions including the main residence exemption and small business concessions, and it becomes clear that you should be seeking professional advice sooner rather than later if you have inherited or will be inheriting assets from loved ones.

Important records and evidence can often be accidentally destroyed, leaving you with little hope of correctly calculating the cost base of an inherited asset so the sooner you get advice, the sooner you can start searching for appropriate records.

Do you still own assets that you inherited years ago? It still pays to collate the cost base information now so that you either have it ready for when you sell the asset or alternatively have it ready for your beneficiaries to use upon your death.

So the moral of the story is to make sure you have kept or found records associated with assets you own or will inherit. This information is important in avoiding adverse tax consequences when assets are sold or passed to the next generation. 

And if you are thinking of selling an inherited asset, be aware of the tax implications of the sale before you go and buy that big yacht!!

If you would like find out how to best manage selling or receiving an inherited asset, please contact our team on 08 9842 5155.

This is a case where two tax agents were habitually making incorrect tax deductions on behalf of their clients, and the consequences saw them put out of business.

Using comparisons of statistical data, the ATO had decided to monitor and then audit some of the agent's clients because of concerns that some of their clients had claimed work related expense deductions which were unusually high. Due to the incorrect claims, the clients were required to amend their income tax returns, resulting in a tax shortfall of over $135,000 and penalties totalling $52,694.55.

Disciplinary action was first taken by the Tax Practitioners Board, and upon appeal, to the Administrative Appeals Tribunal. The Tribunal concluded that the agents were not fit and proper persons, and also stated: "Tax agents have a duty to take reasonable care in the provision of their services. Clients trust that their tax agent has the requisite level of training and knowledge to advise them appropriately." Their licences to operate as tax agents were cancelled.

Ref: Yvonne Anderson and Associates Pty Ltd and Tax Practitioners Board [2020] AATA 4022

Succession Planning – Getting Started

In basic terms, succession planning is the process a business or family goes through to determine what each participants' role will be when the existing business owners, farm owners, or key employees enter into retirement or decide to exit the business. Many business owners or farming families take the approach "I'll deal with that when it comes to that point" – however good planning years in advance can improve the end result significantly, in terms of business value, having a saleable business, appropriate knowledge transfer, family relations and importantly, having everyone work towards the same end game. Every family and business situation is unique but undertaking the basic steps towards succession planning will start to give all family and business participants a clearer picture of the future.

Some basic steps that you can take now for succession planning include:

  1. Understand what your goals are in terms of retirement age, how much money you will need to retire, where you want to live, what you want to do and importantly – what do you want to do with your business? This relates to any business owner (e.g. retail, trades, construction, farming etc.). You might need to consult a financial planner at this point to determine what your financial goals should be.
  2. Once you understand what you want, ask your family members to consider what their goals are. For farming families this is critical as often the younger generation have been involved in the farm for many years without any open communication of goals and finances. Business owners might find that a family member wants to take over the family run business, or perhaps that an existing employee is interested. Make no promises when having these discussions, this is purely a fact finding expedition.
  3. Organise a meeting with your accountant and lawyer to determine the accounting, tax and legal implications of ideas that you might have for succession and assets. The financial and legal outcomes won't necessarily stop any of your plans, however if these conversations are held years in advance you will have more time to plan for them.
  4. At this point for farming families in particular, discussions can at times get heated and complicated. You will be possibly discussing who gets certain assets, be it houses, land, stock, non-farm investments, who will run the farm, financial arrangements, who has worked on the farm previously and were they paid appropriately, and even possible leasing arrangements. Remember that succession planning for farming families will often work towards an equitable outcome that won't necessarily be equal and this can cause some distress. You might find it easier and more productive to get a neutral mediator involved to run discussions, along with your lawyer and accountant.
  5. Sometimes a second or even third meeting is required to reach a final plan or arrangement. Once you have decided on the outcomes write a succession plan that outlines each step required and a timeframe. Ensure that this plan is made available to all participants, or if some information is personal and not appropriate to share, prepare plans for each participant so everyone knows their roles, tasks, goals and timeframes. It is important to include in these plans all steps you need to take to get your business ready for sale or transfer. For some businesses this process can take five years when all knowledge, processes and relationships sit with the business owner.
Check in on your succession plan every year – situations changes so it is important to update your plan when necessary.

If you need help getting started on succession planning and would like help from a facilitation, accounting or tax perspective, please contact our Business Advisory team on 9842 5155.

Business Owners in Control and Kicking Goals

Have you ever heard of the saying "Most people that aim at nothing achieve it every time"? This also applies to business owners – it is imperative that business owners understand their current position, their long term goals and all the short term goals or actions to tick off along the way. Business owners that take the time to do this are in control of their business and where it is heading.

To understand your current position you need to ask yourself a number of questions (and answer them honestly!). Some of these questions might include:
  • Is my business profitable?
  • What are the strengths and weaknesses of my business (both financial and operational)?
  • Does the financial performance of my business meet industry benchmarks?
  • Do I have adequate insurance for both my business and myself?
  • Am I paying too much tax?
  • Do I own my business or does my business own me?
  • Do I have legal documents in place to allow the business to continue if something were to happen to me?
  • Are my staff properly utilised?
  • Can my business operate without me?
  • Am I in control of my financial affairs?
  • Do I want to do what I'm doing until I retire? 
Knowing the answers to these types of questions is just as important as dealing with the day to day issues you face as a business owner. It is also just as important to understand the answers to all questions and not just focus on obvious issues. For example, you might know that your business is not profitable. To fix this you also need to know if your staffing mix is correct, those industry benchmarks your business doesn't align with, weaknesses to be overcome and strengths to maintain. 

It is also imperative that you ask yourself – are these things important to me? Do I care that my business owns me if I'm doing what I love and my time is not needed elsewhere? If your business owns you but that is not a problem, then there is no gap to be bridged and no goal to be set. In asking yourself what is important to you and finding the gaps you are on your way to realising the goals that need kicking.

Setting goals is an art in itself and there are a few easy processes that you can follow that will help make them meaningful. The first step should be to understand what your long term goals are. These goals require you to look forward five or more years from now. How much time do I want to be spending in my business in five years? How much revenue do I want my business to be making in five years? Are there assets you need to replace in five years or will your current premises be big enough? These are all examples of broad long term goals, which are great ideas but to achieve them you will need to set more specific short term goals and actions.

A series of short term goals will be needed to keep you focussed. If you want to be starting to step back from your business in five years how are you going to achieve this? What needs to happen to make this your reality? Can your business operate without you there every day? Are there processes in place for a manager to take over easily? Do you have a manager in training? Will your customers and suppliers only liaise with the business owner? Every little action that needs to take place before your long term goal can be achieved needs to be documented as a short term goal, ideally using the SMART goal setting concept.

SMART is a goal setting acronym that has been used by management and boards for over 40 years. The SMART goal setting concept ensures that the goals you set are clear and achievable:

  • Specific – Set very clear and simple goals. A vague goal of making your business bigger wont drive you to success because what do you mean by bigger? Bigger could mean a larger premises, more employees, higher revenue, or even a more diverse target market. Be very specific in stating exactly what it is that you want to achieve.
  • Measurable – Measurable goals enable you to track progress and stay motivated. When setting your SMART goal consider things like how much or when will I know when this goal is achieved?
  • Achievable – Don't set a goal to have your farm procedures documented by next month if you have years of undocumented knowledge in your head and are in the middling of cropping. By setting realistic goals that you can achieve you will be in a better mindset and have a greater chance of success.
  • Relevant – It is important that you set goals that are meaningful or goals that matter to you. Some business goals might be aimed at driving staff towards an end goal, but you need to care about it also. Some things you might consider when setting relevant goals are is this the right time, does this seem worthwhile, or does this goal align with other business goals?
  • Time based – Time based goals are motivating. Setting a goal that needs to be achieved by next month or within the next quarter will get you moving – a goal with no action date will never be achieved and will sit under a pile of paper never to be looked at again!

After you have set your SMART short term goals that work towards your SMART long term goals, it is also best practice to write yourself an action list. Any actions that arise during the goal setting process need to be tabled with target dates. This will ensure you have a document that you can refer to each day or week, either pinned up at your desk or even on your fridge, that will dictate what you need to do each week or month in order to achieve your goals.

Goal setting for your business is a great habit to get into and should be updated regularly to ensure your goals remain relevant. If you need help setting goals, creating a business plan or a strategic plan, or even if you need a trusted advisor to keep you on track, our Business Advisory team is ready to help!

If you have any questions don't hesitate to contact us.

2020 Federal Budget Announcement

The 2020 Federal Budget Announcement on 6 October included significant measures to encourage consumer spending and drive the economy out of its current state. The key areas are summarised below, of which several have already passed through legislation.

Inclusions in the Tax Bill (Passed) 

Personal income tax cuts

Personal income tax cuts will now be brought forward and backdated to 1 July this year. There are two key parts:
Part 1 – A larger 2021 tax refund (in most circumstances) to account for the extra tax withheld in the July-Oct 2020 period.
Part 2 – A reduction in tax withheld from wages going forward giving a bigger net pay packet. This will start in the next few weeks. Here is an example of what you can expect:



Non-employees should consider varying PAYG Instalments to account for the cuts from September onward.

Instant asset write-off

This will allow any business with an aggregated turnover of less than $5 billion to immediately deduct the full cost of eligible depreciable assets of any value from 6 Oct 2020 which are installed and ready for use prior to 30 June 2022.
Second-hand assets are excluded from this measure, however small and medium-sized businesses with an annual turnover of less than $50 million will be able to fully expense second-hand assets.

Loss carry-back

Companies will be able to carry back tax losses from the 2019–20, 2020–21 or 2021–22 income years to offset against tax paid in a previous income year as far back as the 2018–19 income year. The applicable offset will be called a 'Loss Carry-back Tax Offset' and is available to companies earning less than $5 billion.
The tax refund will be limited by requiring that the amount carried back is not more than the earlier taxed profits and that the carry-back does not generate a franking account deficit.

Small business concessions expansion

Entities with a turnover of less than $50 million will also now be able to access 10 small business tax concessions (this was previously capped at $10 million):
  1. access an immediate deduction for certain prepaid expenses from 1 July 2020
  2. access an immediate deduction for certain start-up expenses from 1 July 2020
  3. access to a fringe benefits tax exemption in relation to small business car parking from 1 April 2021
  4. access to a fringe benefits tax exemption in relation to the provision of multiple work-related portable electronic devices from 1 April 2021
  5. access to a simplified accounting method for the purposes of GST from 1 July 2021
  6. ability to defer excise-equivalent customs duty to a monthly reporting cycle from 1 July 2021
  7. ability to defer excise duty to a monthly reporting cycle from 1 July 2021
  8. a two-year amendment period in respect of amendments to income tax assessments from 1 July 2021
  9. access to the simplified trading stock rules from 1 July 2021
  10. ability to pay PAYG instalments based on GDP-adjusted notional tax from 1 July 2021

R&D tax incentive

For companies with a turnover of less than $20 million, there will be no cap on the amount of refundable R&D tax offset a company can claim.
The refundable R&D tax offset for small companies will also be set at 18.5 percentage points above the claimant's company tax rate (up from 13.5 per cent from the current bill).
Larger companies with an annual turnover of $20 million or more will face a simplified two-tier intensity approach.

Other Federal Budget Announcements

Small Business Pooling – Immediate Write Off

Small business entities that have a turnover of less than $10 million and are using the pooling system can claim the balance of their depreciation pool at the end of the 2021 year as a deduction.
This means that all remaining depreciation can be claimed in 2021 but also means there is no further depreciation claim for assets previously purchased. It also means that proceeds on the sale of any depreciated assets are 100% taxable.

JobMaker

A credit will be available to eligible employers for additional new jobs they create for an eligible employee. The credit will be $200 per week for employees aged 16-29 and $100 per week for employees aged 30-35 and is payable over a 12 month period.
To be eligible, the employee will have to work a minimum of 20 hours per week and have received JobSeeker, Youth Allowance or Parenting Payment for at least one month out of the three months prior to start date.
Employers will also need to prove that the new employee will increase overall headcount and payroll.

Apprenticeship Commencements

A 50% wages subsidy will be available to businesses who take on a new or recommencing Australian apprentice, up to a maximum of $7,000 per quarter.

Economic Support Payments

For those people who receive a range of government payments, including aged pension, carer payment and family tax benefit, they will receive two $250 cash payments paid in December and March 2021.

Fringe Benefits Tax

The record keeping burden for FBT purposes will be reduced and an exemption will be provided for retraining and reskilling benefits that employers provide to redundant, or soon to be redundant employees where the benefits may not be related to their current employment.

Water Infrastructure Grants

This year's Budget includes $50 million to top up the on-farm emergency water rebate scheme that provides farmers with a rebate of up to $25,000 to clean dams and drill bores, which ran out of money 18 months early. This funding is contingent on being matched by the states.

Have you reassessed your eligible employees for JobKeeper?

If you are receiving a monthly JobKeeper subsidy for employees, it is essential that you reassess eligibility for any employees that are either new, or were not previously eligible. This must be done without delay to ensure that any 'newly eligible' employees are paid the minimum amount of $1500 per fortnight from the fortnight starting on 3rd August.

What has changed…..

Basically, all criteria was based around a date of 1st March 2020. THIS DATE HAS NOW CHANGED to 1st July 2020.

This means that:

a) staff who started after 1st March but before 1st July may now be eligible, and

b) staff who did not meet the criteria on 1st March may now meet it.

What if I do nothing……

If you have newly eligible employees and do not reassess and complete the necessary steps, you will not be eligible for any JobKeeper subsidy from 3rd August, as it is a 'one-in, all-in' rule.

Please contact us if you need help or if you are not sure whether or not this applies to you – it is better to be safe than sorry.

Case law update - Casuals v Permanent Employees

If you engage casual employees, make sure you're aware of the latest updates.

What is happening?

  • The Federal Court recently handed down a decision re-confirming a previous decision it handed down approximately 18 months ago
  • The decision reconfirms that a casual employee with a "firm advance commitment from their employer to continuing and indefinite work" is entitled to annual leave, personal/carer's leave, compassionate leave and public holidays

Next steps

  • This decision is highly likely to be appealed to the High Court, but in the meantime, this decision is law and it is important to understand whether this impacts your business
Download the below fact sheets for more information.

The impact of the Rosatto decision fact sheet


Please contact us if you would like any assistance.

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