Articles

Key Performance Indicators – Help or Hindrance?

When Key Performance Indicators or KPIs are mentioned to business owners the response can be quite varied. Some are indifferent or curious as they haven't heard of them before. They want to learn about them and how they could help drive improvement within their business. Some get excited as they have heard of KPIs previously but have never found the time to implement or monitor them. For others their eyes glaze over, often because it is their honest opinion that KPIs are either time intensive, that their time could be better spent on other business tasks, or that they promote a bad working environment.

So which response is right? Are KPIs a help or a hindrance to a business?

The answer is simple – setting the right KPIs for your business, and implementing and monitoring them in an effective way will help improve efficiencies and the financial success of your business. They can also be one of the most important gifts you can give to your staff to help them improve and thrive. However, setting KPIs that are not suited to your business, or the use of poorly implemented or monitored KPIs won't result in improvement – and who wants to spend time on something in their business that doesn't have a positive impact?

This is why it is so important to go through the correct process when setting, implementing and monitoring KPIs. Here are some key points to remember when considering KPIs for your business.
  • You need to first analyse your business. What areas are doing well and what needs improvement? This can involve financial analysis but also consideration of things like workplace culture, wastage, staff productivity, customer satisfaction, brand awareness etc. Some of these might be hard to measure but they are equally important as (and contribute to) the financial performance of your business. You might need to conduct staff surveys (possibly anonymously), ask for client feedback (sometimes a prize can entice customer engagement) or perform detailed analysis of information from your POS or accounting software.
  • KPIs can then be used to overcome issues identified, but also to maintain those things that are working well for your business. If you spend all of your time fixing the issues you run the risk of shifting staff focus solely to problems – make sure you measure and celebrate the positives too!
  • Once you have identified the issues you want to resolve, or the successes you want to maintain, determine what would indicate improvement or success, and how you can measure the performance of these indicators. You need to be able to source information on these indicators easily and regularly to monitor success.

    For example, you might have noticed wage costs are high in comparison to industry peers and relative turnover. This could suggest that staff productivity is low or that you pay staff too much. You could review wages and set thresholds for new hires, or you determine how to best measure staff productivity in your business.

    You might notice that lots of staff are leaving and you are always training new hires. This might be because staff satisfaction or morale is low. Measuring staff satisfaction can be done by conducting and analysing regular staff surveys, reviewing staff turnover, or even having regular one on one conversations with staff and assessing issues raised.
  • Setting KPIs alone won't always work – you need to develop actions that will drive the improvement of the KPIs. For example, setting productivity targets and measuring them regularly might be the push your staff need to work harder. Sometimes though, there might be problems causing the lack of productivity (wrong person for the role, old technology, poor working conditions, wrong team mix). Similarly staff satisfaction won't be improved simply by meeting with them regularly. You need to determine why they are unhappy, analyse the results of surveys or discussions, and determine what actions you can take to resolve concerns.
  • Don't set too many KPIs – target areas that will have the biggest impact on your business and focus on these first. Too many KPIs become too time intensive to monitor and often get forgotten.
  • All business owners should have a strategy or plan for their business. It is important that you choose some KPIs that align with your business plan as they will help drive your success in achieving the goals you have set.
  • Linking KPIs to incentives can work at times, but it can also result in a "me" focus instead of a "team" focus, or can entice staff to manipulate data or hours to get the desired outcome. The true purpose of a KPI is to clearly set and articulate direction for the business and staff, not to create competition or bad behaviour.
  • As a business owner you need to be involved in creating the KPIs for your business. If you don't have involvement in the KPI decision making process, you won't feel ownership of the KPIs created. If you don't feel ownership you won't use them.
  • Talk to your staff about the business KPIs, why they are important and what they are being used for. It is important that you get positive involvement from your staff and that they feel informed.
  • Analyse the KPIs regularly, don't set them and forget them. This doesn't mean you run the numbers and summarise them in a table. You need to get the data, analyse it and determine what is working and what is not. KPIs are meant to create action, not just a discussion point at your weekly meeting.
  • Update your KPIs as your business changes or as new issues arise. A regular review of your KPIs (annually) should be performed to ensure that they are still relevant for your business and worth the time involved in measuring them.
If you would like to discuss your business and KPIs please feel free to contact Jenna van Nierop at Smith Thornton on (08) 9842 5510.
STP2 begins from 1 January 2022 unless a deferral is in place.  

What is STP2?

STP2 is an increased level of reporting each time a pay run is processed. STP1 was all about reporting gross wages, tax withheld and superannuation to the ATO. STP2 will incorporate more information so that other Government Departments can streamline their services. Separation Certificates will no longer need to be provided to employees on termination, child support deductions will be automatically reported and income and allowance will automatically be reported to Services Australia, meaning that employers will no longer need to verify employment status and income for employees.

What does it mean for employers?

Most software providers are already compliant with the new requirements and will be ready for the transition on 1 January 2022. Xero has a deferral in place to December 2022, which means that their clients have until then to begin reporting. Some software providers will transition their clients progressively to avoid system issues caused by too many users trying to lodge at the same time.

Your software payroll settings need to be accurate that the correct items are being reported. This may require a re-mapping of payroll codes.

The ATO will write to every employer informing them of STP2 requirements by the end of November 2021, and the ATO Website has guidelines for employers.

If you would like assistance to review your payroll settings or prepare for STP2, our bookkeeping team are only too happy to assist!

Director IDs


From November 2021, company directors will need to verify their identity as a part of a new director identification number (director ID) requirement.

Directors will need to apply for their ID themselves to verify their identity. No one can apply on their behalf.

The director ID confirms identity and traces relationships to the relevant companies. 

Directors can apply from November 2021, and new company directors can apply before being appointed.

The date at which each company director must have a director ID depends on when a director was appointed:
  • Existing directors appointed before 31 October 2021, must apply by 30 November 2022.
  • Directors appointed between 1 November 2021 and 4 April 2022, must apply within 28 days of appointment.
  • Directors appointed after 5 April 2022, must have a director ID before appointment.
To apply for a director ID, there are three options:
  1. Online: Set up a myGovID (if you do not already have one). myGovID is different from myGov, it is an app that can be downloaded to a smart device which lets each individual prove who they are and log in to a range of government online services. Once all the necessary identification is confirmed, they can log in to: www.abrs.gov.au/director-identification-number/apply-director-identification-number and apply for a director ID. The application process should take less than five minutes.
  2. Phone: Call the Australian Business Registry Services (ABSR) from November 2021 (ready with all identification confirmation details).
  3. Postal: Application forms will be available for download from the ABSR website in November 2021. The identification confirmation details will need to be certified copies if using a paper form.
Identification Confirmation details are required to provide evidence of identity including TFN, residential address and two other verification documents such as a bank statement, ATO assessment, dividend statement etc.

If you need any guidance in applying for your director ID, please contact us for further assistance, we are only too happy to help.

Super Stapling starts 1st November 2021

What is Stapling and why is it being introduced?

Stapling is an Australian Government superannuation reform that will be introduced from 1 November 2021 and applies to new employees (it cannot be used for existing employees).

Aimed at avoiding the creation of multiple unintended super accounts that are eroded away with fees and charges, the ATO will have a record of every employee's eligible super fund and these details are "stapled" to the employee.

What is it replacing?

Currently if an employee does not provide super fund details or they are incorrect, an employer must pay eligible super contributions into the employer's nominated default fund. From 1st November 2021, this will no longer be the case.

What does stapling means for employers?

Under the new reform, an employer MUST contact the ATO and obtain the details of the new employee's stapled fund if the employee does not provide you with their super details or nominate a choice fund.

You will be able to request your employee's stapled super fund after you have lodged a Tax File Number (TFN) declaration or a Single Touch Payroll (STP) pay event for the employee. 

How can an employer obtain the stapled fund details?

  1. Log into ATO online service (For Business)
  2. Request Stapled fund and enter employee details
You will receive a response on-screen within minutes. The ATO will notify your employee of the request and the fund details provided to you. The ATO will also be monitoring this service to ensure employers are using it appropriately and are making genuine requests.

Stay tuned for updates that are sure to come as the ATO refine the process!

What is a non-arm's length transaction?

Parties are usually 'at arm's length' if they are unrelated and neither entity is effectively controlled by the other. If you are dealing with a related entity or associate, all transactions are considered to be non-arm's length and can be scrutinised to ensure that the ATO has not missed out on a taxing opportunity.

Meaning of related entity

A related entity or associate is any of the following:
  • your relative (the person's spouse, parent , grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person's spouse; or the spouse of a person referred to here).
  • a partnership in which your relative is a partner. 
  • the relative of a partner in the partnership;
  • an individual who is or has been a director of a company for the income year;
  • an entity that is or has been a shareholder in a company of that kind;
  • the relative of an individual who is or has been a director or shareholder of a company of that kind;
  • a beneficiary of a trust;
  • the relative of a beneficiary of a trust;
And the list goes on!

How is this treated for Income Tax purposes?

There is specific legislation that requires market value substitution for non-arm's length transactions, including for purchasing trading stock, remuneration to associates (such as relatives, shareholders and directors), and international transactions (known as transfer pricing).

Generally, you can only claim a deduction for the market value of a cost, regardless of how much you pay to a related entity. And vice versa with income, you must declare income for sale of an item at market value, regardless of how much you sold it for to a related entity. 

How is this treated for Capital Gains Tax (CGT) purposes?

Where a CGT asset is acquired or disposed of at less or more than fair market value in a non-arm's length transaction, the asset will be deemed to be acquired/disposed of at fair market value for capital gains tax purposes. This means that where you are dealing with a related entity when purchasing or selling a CGT asset, you must have supporting evidence of market value, you cannot simply rely on the agreed value or financial exchange as a basis for calculating any capital gains tax liability. This happens more often than you realise, with CGT assets being passed between family members or transferred from one entity structure to another for discounted or no consideration.

There are some concessions for small businesses who are transferring assets to an alternative structure that can be adopted if appropriate.

How is this treated for GST purposes?

A basic principle of GST is that, for there to be a taxable supply, the supply must have been made for consideration.

However the GST Act provides that the fact that a supply to your associate is without consideration does not stop the supply being a taxable supply if either your associate is not registered for GST or the supply is not solely for a creditable purpose (that is not input taxed or private in nature).

Where a taxable supply is made to an associate for less than the market value, the taxable supply will be treated as if it were made for market value, rather than the actual consideration received.

What is Market value substitution?

The ordinary meaning of Market Value is the price that a willing but not anxious buyer would have to pay to a willing but not anxious seller for the item. Market value has also been described as the best price that may reasonably be obtained for a property if sold in the general market. In addition, all possible buyers should be taken into account, even a buyer who, for their own reasons, is prepared to pay an excessive price.

If shares are listed on a stock exchange, the most appropriate market to use for determining value is normally the stock exchange market. If considerable amounts are involved, a tax payer would be prudent to obtain the services of a qualified value where there is any doubt as to the fair market value.

The take away message

Take care when recording and documenting transactions with relatives and associates and consider whether the market value should be ascertained and documented for evidential purposes (especially when acquiring assets that might be subject to future capital gains tax). If you are unsure if this poses an issue for you, please give us a call to chat about your particular circumstances.

Cryptocurrency

With cryptocurrency becoming more prominent in today's world, it's a good time to touch on what this looks like for you in regards to your tax return. 

Cryptocurrency is an area which is evolving rapidly, and given its complexity and the increased investment across Australia it has well and truly got the attention of the Australian Taxation Office (ATO). The ATO is using more tools that are available to track cryptocurrency transactions and some are now appearing on Pre-Filling reports to notify Tax Agents of transactions. Some of the tools the ATO is using include data matching programs using designated service providers (DSP's), and in total have over 60 sophisticated identity matching techniques. 

In the last year, the ATO has written to more than 100,000 taxpayers regarding cryptocurrency, and is expecting to prompt over 300,000 people in relation to the 2021 tax returns.

Given how vast and complex the area of cryptocurrency is, this article's sole intention is to provide some background information and perhaps get you thinking about your situation. This article doesn't explore many other aspects, including what it means for self-managed superannuation funds (SMSF's).

By now I'm sure you may have heard of Bitcoin, but for those not as familiar with the cryptocurrency world, there are now approximately 6,000 active cryptocurrencies, and it is estimated over 600,000 Australians have invested in the market.

Whether or not the sale of cryptocurrency is ordinary assessable income, a Capital Gains Tax event or a personal use asset will depend on the intent in buying and selling, the commercial (or non-commercial) manner in which you do so, and the scale and approach you take to trading cryptocurrency. 

For the vast majority of us who buy cryptocurrency, it will be a Capital Gains Tax (CGT) event when it is sold or disposed of.  It is important to know that a disposal of cryptocurrency can include;
  • Selling or gifting it to someone else
  • Trading or exchanging it with someone else (including exchanging one cryptocurrency with another cryptocurrency)
  • Converting cryptocurrency to Australian dollars, (or any fiat currency i.e. any currency established by government regulation or law)
  • Using cryptocurrency to buy goods or services, 
In the cases where you exchange cryptocurrency for another cryptocurrency, you are disposing of one cryptocurrency and acquiring another. The market value you receive is effectively the sale price of the cryptocurrency being sold. 

Each cryptocurrency is its own asset, similar to owning shares in ASX listed companies for example.

Cost Base

The cost base of your cryptocurrency may include;
  • Brokerage Fees
  • Transfer Costs
  • Platform Costs
  • Borrowing Expenses
  • Legal Fees
  • Interest on Loans
  • Software costs

Record Keeping

It is worth looking at the record keeping requirements for cryptocurrency, as the reporting systems may not be as sophisticated as traditional investments that have buy and sell contracts, or the year end investment report packages. The information that will have to be recorded includes;
  • The type of coin purchased
  • Purchase price in AUD
  • The date and time of the transaction
  • Records of any exchanges for other coins
  • Details about your digital wallet and keys 
  • Details of any Commissions or brokerage fees paid
  • Receipts of transactions 
You will need to maintain these records for a period of five (5) years, and if you have a capital loss you will need to keep them for two years after offsetting against a capital gain.

Strong record keeping is critical and reasonable care needs to be taken.

As mentioned earlier, this is just a brief summary on cryptocurrency and some areas we haven't covered include;
  1. Cryptocurrency that may be a personal use asset (non taxable)
  2. Cryptocurrency held in a self managed super fund
  3. Cryptocurrency for use in business transactions, such as buying supplies, or accepting it as a form of payment
  4. Using cryptocurrency to pay Salary and Wages to employees
The information in this article is for general information purposes only. It is not intended as financial or investment advice.

If you would like to discuss your specific tax requirements, please contact our team on 08 9842 5155.
Do your lifestyle tastes extend to fine art or thoroughbred horses? The ATO is interested too…

The ATO regularly collects information about certain categories of lifestyle assets, using data extracted from insurance policies. It singles out assets with values exceeding:
  • Marine vessels value exceeding $100,000
  • Motor vehicles value exceeding $65,000
  • Thoroughbred horses value exceeding $65,000
  • Fine art value exceeding $100,000
  • Aircraft value exceeding $150,000
This information is generally used by the ATO when identifying audit targets, particularly under what could loosely be termed as its 'cash economy' audit program. They use this data to compare with personal income, and identify those who may seem to be living beyond their means.

Release from Tax Debt

In a same-but-different example, an individual taxpayer was denied relief from a tax debt on grounds of serious hardship.

The taxpayer was unable to work due to injuries suffered whilst at work and her husband has suffered health issues and a subsequent reduction in his income.

They applied for relief from an $18,000 tax debt on grounds of serious hardship.

Upon scrutiny, it was found they had incurred significant discretionary spending, including the purchase of a new car for $37,500, a European trip for herself and her family and the provision of financial assistance to other members of her family.

The taxpayer was denied tax debt relief, because they had demonstrated: "… a willingness to put personal discretionary spending ahead of her obligation to the Australian community to pay her tax liabilities…"

Reference: SYRF and Federal Commissioner of Taxation (2021) AAT 1845

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


The Smith Thornton team celebrated the end of the financial year in style at Garrison Restaurant on 3rd July. There were many reasons to smile, with the end of a hectic year, the celebration of Smith Thornton's 25 year anniversary and a chance to unwind with our comrades. Garrison certainly put on a show with delicious morsels to delight us and fabulous cocktails that looked as good as they tasted. There were a few speeches to be made, especially given the 25 year milestone and thanks, of course, to our hosts and the organisers of the event.


We couldn't be happier with the way the evening turned out, there were many laughs to be had and a chance to shake off the year that was. We recognised special staff members that had come and gone (and some who have stayed) as well as some very select clients who have been with us from the beginning. Mention was also made of some significant events over the years, it has certainly been a journey and we wouldn't have it any other way. We even had a photo display of what current staff looked like 25 years ago – given our youngest staff member, Sam Wilson, is only 22, this proved to be quite an interesting exercise! He is pictured here (centre) with Melinda Hudson (left) who has just seen out her 20 year anniversary and Nancy Lembo (right) who has been on board from day dot. Of the evening, Sam said "A great time shared with a great crew!", while Nancy, who has attended her fair share of these events to say the least, said "A lot of wonderful memories flooded back as we prepared for our special EOFY Party in celebrating the business's 25 year anniversary.  There was lots of fun and laughter on the night reminiscing the many years together and recalling many funny stories to those newer team members to Smith Thornton."

Bring on the next 25 years!!!


   

 

  


Succession planning for farmers

Historically farms and farming businesses have been passed down from one generation to the next, seemingly with little input from third parties or advisors. Still to this day many farming families choose to keep this process internal and see little need for assistance. So why are farm owners and their families increasingly choosing to get an external third party to help plan for succession and mediate the process? 
  • The value at stake is much higher than it was many years ago. According to the Australian Farmland Values 2021 edition prepared by Rural Bank, the median price per hectare of Australian farmland increased by 12.9% in 2020. This was the seventh consecutive year of growth and resulted in a 20 year compound annual growth rate of 7.6%. With more value at stake farming families are seeking professional advice to guide them through the succession process and reduce the risk of contested wills and estates.
  • Farmers are typically asset rich and cash poor. If farmers are looking to transfer farming land to family members upon retirement, there is a lot of planning involved in this process. The asset value can be large, there can be many children involved, and determining who gets what with little cash available can be difficult. The level of difficulty increases if one child has been involved in the farm over many years, often hasn't been compensated accordingly but is expecting adequate compensation when it comes to dividing up assets.
  • Family members are more educated than they were many years ago, with many educated children returning to the farm after seeking to increase their farming knowledge and skill set. With an increased level of education, and generational differences, comes an increased tendency for the younger generation to question ways of the past and query long term plans. This can make the succession process arduous at times and it can become difficult to work around the different thought processes for those involved. Having a third party involved in these discussions can help bridge the generational gaps.
  • An increased desire to grow and protect the family wealth. As the cost of living increases and the cost of housing skyrockets, it is more important than ever to make your assets earn you the highest return possible, including your family farm. An effective succession planning process will ensure that you are working towards goals over many years to help you achieve your growth targets  
Advisors and accountants often become involved in succession planning for their clients and the part that they play can be quite varied, depending on what level of help the farming family needs. Possible ways that your advisor or accountant can guide you through succession planning include:
  • Documented succession plans are essential, so that all parties are fully informed of planned ownership structures, legal considerations, succession timetable, roles and responsibilities, retirement values, details of any foreseen sales/buyouts, taxation consequences and importantly, the transition of farm management roles and decision making responsibilities. Some farmers may know these details and may just need help documenting them. Others may also need assistance in getting this information together and the associated decision process.
  • Family board meetings are gaining popularity and an outside party is typically involved in these, such as an advisor or accountant. They involve the next generation in the decision making process before control is transferred and allow the older generation (current owners) to stay involved as the property and business transition takes place. These meetings are agenda based, and typically involve setting goals and then actions, roles and responsibilities to achieve the end goals.
  • Asset structuring for tax purposes and the effective use of superannuation funds are critical when determining how to maximise returns from your business. An accountant should be well equipped to provide you with this advice.
  • Some farmers just want to know if they can afford to do what they have planned, whether that be asset transfers at some point in time, downsizing and selling off assets, or changing their operations to better suit their ageing bodies. They often also want to ensure they are making sound business decisions now so that come retirement age they have created as much wealth as possible. An advisor or accountant should be able to provide detailed financial forecasting and scenario analysis to provide farmers reassurance that they are making well informed financial decisions.
If you are looking for help in any aspect of your farm succession process please contact us at Smith Thornton on 9842 5510.

TFNs – handle with care or pay the price


Privacy (Tax File Number) Rule 2015 is in full force and requires TFN recipients to take special care on how we receive, store and disclose TFNs. I am a TFN recipient, and it's quite likely that you could be as well! Examples include:

The ATO
Tax Agents
Employers
Bookkeepers/payroll officers
Banks
Super Funds

Collection of TFN information

TFN recipients must only request or collect TFN information for a purpose authorised by taxation law, personal assistance law or superannuation law.  Remember that it is not an offence for an individual to not disclose their TFN.

Use or disclosure of TFN information

TFN information must only be used or disclosed by TFN recipients for a purpose authorised by taxation law, personal assistance law or superannuation law, or for the purpose of giving an individual any TFN information that the TFN recipient holds about that individual. It is imperative that TFNs are not disclosed via email due to the security risk (especially for free email addresses where emails can be scrutinised by the provider) unless the information is password protected or encrypted. This type of breach used to happen frequently with Employee PAYG Payment Summaries being emailed directly to staff, however the Single Touch Payroll system has helped to fix this. 

Storage, security and destruction of TFN information

TFN recipients must take reasonable steps to protect TFN information from misuse and loss, and unauthorised access or disclosure and ensure that access to records containing TFN information is restricted to individuals who need to handle that information for taxation law, personal assistance law or superannuation law purposes. 
 
A TFN recipient must take reasonable steps to securely destroy or permanently de-identify TFN information where it is no longer required by law to be retained, or necessary for a purpose under taxation law, personal assistance law or superannuation law (including the administration of such law). Banking systems do this well. Once your TFN is entered into their system, it is no longer accessible by staff. 

Staff training

TFN recipients must take reasonable steps to ensure that all staff are aware of the need to protect individuals' privacy when handling TFN information, and all staff who collect or access TFN information are aware of the Privacy (TFN) rule.
 

What are the penalties for breaching the TFN rule?

You could in some circumstances face criminal penalties, civil penalties and orders to pay damages and a large fine and/or up to 2 years' imprisonment can apply for this type of breach. As well as constituting a breach of the TFN Rule, unauthorised use or disclosure of TFNs can be an offence under the Taxation Administration Act 1953 (TAA) and attract penalties including imprisonment and monetary fines.



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Office Location

234 Stirling Tce
Albany, WA 6330
Australia

Postal Address

PO Box 5445
Albany, WA 6332
Australia

Contact Numbers

Phone 08 9842 5155
Fax 08 9842 5510
Email mail@smiththornton.com.au

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