Summit - Tax & Business Accountants, Melbourne

5 things you'll need to know for 2010/2011

Keep your eye on the economy

Australia survived the GFC relatively well. However, be wary, as it may not be over yet. Our economy is still susceptible to international conditions. The predicted growth rate is 3.25%, based on conditions remaining relatively consistent.

Previously, changes in the economy of smaller European countries did not have a big impact on international markets, but the defeat of the austerity plan in Portugal, and Portugal's ratings downgrade have shown how fragile markets are. Although Portugal only represents 1.89% of the Euro Zone economy, the downgrading had an immediate effect on international markets. Admittedly, the Portugal impact followed on from Dubai's announcement in November that it was unable to pay its debts, then Greece's inability to pay its Euro 110b loan, and then Spain. While Dubai has friends who are willing to help cover the debt, the European nations are not so lucky. The fear that there is no cash left to get some countries out of debts has created the ripple effect across the international markets.

In Australia, the economy is uneven. There's been a slowdown in some sectors (such as housing investment last quarter). The end of the economic stimulus packages has also had an effect (business investment was down 6% last quarter). Production within our economy is also slowing with a 0.9% fall in the March quarter. The strength of our economy continues to be driven by the mining sector and the demand from China for resources. But, with an election due soon, everything slows down as the economy shifts into 'wait and see' mode.

So, remain cautious and ensure that you plan for the next 12 months. Keep an eye on performance.

Plan or perish

The new financial year is a good time to financially map your business. If you get your financial mapping right, you reduce your risk and remove some of the surprises that can occur along the way.

You need to start by putting together an operating budget for the business. This should not just be last years figures, with an added percentage. You need to look critically at each line. Start with revenue and work out a reliable estimate of your income for the coming year.

Once you're happy with your income figures, work out how much marketing and advertising will be required to generate this income.

Move on to your expenditure. Are you able to reduce costs? Remember to allow for increases that are likely to flow through into the current year. Also allow for any extra expenditure as a result of growth.

Doing this analysis will create an operating budget and give you an idea of your profit for the coming year. Once you have this figure, you may want to do a couple of alternative estimates, to give you an idea of how your changes will affect your budget.

Now that you have your forecast profit position, reduce it to a cash flow forecast. To do this, you need to know both your profit and cash position. To work out your cash position you need to understand some timing differences. How long will it take for your customers to pay you? How much stock will you need to hold? And, what are the payments terms required by your suppliers? With your cash flow, don't forget to allow for things like tax payments, loan repayments, dividends and any capital purchases that are planned. These can be big items, which can catch you out if you haven't budgeted for them.

Identify your capital expenditure requirements. You'll want to plan these in advance, rather than dealing with them as they arise.

Once you've done all this, you have your financial roadmap for the year in place.

Honeymoon over for SMSF

Over the last year, there has been a lot put in place to stop people taking the superannuation early or use it for something other than retirement. The key things to watch out for are: Any scheme or plan that allows you to take your superannuation early

Make sure you know what and how much you can contribute to your super. If you accidentally put too much in, you can't simply take it back out. Review your salary sacrifice agreement if you have one to make sure you don't breach the caps. Make sure any actions you take are supported by your trust deed. Update your trust deed, if it hasn't been done for a while, to take advantage of the options available.

Taking cash in and out of your business

A common tool utilised by many businesses using a discretionary trust is to distribute income to a company, pay tax at the corporate tax rate but leave the distribution in the trust for use by the business owners. In effect, the distribution only occurs on paper. Owners then use the distribution as working capital to fund growth, or in some cases to fund personal assets. The Tax Office now intends to tax any of these distributions that remain with the trust (called unpaid present entitlement) at the applicable marginal tax rate.

So, this change essentially leaves 3 main options:

1. Ensure that distributions to corporate beneficiaries are paid in full before the company’s lodgement day for the year in which the income is appointed;
2. Put a complying loan agreement in place between the company and trust before the company’s lodgement day for the year in which the income is appointed; or
3. Look at restructuring to achieve the best result for the business or the business owners.

If you’ve been one of the lucky few who have had private access to ski lodges, private boats and other assorted goodies owned by your company or a related company, the party is now over.

New rules introduced to the non-commercial loan rules crack down on these executive perks putting an end to them.

What changed on 1 July 2010

Superannuation pension relief extended

In 2008, at the start of the financial crisis, the government reduced the minimum pension payment amount from 5% to 2.5%. This concession was extended to the 2009 financial year. The Government recently announced that it will again reduce the minimum pension amount for the 2010/2011 financial year.

So, what does this mean for you? If you are 65 years old on 1 July, and you receive an account based pension from your superfund, the minimum you need to withdraw is 2.5% of the account balance.

This continued relief means that as a retiree, you do not have to sell investments at inopportune times to comply with the regulations.

New income tax rates

Superannuation clearing house open for business

If you are a small business with less than 20 employees, the Government run superannuation clearing house is now available.  The clearing house is designed to ease the administration burden of paying multiple superannuation funds every quarter to manage your choice of super requirements.  Payments are made by BPay to the clearing house.  It’s a free service, available through medicare. See www.medicareaustralia.gov.au/super/