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Business Value Creation

Crypto Investor vs. Trader: What Tax Obligations Do You Have?

Most people who buy and sell cryptocurrency fall under the official classification of an investor, even if they buy and sell often. This means your crypto is subject to Capital Gains Tax (CGT), which can result in hefty obligations. If you want to reduce your tax obligations, you’ll need to be able to classify yourself as a trader.

Of course, calling yourself a trader isn’t enough. The ATO is cracking down on investors who are attempting to minimize their cryptocurrency tax obligations by misclassifying themselves, whether accidentally or intentionally. 

Here’s a look at how the ATO distinguishes between cryptocurrency investors and traders, along with the requirements you need to meet to prove you’re conducting cryptocurrency trading as a legitimate business activity.  

What Is a Cryptocurrency Investor? 

Most Australians that buy and sell cryptocurrency fall under the “investor” classification. These investors may buy and hold for the long-term or they may sell or swap cryptocurrency regularly. In any case, an investor is focused on long-term capital growth. While most cryptocurrency holders in Australia are classified as investors, this is less than ideal.

As an investor, you will be subject to capital gains tax (CGT) rules, which means you’ll have to pay taxes on any gains you make when you sell your cryptocurrency. For instance, if you buy $500 in crypto and sell it for $700 later in the year, you may owe capital gains tax on the $200 profit. You might be able to deduct transaction fees from the profit, but the proceeds will be taxable.

Some investors may qualify for a 50 per cent discount on CGT if they hold crypto for at least 12 months before selling it and it is wholly owned by a trust or individual. Crypto held by a superfund may qualify for up to a 33 per cent discount within the same timeframe. So, how much does CGT cost?

Instead of taking a percentage of your profits, you will instead add the profits to your income. As such, you may pay as much as 45 per cent on your crypto gains if you are in the top marginal tax bracket. This system makes cryptocurrency less attractive for high-income earners, especially those handling it in volume, which is why it’s important to understand if you meet the requirements to be considered a trader. 

What Is a Cryptocurrency Trader? 

There’s a long list of requirements you must meet to be considered a cryptocurrency trader for tax purposes. Starting with the definition, a cryptocurrency trader is someone who buys and sells crypto for short-term profits (compared to the long-term capital growth goal of an investor).

Additionally, a trader works with a detailed strategy that determines when they will purchase cryptocurrency and when they will sell that cryptocurrency. Traders also work in high volume, meaning they trade large amounts often and they keep a record of all of their gains/losses and transactions over time.

The Australian Tax Office will only designate you as a trader if you prove that you are “carrying on business” and not just an individual looking to turn a quick profit with your crypto transactions. This does not require substantial capital, a registered business, paid research or hired staff, although any of these elements can help you solidify your classification as a trader over an investor. 

If you do meet the requirements to be classified as a cryptocurrency trader, you will not be subject to the CGT rules. Instead, the rules of trading stock will apply. While this can save you money, it’s advisable that you understand the implications. 

How Cryptocurrency Traders Are Taxed

While cryptocurrency traders are not subject to CGT rules, they must understand the implications of the trading stock rules. In short, these rules mean:

  • Cryptocurrency traders have all profits taxed like any other income.
  • Crypto assets held at the end of the year that have shown an increase in value will realise income for tax purposes.
  • Crypto assets held at the end of the year that have shown a decrease in value will realise deductions for tax purposes.

The primary advantages of being classified as a trader are that you can take deductions on your crypto losses, you can claim related expenses for conducting your business (i.e., a percentage of your rent or mortgage) and you can use the instant write-off for relevant assets (e.g., hardware and software). 

Additionally, crypto traders may choose to do business as a company, which means your crypto traders would be taxed at the company tax rates (either 25 per cent or 30 per cent) instead of your personal tax rate, which could save you a substantial amount of money. With that said, the trading stock rules that apply to cryptocurrency traders are far more complex than we can cover here. 

Are You a Trader or an Investor?

If you currently buy and sell cryptocurrency and you’re wondering what your tax classification is and whether or not you qualify to be taxed as a trader, don’t make any guesses. Reach out to nexZen Accounting for help navigating this complicated topic and we’ll help you devise a strategy that will keep more dollars in your pocket come tax season.

Ready to take the next step? Schedule a consultation today and let our knowledgeable tax professionals answer your questions. 

Categories
Business Value Creation

Motor Vehicle Expense Tax Deductions for Small Businesses

Small business owners can claim tax deductions for certain vehicle expenses. The rules vary depending on the type of business you own, the kind of vehicle you use, and the method you use to claim your deduction. If you’re overwhelmed by all the complicated rules and terminology regarding motor vehicle tax deductions, we’re here to help. In this guide, we’ll cover everything you need to know about tax deductions for motor vehicle expenses.

Types of Motor Vehicles

First, it’s important to know which vehicles qualify for a deduction. You can claim a deduction for both cars and other vehicles. The ATO uses these two types of motor vehicles for tax purposes.

Cars are considered motor vehicles if they meet two criteria:

  1. They are designed to carry less than one tonne of weight.
  2. They are designed to carry fewer than nine passengers.

Other vehicles include the following:

  • Motorcycles
  • Vehicles designed to carry one tonne or more, including trucks or large vans.
  • Vehicles designed to carry nine passengers or more, including minivans or buses.

You must own, lease, or have a hire-purchase agreement for each motor vehicle you use for tax-deductible purposes.

If your business is a company or trust, you may deduct expenses for motor vehicles you provide to employees.

A List of Expenses You Can Claim

You can claim most vehicle expenses. Specifically, per the ATO, you can claim:

  • Fuel
  • Oil
  • Repairs and maintenance
  • Interest on the loan for your vehicle
  • Lease payments for your vehicle
  • Automobile insurance premiums
  • Registration fees
  • Vehicle depreciation
Which method should you use to claim motor vehicle expenses?

You can use several methods to track and claim motor vehicle expenses. Some business structures are only allowed to use specific methods. The ATO requires accurate and thorough records [note to nexZen: you can link to the record-keeping article here].

Cents Per Kilometre

Cents per kilometre is a simple method that doesn’t require written evidence.

Who can use the cents per kilometre method?
  • Sole traders
  • Partnerships (with at least one partner who is an individual)

This method is only allowable for motor vehicles that fall under the ATO’s definition of a car (outlined above).

The Benefits of the Cents Per Kilometre Method
  1. The CPK method is simple and uses a set rate.
  2. You may claim up to 5,000 kilometres per car each year.
  3. You don’t need written evidence to support your claim. (You may, however, need to explain how you calculated your business kilometres.)
  4. The effective rates are designed to cover most standard vehicle expenses such as fuel, maintenance, registration, and insurance.
Cents Per Kilometre Rates by Year

CPK rates are updated each year to keep up with inflation and current vehicle costs. For 2020-21 and 2021-22, the rate is 72 cents per km.

How to calculate cents per kilometre:

Multiply your total kilometres travelled for business purposes by the effective rate. The resulting number is the amount you may claim on your income taxes.

Logbook Method

The logbook method is much more complicated than the cents per kilometre method. However, if your vehicle expenses are higher than average, this method may provide greater tax savings.

Who can use the logbook method?
  • Sole traders
  • Partnerships

This method is only allowable for motor vehicles that fall under the ATO’s definition of a car (outlined above).

The Benefits of the Logbook Method
  1. The logbook method helps you keep track of your vehicle expenses throughout the year with thorough records to back up your claims.
  2. This method may provide greater tax savings if your vehicle expenses are higher than average.
How to Calculate Your Tax Deduction Using the Logbook Method:
  1. To use the logbook method, start a log of the kilometres you travel for business and personal purposes. Also, keep records of all of your car expenses for the tax year.
  2. Divide the total kilometres you travelled for business by the total kilometres you travelled overall.
  3. Multiply the result by 100.
  4. Total your car expenses for the tax year.
  5. Multiply the result from Step 4 (your total car expenses) by the result from Step 3 (your business-use percentage). The final result is the amount you can claim for income tax purposes.
Which records are required for the logbook method?
  • You’ll need to keep a logbook. You can purchase a pre-printed logbook or use a digital version. Many app stores have logbook apps that are easy to use and functional.
  • You’ll also need evidence to support your fuel and oil costs. These may be odometer readings you use as estimates.
  • Finally, you’ll need documentation that supports your other expense claims, including receipts for car-related purchases, such as maintenance, registration, etc.
What should you record in your logbook?

Most pre-printed logbooks and logbook apps will have all the necessary fields for record-keeping purposes. The ATO requires you to keep track of:

  • The dates your logbook period starts and ends.
  • Your odometer readings at the beginning and end of your logbook period.
  • The total number of kilometres you travelled in the car during this period.
  • A record of each trip and the number of kilometres you travelled. You only need to record one total journey for each day, however. If you make two or more trips in one day, record them as one logbook entry. Also include the reason for the journey, the trip start and end dates, and odometer readings.
  • The car’s business-use percentage for each logbook period.
  • If you use your logbook for more than one income year, record the odometer readings for the start and end of each year.
  • Car information, including the make, model, engine capacity, and registration number.
Other Logbook Requirements

If you’ve never kept a logbook before, you must continuously track your trips for at least 12 weeks in the first income year. If the income year ends before you’ve tracked at least 12 weeks in your logbook, you may continue using the logbook into the next income year until you’ve recorded at least 12 continuous weeks.

Your logbook is valid for five years. You may start a new logbook whenever you like.

If you use one logbook for multiple cars, you must cover the same 12-week period for each car.

The Logbook Method and Depreciation

Using the logbook method, you can claim motor vehicle depreciation. Use your business-use percentage to calculate your depreciation; only the business portion of your car’s cost is depreciable for tax purposes.

Actual Costs Method

The actual costs method is more straightforward than the logbook method but more complicated than the cents per kilometre method. However, most business structures can use this method, providing substantial tax savings.

Who can use the actual costs method?

  • Companies
  • Trusts
  • Sole traders
  • Partnerships

Note that companies and trusts may use the actual costs method for any qualified motor vehicle. Sole traders and partnerships may only use this method for motor vehicles defined as “other vehicles” by the ATO.

The Benefits of the Actual Costs Method
  • The actual costs method provides accurate tracking of vehicle expenses.
  • This method often provides the greatest tax savings for businesses with substantial vehicle-related expenses.
How to Calculate Actual Costs

The actual costs method is very straightforward: Keep all of your business-related vehicle receipts and add the amounts to find your actual costs for the year.

Remember, if you use the vehicle for both business and personal purposes, you must calculate how much of the distance travelled is for business use and how much is for personal use. You may only claim the business-use percentage of your vehicle expenses. You must also keep records supporting your claim.

The Actual Costs Method and Depreciation

You may claim depreciation on your vehicle if you use the actual costs method. Use your business-use percentage to calculate your depreciation; only the business portion of your car’s cost is depreciable for tax purposes.

nexZen Helps Clarify Vehicle Expense Tracking

Vehicle expense tracking for tax purposes is never easy, but there are certainly ways to simplify things. While you have several options, many business owners use the simplest tracking method that provides the greatest tax deduction. Sole traders who rarely travel may benefit most from the cents per kilometre method. Large companies with a fleet of vehicles may benefit most from (and be required to use) the actual costs method. Please let us know if you need help setting up an accurate tracking system or figuring out which method to use. You can book a discovery call with nexZen to discuss your options and figure out the best method for your business.

We look forward to hearing from you.

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Business Advisory

Should I Hire an Employee or a Contractor?

At some point, every successful small business owner needs to expand the team. Choosing the right person is essential, but first you must decide whether to hire a contractor or an employee.
There are benefits with both options, but there are also downsides to consider. The choice you make could possibly affect your business long-term, so let’s take a moment to review your options. Employee vs. contractor: which one is best for your business?

What Is an Employee?

First, let’s cover the basics: What is an employee?

An employee is part of your organisation. They not only provide services or work for your business; they are part of the team. In Australia, law requires organisations to pay employees on a fixed, regular basis and provide paid leave. There are also different tax laws and superannuation laws for employees vs. contractors.

What Is a Contractor?

Unlike employees, contractors are not actually part of your organisation. Contractors are actually their own entity, and they sell their services to other organisations. Some contractors may not consider themselves business owners, but the distinction is still there. Contractors should also have their own Australian Business Number (ABN).

Contractors are also called independent contractors or subcontractors. They usually have their own work requirements and guidelines they set themselves. This means they may set their own work hours, use their own tools and follow their own methods to perform their services. They may also set their own fees and work for more than one organisation at once.

While contractors have certain legal rights, they are usually responsible for their own taxes, insurance, superannuation and other benefits.

Employee vs. Contractor: Pros and Cons

At one point, “employee” was the default work status. If an organisation needed to expand its workforce, they simply hired an employee. Today, though, more and more businesses are choosing contractors. In fact, research shows that over one-third of Australians work as contractors. That doesn’t even include people who work as contractors in addition to full-time employment. If you choose to hire a contractor vs. an employee, you may have plenty of options. However, there are pros and cons to consider first.

Contractor Pros

A Contractor May Be the Cheaper Option

Though contractors often charge more per hour than a salary or wage employee, the overall cost is often less expensive. You can pay a contractor as-needed and you won’t need to pay for taxes or benefits.

A Contractor May Give You Flexibility

As mentioned above, you can hire contractors when you need them. If your practice is short-staffed or experiencing a sudden rush of patients, hire a few contractors to get you through the period. When things slow down again, reduce your workforce with minimal hassle.

A Contractor May Provide Services You Can’t Find Elsewhere

Employees often need training. Most employees work for one organisation for years before moving to another. Contractors, however, usually work for multiple clients at once and they gain a lot more experience. Most contractors can start work immediately with little training and may provide additional services or specific knowledge you can’t find elsewhere.

A Contractor Requires Little Oversight

In the early days, employees often require extensive management until they become familiar with the job. Contractors are professionals who usually require little training. This frees up your time for other tasks.

Contractor Cons

A Contractor May Not Feel Loyal to Your Organisation

Contractors primarily work for themselves. Though you can certainly build a relationship with a contractor, that takes time. They likely won’t feel immediate loyalty or dedication to your practice.

A Contractor Is Their Own Authority

While you may provide guidance, limitations and deadlines for their services, contractors answer primarily to themselves. You may not like the way they do things, the schedule they set for themselves or their communication styles.

Employee Pros

Employees Become Part of Your Team

While contractors work for themselves, employees are part of your team. If you want to build a workforce of reliable, dedicated team members, employees are the better option.

Employees May Be There When You Need Them

Most employees are ready when you need them. If you suddenly find yourself with a large workload or too many employees call out, a full team of staff helps you find someone ASAP. A contractor may take a bit more time to find.

Employees Are Familiar With Your Practices

Employees require a bit more training, but they are also more familiar with your organisation. They know and understand your processes and how your practice operates.

Employees May Be More Loyal

When it comes to privacy, dedication and teamwork, employees often have the upper hand over contractors. Working for you is their primary job and they are more likely to protect your information and be there when you need them.

Employee Cons

Employees May Be the More Expensive Option

Employees cost much more than an hourly wage or salary. They also require taxes, insurance, superannuation and paid leave. Your employees will need their own tools and equipment to perform their duties and you may spend more on training and management as well. The expenses add up and are a large consideration for most small business owners.

You May Be “Stuck” With a Bad Employee

Not all employees are loyal, dedicated and capable. If you hire someone who doesn’t meet your needs, it’s much harder to terminate the relationship.

Should You Hire an Employee or a Contractor?

Now that you know the pros and cons of employees and contractors, it’s time to decide which options is best for your organisation. Here’s a quick checklist to help you make the decision.

  1. First, decide whether you need a team member who can work set hours. If the work requires set hours, you’ll need to hire an employee to stay compliant with labour laws.
  2. If hours are flexible, think about whether you have the resources to hire an employee at this time. If you’re not sure whether your business can support all the costs of hiring an employee, a contractor may be the better option.
  3. If you have the resources and hours are flexible, look through the remaining factors and decide which option better fits your needs. Do you value the flexibility and experience a contractor can offer or do you need the dedication and loyalty of an employee? There’s no right or wrong answer, but this simple process can help you make a decision.
  4. Finally, before you make a final decision, read through the tax and super obligations from the Australian Taxation Office. You can also read through the Fair Work Ombudsman’s guide for independent contracting.
Final Thoughts

If you’ve read through this guide, completed the checklist and still have questions regarding hiring an employee vs. a contractor, please let us know. The experts at nexZen are here to help. We assist small practices just like yours with business strategy and compliance concerns. Get in touch to get started.

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Business Advisory

What Expenses Can You Claim vs. Cannot Claim?

Meeting your tax obligations each year is important. One area of taxation that often confuses support providers is what does—and does not—count as an eligible tax deduction?

But first—what’s a tax deduction?

Tax deductions are claims for expenses directly tied to the business that business owners can list on their return.Tax deductions reduce your amount of taxable income, boosting your refund at the end of the year.A tax deduction can include any work-related expense, such as the cost of uniforms, tools used in your practice, and any work-related travel.

Are there rules for claiming tax deductions?

Let’s start with the basics. To claim any deduction on your return, you must adhere to the Australian Taxation Office’s (ATO) three rules:

  1. The claim must be for an expense directly tied to your business, not for a private expense.
  2. For expense claims that are both business and private, you may only claim the business portion.
  3. You must have a record of the expense.

Support providers often miss out on deductions—or claim items that don’t meet the above parameters—simply because they don’t understand which deductions are allowed.

12 Common Deductions for Support Providers

NexZen Accounting has created this list of the 12 most common deductions for support providers (based on this list from the ATO) to help you with your tax preparation this year:

  • Vehicle expense
  • Home-based business expense
  • Travel expense for business
  • Worker salary, wage, and super contribution expense
  • Repair, maintenance, and replacement expense
  • Working expense
  • Asset depreciation and capital expense
  • Consumables expenses
  • Work-from-home expenses
  • Mobile and internet expenses
  • Computer, laptop, and office equipment expenses
  • Tax accounting professional services

Let’s take a closer look at these allowable expenses.

Vehicle expenses

If you must drive your car for work, you can claim a deduction.You cannot claim the vehicle expense deduction for your necessary trips from home to work and back.

  • Home-based business expense
  • If you carry out some or all business activities from home, you might be allowed to claim:
  • Occupancy expense, such as mortgage, rent, land tax, and council rates
  • Running expense, such as phone, electricity, furniture, furniture repairs, and cleaning
  • Motor vehicle trips from your home to other places as long as the trip is business-related
  • Work-related travel

In addition to your vehicle expenses, you may also have work-related travel expenses. These can include toll charges, airfare, bus passes, or meals when you’re traveling for work and staying overnight.You can claim travel from the home of one client to another, and sometimes you can also claim travel for work-related activities with a client, such as appointments.You may also be able to claim meals that you have with clients when traveling.

Worker salary, wage, and super contribution expense

Because you own a business, you can typically claim deductions for:

  • Employee salary and wage compensation
  • Super contributions into a compliant super fund or RSA for employees and some contractors.

These are also typical operating expenses.If you run your business as a sole trader, you can also claim your own contributions on your personal return.

Repair, maintenance, and replacement expense

Deductions for repair, maintenance, or replacement expenses are allowed as long as: The amount was used to replace machinery, tools, or a physical premises used to produce your business income. Claims cannot be for amounts considered capital expenses.

Working expense

These are expenses that occur in the everyday operation of your business. Such expenses could include:

  • Company stationery
  • Building rent
  • Stock purchases

These are also sometimes referred to as operating expenses.Most operating expenses must be claimed in the income year in which you incurred them, and only the business-related portion can be claimed. For operating expenses that are both business and private, such as mobile calls, you can only deduct the business portion.

Asset depreciation and capital expenses

Capital expense deductions are generally claimed over time. You might be allowed to use an instant write-off, which lets you claim a deduction for the entire purchase cost in the financial year you bought the asset and used it. Capital expenses are either:

  • Depreciating assets, including the purchase amount and the amount you incurred from its transport or installation
  • The cost of improving your business

You must keep complete and accurate records of all expense deductions you wish to claim. Other allowable expenses include:

Consumable supplies

As a support provider, you probably pay for supplies that help you in your day-to-day job. Such supplies, or consumables, can include stationery, hand sanitiser, sunscreen, or printing paper.

Work-from-home expenses

It’s typical for support providers to perform some of their tasks from home. This can include such tasks as submitting timesheets, client activity research, phone calls, and emails.You can claim deductions for the time you spend working at home for such expenses as electric, air conditioning, or heating.If you also have a dedicated office space within your home, such as a spare room you use as an office only, you can enjoy an increased deduction. Beginning with the 2019-2020 financial year, you can claim a home office deduction even if you don’t have a dedicated office space. To claim the deduction, estimate how many hours you worked from your home office and multiply by the relevant rate for the year.

Mobile and internet expenses

Support providers typically use a mobile phone during the workday for work-related purposes. You probably also have a computer at home that’s connected to the internet. You probably use these devices to connect with clients or to organize your calendar. Any work-related usage of these devices is eligible for a deduction. If you also use these devices for non-work-related activities, you can only deduct the business-related portion.

Computer, laptop, and office equipment

Besides deducting your mobile and internet expenses, you might also be allowed to claim the purchase price of the phone or computer. If you work as a sole trader, you can deduct the entire purchase price of any mobiles or computers purchased during a financial year.

Tax accounting professional services

Some support providers use professional tax accountants like nexZen to prepare and send in their tax returns to the ATO. You can claim any amounts you pay to your tax accounting service in the tax year in which you paid it.

What expenses can you not claim as a deduction?

Some expenses generated during the course of business are not considered business-related. Some of the expenses that you cannot claim include:

  • Entertainment
  • Traffic fines
  • Private expenses, such as childcare or family clothing
  • Earned income expenses that aren’t assessable, such as hobby income
  • GST on purchases that can be claimed as GST credits on your activity statement

Also, if you earn personal services income, there may be limits on deductions. nexZen Accounting Firm helps support providers around Australia with all their accounting needs—and we can help you, too. Reach out to the team today.

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Business Advisory

Choosing a Business Structure for Your New Business

The early days of business are difficult, and the questions are endless. Where should I rent an office? Which business structure should I choose? How will I pay my bills? Where can I find startup capital? Should I hire employees? If you’re struggling with the sheer enormity and number of decisions you’re facing these days, please don’t stress. Every business owner goes through this process, and “decision fatigue” is a real problem for most people.

First, let’s consider one of the bigger, more pressing questions at the moment: Which business structure should I choose? There are technically seven different types of business structures in Australia. Some of these are more popular than others, and you probably have random advice about which one is best.

Your friends may say, “Pick a trust. My sister’s brother’s wife has a trust, and she says it’s the way to go.” You may feel drawn towards the simplest option, which is a sole trader. Perhaps you’re most interested in saving money on taxes, and you’re wondering which business structure offers the most tax benefits. In most cases, business owners are primarily concerned with protecting their assets and making sure they’re compliant.

Feeling overwhelmed yet? That’s okay. We’re here to help and walk you through the process.

Types of Business Structures in Australia

First, let’s look at all the different types of business structures in Australia. These are basic overviews, but you can find a more detailed definition in our Business Structure eBook.

Sole Trader

This is the simplest, most straightforward business structure. If you’re working alone (without a partner or other entity), you’re a sole trader. It’s easy to keep records as a sole trader, but you may pay higher taxes, and your assets aren’t protected.

Company

You can also incorporate your business as a company, which is considered an individual entity. That means the company is responsible for taxes, financial reporting, and liability. This structure is the most complex as far as setup and expenses are concerned, but the advantages may be worth it.

Partnership

If you run the business with another person (or multiple people), you can form a partnership. This entity works a lot like a sole trader, but expenses and income are split between partners. All partners are responsible for taxes and liabilities. A partnership is fairly inexpensive and simple to set up.

Trust

A trust is similar to a company, but your business isn’t incorporated or a separate entity. Instead, the trust accumulates income from the business, which is then passed on to the trust’s benefactors. The trustees may be either individuals or corporations. Taxes and other liabilities also fall to the benefactors. This is one of the best structures for low tax rates, but it’s a more complicated and expensive setup process.

How to Choose a Business Structure

When you’re choosing a business structure, you can ask yourself these questions to find the best option. Better yet, you can partner with nexZen to gain better clarity and direction.

What are the roles of each owner or partner? How will you handle profit and income?

These two questions generally go hand in hand. Usually, the person who contributes the most to the business also receives the most profit or income. If you’re working with another person to start your business, you’ll need to discuss each owner’s role, tasks, responsibilities, and financial contributions. You’ll also need to decide how to handle expenses and revenue in the future.

How will you handle distributions? Will you have shareholders?

Distributions are payments made to owners or shareholders of a company. The business structure you choose determines how you’re allowed to make these distributions.

Who should pay taxes? How will income flow through the business? How important is your effective tax rate?

Your business structure also determines how income flows through your business, who pays taxes on the income, and which tax rate applies. For example, sole traders receive all of the income from the business and pay their effective personal tax rate on the income. In certain situations, you may also allocate franking credits to shareholders to avoid double taxation. This only applies to companies with shareholders, however.

Do you need limited liability or asset protection?

Only certain business structures limit the owner’s personal liability. If you choose a structure that doesn’t limit liability, you will probably need another form of protection for your personal assets.

How should owners exit the business?

At some point, one or more owners may choose to end their role with the business. One person may wish to “buy out” all the other owners, an owner may wish to start another business, etc. The business structure you choose now will affect this decision. Some structures are easier to leave than others.

Final Thoughts

Choosing a business structure is arguably the biggest decision you will make for your business. The ideal choice differs from one business to the next, so it’s important to ask yourself thoughtful questions and commit some time to the decision-making process. Taxes, personal liability, income flow, and exiting the business all seem like future problems, but they will eventually become a reality. You can avoid future stress, hassle, and expense by making the best decision now. Of course, most business owners could use a little help in this area. Business structure likely isn’t your area of expertise. However, it is our area of expertise. If you’re feeling overwhelmed or discouraged or simply need a little guidance, nexZen is here. We can walk you through the process and help find the perfect business structure. We’ll assist with the paperwork too. Connect with nexZen to find answers to all of your business structure questions and more.

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Business Advisory

I am just starting my business. What should I know about accounting

Let’s talk about Sally. Sally is a therapist with 10 years of experience helping patients. She’s decided to open her own practice. While Sally is quite comfortable handling the “therapy” side of her practice, she’s a little concerned about the paperwork. More specifically, Sally has no accounting experience, and she wants to make sure her business is successful. So far, she has an office assistant, but she feels like she needs to understand accounting concepts so she can be a proper business owner. If you’re thinking, “What should I know about accounting?,” here are a few of Sally’s most important questions.

1. Do I need a separate bank account for my business?

When it comes to banking, you have options. First, you can separate your business transactions from your personal transactions by setting up two separate bank accounts. This is probably the easiest option. It makes managing cash flow, organizing your taxes, and loan applications much easier.

However, you can choose to keep your finances in one bank account. If you go this route, you may want to use software to tag and organize your transactions by category so they’re easy to find later. You will also need to stay on top of your personal and business budget so you know where your money is going.

Keeping finances intermingled is a little risky because you may accidentally spend all of your business capital on personal expenses (or vice versa). Most business owners keep separate accounts for this reason, among the others we’ve already mentioned.

2. Should I pay myself when I’m just starting up, or should I wait for better cash flow?

In the very early days of business, cash is often scarce. If you have the personal resources to forgo a paycheck for a while, you may choose to keep all your cash in your business.

If you can’t afford to live without a paycheck, though, it’s probably better to create a routine payment now. It’s much easier to keep track of all your expenses if you create these habits on Day One.

If you decide to defer your payments until later, remember to pay special attention to taxes. Depending on your business structure, you may owe additional taxes, and it’s best to plan ahead so you don’t fall short.

3. How can I make my business compliant?

Business compliance is a complicated topic that requires a lengthy overview of your business structure and operations. At a minimum, each business must file a Business Activity Statement (BAS) with the Australian Taxation Office (ATO). And you might need to register for GST if your business earns over $75,000 per year. As an NDIS service provider, you may also need a strong understanding of privacy laws and other matters. Corporations often have more stringent compliance requirements than other business entities.

4. Can I hire someone to answer all my complex questions?

Most small businesses owners hire a professional to assist with more complex tax and accounting questions. These may include issues regarding capital gains, stock options, choosing a business structure, and other concerns that aren’t general business knowledge.

5. Can someone help me create a business plan?

Yes, of course. Not every business owner is also a business expert. Sometimes you’re just really good at what you do but you need a little help with the details. There’s no shame in asking for help when you need it. In fact, that’s exactly what we’re here for.

Our Services

nexZen is happy to guide our clients through every aspect of business set up and day-to-day operations. Here’s a short list of our services:

New Business Set Up

Setting up a new business is tricky, but nexZen knows how to help. We walk with you through the process, taking your brilliant business idea and turning it into a successful practice. We help with everything from choosing a business structure to creating a business plan.

Proactive Compliance

You can’t run a successful business without compliance, and proactive compliance is much better than the alternative (getting in trouble and trying to deal with the consequences). We teach you what you need to remain compliant and how to organize your business to achieve your compliance standards.

Day-to-Day Accounting and Payroll

Two things never stop when you’re running a business: accounting and payroll. These tasks can easily take up your entire day if you don’t get ahead of things. We help you reconcile your accounts, organize your records (both paper and electronic), manage A/R (get paid!), pay your employees, and pay your suppliers.

Business Queries and Support

Have other questions? We can help with those, too. We answer any questions relating to bookkeeping, payroll, taxation, accounting systems, or small business in general.

Business Advisory

Consider us your business advisors. We don’t give basic answers. We create customised solutions for each and every query. That helps you make the best decision — every time.

Business Value Creation

Your business needs value to stay competitive. We will work with you to make sure your business has a clear vision, compelling values, and direction. This helps you stay sustainable and profitable in any economy.

Why should you work with nexZen?

nexZen is much more than a consultant or accounting firm. We are dedicated to growing your business and creating more happiness and freedom in your life. It’s a win-win that takes little more than a phone call or email to get started. Connect now to learn how we can help.

Categories
Day to Day Accounting & Payroll

What is Single Touch Payroll?

Single Touch Payroll (STP) is a payment system method that reports payments to government agencies. It is an initiative set out by the Australian government to simplify payment reporting and replace group certificates. STP software enables businesses to manage bookkeeping tasks effortlessly while ensuring that all tax obligations are being met.

If you are a new business owner and have been asking yourself: what is STP? Keep reading. This post will explain what it is and what it does.

What is STP Exactly?

Single Touch Payroll allows businesses to streamline their payment and compliance processes through a single action of sending a payment. It is an innovative method for employers to report tax information to the Australian Tax Office (ATO) every time employees receive payments. STP is designed to report a variety of payments made to employees and directors of a company.

Here are some examples of the payments that are reported to the ATO.

  • Any payment to an employee, such as wages
  • Payments to the director of a firm
  • Seasonal Labor Military Program payments
  • Employees termination payments
  • Parental leave pay
  • An employee return to work payment

STP software enables companies to meet the required tax reporting legislation practices with ease.

Introduction of STP

The Australian government originally introduced STP to organizations with a minimum of 20 employees. It came into effect from the start of July 2018. From this point onwards, the tax office advised firms to integrate STP technology into their business processes through a controlled rollout program. The aim was for firms to implement this technology by the end of April 2019.

The next stage of the STP rollout was for all firms with 19 or fewer employees to integrate the technology into their business payment operations. Just like the previous rollout for firms with 20 or more employees, it is also now mandatory for firms with 19 or fewer workers to use STP.

How This Affects NDIS Providers

NDIS service providers who are WPN holders have until 1 July 2022 to implement the mandatory payment system. If you are making use of this exemption, the ATO would prefer you to keep records that support your choice to wait until it becomes mandatory.

STP: Essential Points
  • Employees new to the workforce can use the Government Online Portal to complete their tax file number declaration.
  • Employers can use STP to notify the Tax office about their PAYG Withholding status during their current payroll cycle.
  • STP technology automatically informs the Tax Office of any superannuation contributions.
Additional STP Benefits
  • Small companies can manage their business finances in an organized manner.
  • It will be simpler to observe a firm’s PAYG withholding and superposition during the year.
  • All relevant company data is pre-filled in the BAS, which helps firms to be more time-efficient as they no longer have to fill out the business activity statement from scratch.
  • STP technology is also proficient at performing basic calculations.
    Business owners have flexibility regarding super payments and PAYG withholding.
  • Registering a TFN declaration online is simple and done with greater accuracy with STP technology.
STP Reporting Options

According to the Australian Government Taxation Office, the number of employees you have will signify any concessions and reporting systems available for STP.

Who counts as an employee? Use the list below as a guide for your headcount.

  • Part-time employees
  • Full-time employees
  • Employees based overseas
  • Casual Employees
  • Any employee who is on leave or absent (unpaid or paid)

Be sure NOT to include the following in your headcount.

  • Independent contractors
  • Officeholders
  • Employees who no longer work for you
  • Any staff provided through a third-party organization

For more information on reporting options, please view the Australian Taxation Office website.

Decide How You Will Report Through STP
As a new business owner, you will have to determine the best reporting option for your small firm. Here are three ways you can report through STP.

  • If you already use payroll software, your Digital Service Provider will inform you about how they offer this STP reporting.
  • You have the option of asking a BAS or registered tax agent to do it on your behalf.
  • A payroll service provider can report for you as long as they are a registered agent.

Other Considerations

Before you get everything set up for reporting STP, be sure to check that your data is accurate. It will include things like employee information. Are their names, addresses, and dates of birth correct? Also, if you have already issued payments to employees, are you paying employees correctly?

Once you start reporting through STP, if you notice that any information is incorrect, you will have some time to amend this. This type of correction is referred to as a ‘fix’ and will not incur any penalties. However, you have to make these corrections promptly or you could be liable to a penalty charge.

If, for example, you are correcting employee information, you should either update it within 14 days of identifying the inaccurate data. Or it should be amended in the next regular pay event. Although, it would have to be in the same financial year.

It is also important to note that some corrections can impact your PAYGW liability. It is because when you correct the inaccurate information, it can change the PAYG withholding that was initially reported to the tax office. If this happens, you may choose to carry forward the correction to your PAYG withholding for the current tax year. Or you have the option of revising your Business Activity Statement for the earlier tax year so that the amended figures can be displayed.

NDIS Best Practice Considerations

As an NDIS provider, running a small healthcare business is very rewarding because you get to see firsthand the positive effect of your work on service users’ lives. However, because you are paid with government funds, there are obligations that come with being an unregistered service provider. Some of these obligations will include things like determining if you need to register for goods and service tax (GST), having a tax file number, holding a valid national police check, and an understanding of NDIS code of conduct practices.

STP: Phase 2

The Australian government is going to increase its data collection efforts through STP. This will involve employers reporting additional information either before or on the date that payments are made. This expansion initiative is known as STP Phase 2. The start date for organizations to meet these new requirements is from 1st January 2022. However, if you need more time to prepare for these changes, you should be able to apply for extra time.

If you are unsure about anything to do with STP reporting, visit the Australian Tax Office Website for more information.

 

This is a loser that most people are probably pretty happy about — the government is extending a task force that targets tax avoidance by multinationals, large public and private groups, trusts and wealthy individuals.

It is giving the Australian Tax Office (ATO) more than $600 million over the next three years to keep the scrutiny on those groups.

The budget forecasts the extension of the task force will make the government $2.1 billion in revenue from tax over the next four years.

From

2022-23 income year

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied. 

The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect:

  • Up to $10 million annual aggregated turnover for GST instalments and 
  • $50 million annual aggregated turnover for PAYG instalments 

Get an offer now..!!

From12.01am 30 March 2022

There are a few jokes going around social media about the price of fuel.

As widely predicted, the Government will temporarily reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for 6 months from Budget night. That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre from Budget night. However, the measure is subject to the passage of the enabling legislation so don’t expect to see a change right away. 

 The reduction extends to all other fuel and petroleum based products except aviation fuels.

At the conclusion of the 6 months on 28 September 2022, the excise and excise-equivalent customs duty rates revert to previous rates including any indexation that would have applied during the 6 month period. 

The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is passed on to consumers.

The measure comes at a cost of $5.6bn.

From

1 July 2021 to 30 June 2022

The low and middle income tax offset (LMITO) currently provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000.

The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.

For the 2021-22, the LMITO will be increased by $420 which means that the proposed new rates for individuals are as follows:

 

Taxable income 

Offset 

$37,000 or less 

$675

Between $37,001 and $48,000 

$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500

Between $48,001 and $90,000 

$1,500

Between $90,001 and $126,000 

$1,500 minus 3 cents for every dollar of the amount above $90,000 

From

April 2022

A one-off $250 ‘cost of living payment’ will be provided to Australian resident recipients of the following payments and concession card holders:

  • Age Pension 
  • Disability Support Pension 
  • Parenting Payment 
  • Carer Payment 
  • Carer Allowance (if not in receipt of a primary income support payment) 
  • Jobseeker Payment 
  • Youth Allowance 
  • Austudy and Abstudy Living Allowance 
  • Double Orphan Pension 
  • Special Benefit 
  • Farm Household Allowance 
  • Pensioner Concession Card (PCC) holders 
  • Commonwealth Seniors Health Card holders 
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

    The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. An individual can only receive one payment.

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. The Government has extended two existing guarantees and introduced a new regional scheme.

Just prior to the Budget, the Government announced:

  • First Home Guarantee – from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers to purchase a new or existing home. 
  • Single parent Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025. The family home guarantee supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
  • Introduction of a Regional Home Guarantee. This guarantee will support eligible citizens and permanent residents who have not owed a home for 5 years (including non-first home buyers) to purchase or construct a new home in regional areas with a minimum 5% deposit areas (subject to the passage of enabling legislation).

From

1 July 2021

The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.

 

2020-21 

2021-22 

Singles 

$23,226 

$23,365

Family threshold 

$39,167 

$39,402

Single seniors and pensioners 

$36,705 

$36,925

Family threshold for seniors and pensioners 

$51,094 

$51,401

 
For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597. 

From

1 July 2024


Trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically.

While this measure will reduce compliance costs, it will also increase transparency and provide the ATO with a greater insight into where anomalies are occurring.

The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023. 


Minimum superannuation drawdown rates 2019-2023

Age 

Default minimum drawdown rates (%) 

Reduced rates by 50% for the 2019-20 to 2022-23 income years (%) 

Under 65 

65-74 

2.5 

75-79 

80-84 

3.5 

85-89 

4.5 

90-94 

11 

5.5 

95 or more 

14 

 

From 7:30pm AEDT, 29 March 2022 until 30 June 2023
The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services. The technology boost will be available to small business with an aggregated annual turnover of less than $50 million.An annual expenditure cap of $100,000 will apply to the boost. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.  

From

1 January 2024

As announced prior to the Budget, companies will be able to choose to have their pay as you go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments. 
The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance. 

In bad news for people’s pay packets, real wages are not forecast to grow until later this year at the earliest thanks to higher-than-expected inflation.

At the end of last year, Treasury predicted the inflation rate would be 2.75 per cent. The reality has ended up being around 4.25 per cent.

The budget is predicting wages will only be just higher than inflation in the next couple of years, meaning cost of living pressures are unlikely to ease any time soon.

Despite current price hikes, the budget is forecasting inflation will taper off and wages will grow faster by the middle of the decade.

From

1 January 2024

As announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
The measure is expected to reduce the costs of complying with the system and increase transparency.

The measure that enables payments from certain state and territory COVID-19 business support programs to be treated as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022. 
The Government has announced that the following state and territory grant programs have been made eligible for this treatment since the 2021-22 MYEFO, although it is not clear whether the relevant legislative instruments have been issued as yet:

  • New South Wales Accommodation Support Grant 
  • New South Wales Commercial Landlord Hardship Grant 
  • New South Wales Performing Arts Relaunch Package 
  • New South Wales Festival Relaunch Package 
  • New South Wales 2022 Small Business Support Program 
  • Queensland 2021 COVID 19 Business Support Grant 
  • South Australia COVID 19 Tourism and Hospitality Support Grant 
  • South Australia COVID 19 Business Hardship Grant.

    This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment. 

As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis. 

The funding will be deployed following further consideration of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.

From

1 July 2022

Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.


This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.

From

1 July 2021

As previously announced, workrelated COVID19 test expenses incurred by individuals will be made tax deductible. 
Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID19 testing to their employees for workrelated purposes.
The changes for deductions will be effective from 1 July 2021, with the FBT changes to apply from 1 April 2021.
At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.

From

7:30pm AEDT, 29 March 2022 until 30 June 2024

The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. The deduction will be available to small business with an aggregated annual turnover of less than $50 million. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
We assume there will need to be a nexus between the employee’s employment and the training program undertaken for the boost, although we are waiting on further details of this initiative to be released. 
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in the tax return for the following income year (that is, the 2023 tax return). The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Just prior to the Federal Budget, the Government announced the extension of the:

  • Boosting Apprenticeship Commencements wage subsidy, and
  • Completing Apprenticeship Commencement wage subsidy.

    Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:
  • 50% of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
  • 10% of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
  • 5% of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

An additional $652.6m has been set aside to extend the ATO’s Tax Avoidance Taskforce by 2 years to 30 June 2025.
In that time, the taskforce is expected to increase receipts by $2.1bn and increase payments by $652.6m.

Buried under the wildly exciting headline of Commonwealth’s Deregulation Agenda, is the $19.9 million spend by the Australian Bureau of Statistics to develop a new reporting application to enable businesses to submit surveys on business indicators directly through their accounting software. Excellent. Real time reporting utilising verified data on the state of Australian business. Guarantee of Origin scheme, and the development of a Biodiversity Stewardship Trading Platform to support farmers to undertake biodiversity activities ahead of the introduction of a voluntary biodiversity stewardship market.

Another $148.6m is for the development of community microgrids and just over $50m to develop gas infrastructure projects.

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