The year thus far has been flying along at great speed with the end of the year fast approaching with Christmas right around the corner. This month’s edition should provide you with some useful information and remind you of any upcoming due dates.

We wish to advise that the Alexanders’ offices will be closed from lunchtime Friday 21st December and will reopen on the 7th January 2008.

We would like to take this opportunity to wish you a happy and prosperous holiday period and we look forward to working with you in the coming year. If you require any more information on these articles or on anything else, please don’t hesitate to contact our office.

Sheriff Iskander and the team at Alexanders.

No Scrooges this Christmas

Thanks to changes to the fringe benefit tax system (FBT), small business owners have no justification for skimping on Christmas gifts and parties for employees this year. The Christmas festivities and generosity can now be more lavish without costing the business extra in tax.

The changes to the FBT, that were implemented in April of this year, allows in-house fringe benefits tax-free threshold to be increased from $500 to $1,000 per employee, minor benefits exemption threshold will be increased from $100 to $300 per benefit and fringe benefits than are required to be reported as taxable income increased from $1000 to $2000 per employee.

Businesses will find the minor benefits rule particularly useful at Christmas as they can now spend up to $300 per employee on the Christmas party with out paying FBT, rather than the previous $100.

As well as that generous increase, the Australian Tax Office also improved "associated benefits". The alteration to the associated benefits scheme will give business owners the ability to pass on benefits on to employee spouses and children. In total, employers will be able to provide $2,399.92 in benefits for a family of four ($1,199.96 food and $1,199.96 gifts), without paying a cent in FBT tax. Previously, all associated benefits provided had to be calculated together and it all needed to be less than $100 in total in order to be tax free.  

The fringe benefit tax rate has also be reduced from 48.5 percent to 46.5 percent so if very generous bosses do exceed the tax-free amount, they will pay a reduced amount than before.

By increasing the amount allowed for gifts and Christmas parties it gives bosses more of an incentive to do so and staff feel more rewarded. According to recruitment company research, employee turnover is now approximately 25% per annum, and the effect of this can reduce company profits by as much as a third. This is due to the cost of advertising positions, time spent interviewing or money on recruitment services, re-training, and being understaffed which decreases productivity. Staff retention is necessary to continually make an improved net profit result and employee benefits assist in improving job satisfaction.

If you would like more information on the changes to FBT and how they will affect you, please contact our office on (02) 9438 3233 or send us an email.

Beware the post-Christmas depression

With the lead up to Christmas, it’s important for small to medium businesses to remember the importance of cash flow for survival. Protecting a business’ cash flow is particularly imperative in the first quarter, after the end of the holiday season as this is when inflation pressure climaxes.

Many small businesses neglect the affect of inflation on a business and don’t take it into consideration when planning for the future. The typical slump for the first quarter is attributed to an increase in consumer debt, interest rates and petrol prices. Also businesses themselves tend to struggle in this period due to the heavy cash burden from Christmas wages with the 17.5% holiday leave loading, reduced output and billing/orders in the weeks leading up to Christmas. These aforementioned factors make it especially unstable within the business to business sector.

Small businesses tend to continue selling products at the same price, despite inflation increasing the price of inputs, as they believe it will reduce demand if the price was to increase. The problem then escalates because many small businesses owners see their accountants for year end tax purposes only, ignoring the significance of financial planning. While the inputs continue to rise, costs are not passed on to consumers quickly enough. This erodes already narrow profit margins, forcing overdrafts to get out of control which attracts high penalty fees.

Businesses are encouraged to review cost and sale prices to ensure profit margins are sustained. While some small businesses rely on relationship marketing, feeling they can’t disappoint customers by increasing prices, it is recommended to find ways to lower expenses to take off the pressure and sustain profit.

If you would like more information please contact our office on (02) 9438 3233 or send us an email.

Check out if FIDO has any presents for you this Christmas

Approximately half a million Australians have left behind money in accounts and the Government is now holding it. A record $458 million is yet to be claimed. You should check to see if any of it is yours? The amounts of lost money would shock you.

In the last financial year alone ASIC paid out nearly $54m in claims. To help us recover our ‘lost riches’ the Australian Securities and Investments Commission (ASIC) has recently introduced new ways for people to collect money. The system used in the past had a limited scope due to privacy restrictions, as certain details could not be made known without necessary security checks. ASIC is now encouraging people to contact ASIC’s Infoline on 1300 300 360 or via email on infoline@asic.gov.au and speak to one of our customer service consultants. This will allow a more comprehensive search to be completed. This search will look through many forgotten funds, such as unclaimed money from shareholdings where the company was unable to contact the shareholder, old bank accounts and forgotten insurance policies.

ASIC wants to make it as easy as possible for people to be reunited with their lost funds. Searching is free and there is no cost involved in claiming your lost money. The only thing that you need to do is provide proof that you are the owner or the beneficiary.

How to not lose track

Seeing a financial planner should help you to keep track of all money that is traceable through established systems. The main area in which people lose money is with superannuation. Travelling and casual works are the ones that are the most risk to losing money. In order to help overcome these losses it is advisable to transfer all super funds into one account.

So take a look, you may be receiving some extra Christmas this year that you were not aware of. If you would like more information visit www.fido.gov.au.

NSW Land Tax Threshold – 2007 tax year

Land tax is the tax levied on the owners of land in NSW at midnight 31 December each year. Your principal place of residence or land that is used for primary production is generally exempt from land tax. During 2007 the way that the land tax threshold is calculated in NSW has been changed.

You may be liable for land tax if you own or part own:

• Vacant land, including vacant rural land.
• A holiday home.
• Investments properties.
• Company title units, or
• Residential, commercial or industrial units.

In NSW the way that the land tax threshold is calculated has been changed. From the 2007 and future land tax years the land tax thresholds will be averaged. The new threshold calculation will be averaged from the 'indexed amount' for the new tax year and the previous 2 years, as calculated by the Valuer General.

The land tax threshold cannot fall below that of the previous year. Where the averaged amount is lower than the previous year’s threshold, the previous year’s threshold will continue to apply.

The average threshold for the last three years is calculated as follows:

	Indexed amount
For the 2005 land tax year	$342,000
For the 2006 land tax year	$352,000
For the 2007 land tax year	$356,000
Average	$350,000

As the average threshold ($350,000) is below the land tax thresholds for 2006 ($352,000), the previous year’s threshold will continue to apply for 2007.

If you require more information on the changes to land tax thresholds, please contact our office on (02) 9438 3233 or send us an email.

Superannuation Trustees Penalised

The trustees of a self managed superannuation fund have been penalised a total of $30,000 and ordered to pay $32,500 due to breaching the rules relating to their fund. These penalties were a direct result of the increased compliance focus imposed by the ATO. The breach of the rules of the superannuation fund was due to the trustees selling a property belonging to the fund.

A new draft ruling from the Tax Office explains how the law controlling superannuation funds prohibits trustees from using fund resources to provide any other 'financial assistance' to a member of the fund (or their relative).

Financial assistance can take the form of the giving of a security, charge or guarantee, or any other arrangement that, is in substance a financial accommodation. Financial assistance can also include using the resources of a super fund where the assets of the fund are converted into other assets, diverted, diminished or put at risk.

On 15 October 2007 the Federal Court declared that the trustees for the Axent Group self managed superannuation fund (SMSF) had breached superannuation legislation by selling a property belonging to the fund and using the proceeds of nearly $150,000 to pay a private debt. The couple had accessed assets in the superannuation fund before meeting any conditions of release such as retirement or reaching preservation age.

Deputy Commissioner Raelene Vivian said the action was part of an increased compliance focus on SMSFs by the Tax Office.

The main purpose of SMSFs is to provide for retirement. Trustees who access their superannuation without meeting a condition of release are breaking the law and risking their retirement savings.

The Tax Office provides a range of educational material to ensure trustees are aware of their roles and responsibilities.

It's vital SMSF trustees make sure they understand their legal and regulatory obligations as they are legally responsible for managing their fund.

SMSFs which do not comply with the legislation are at risk of prosecution, penalties and additional tax

Ms Vivian said.

For more information about SMSFs, whether they are right for you please visit www.ato.gov.au/super or contact our office on (02) 9438 3233 or send us an email.

Changes are coming

The change in Government means big changes to the operation of small to medium sized enterprises (SMEs). But how will Labour’s elective win affect your business? Where there is change, there will be new opportunities and threats for business.

The key to success for businesses in the Rudd era is to best take advantage of these new directions. For SMEs, it will define who will be victorious – green friendly businesses, ICT, training and services sectors, and the losers – old-fashioned manufacturers and high gas emission businesses.

The Skills Shortage

Boosting Australia’s skills base is crucial for the Australian economy to continue to grow. Labor committed to creating 450,000 new training places across Australia. SMEs in training and recruitment sectors will be big winners, as well as businesses positioned to provide services in key shortage areas such as ICT and engineering.
The system will be more bureaucratic, as funding will be determined by industry skills councils, reducing business owners control but might result in more efficient spending.

The Environment

The environment will create a strong competitive advantage for businesses in and associated with the renewable energy sector. SMEs in the renewable energy and green-tech sectors are undoubtedly the biggest business winners from Labor’s election victory, while businesses in the energy-intensive manufacturing sector, will need to move fast to get in line with the new government priority or risk being left behind. The policy includes grants for businesses to develop and commercialise renewable energy technologies such as solar and wind –

• match every $2 spent by business with $1 in public funding
• fund for research into clean coal technology
• grants program for businesses to commercialise and develop green technology
• funding for businesses that want to improve and reduce their environmental footprint
• up to 50% of the cost of installing energy efficiency measures into new or existing buildings, SMEs in the manufacturing sector to make their processes more energy efficient, grants worth up to a third of the full cost of the change

Labor will force energy providers to obtain 20% of all energy from renewable sources by 2020 and will almost certainly result in higher electricity prices. Renewable energy is likely to become cheaper as new technologies come on line.

Industrial Relations

SMEs that best handle the transition to the new regime may be able to build a strong advantage over competitors. SME owners who move quickly to get rid of unsuitable staff could save themselves on legal costs and severance pay down the track.
There is also an opportunity for SMEs to maximise the benefit they derive from AWAs. Labor has promised AWAs signed before its laws come in will be allowed to operate until 2012. However, SMEs will lose a competitive advantage they currently hold over larger businesses.

Industry, R&D and Grants

Labor’s $200 million for 10 new “enterprise connect” centres around the country attracted the most attention during the campaign. Their focus on innovation and commercialisation will be of most benefit to technology intensive services providers and manufacturers. However Labor’s lower profile commitments to fatten several grants programs could end up providing the juiciest opportunities for SMEs
Labor plans to provide grants of between $5000 and $15000 to SMEs to implement family friendly measures such as flexible rosters, school holiday leave arrangements and family rooms.

Broadband

An internationally competitive broadband network will offer the biggest advantages to businesses in the ICT, media and entertainment sectors. Australian business in these global industries will be able to deal confidently with international clients, knowing they will be able to send and receive large amounts of data with ease. Nevertheless SMEs in all areas will enjoy some benefits. Not only will broadband prices fall, consumers will also be able to use online retailing with ease. A failure of handling the tender process to introduce greater competition into Australia’s telecommunications sector could see SMEs paying higher prices for broadband and telephone services.

Red tape

Rudd has promised a minister for red tape and a “one in, one out” rule to ensure regulation does not proliferate beyond current levels. Cuts in red tape will tend to benefit those businesses that deal with government the most. Labor has also promised to make government tendering processes more accessible to SMEs.

Tax

Rudd’s cuts focused on making it more attractive for low income earners to enter or return to the workforce. For businesses with the flexibility to hire part-time workers, or who can make themselves attractive to mothers or retirees returning to the workforce, this could provide a partial fix for the skills shortage. Although the tax cuts will help support consumer spending, too much stimulus will push Australia’s inflation rate into dangerous territory. If this happens, the Reserve Bank of Australia will have no choice but to lift interest rates – possibly more than once. Doing so would not only slow down the economy, it would mean much of the benefit of any tax rate cuts, which will simply go into bank coffers in the form of higher interest rates.

The changes that will result from the recent change in Government will mean that SMEs will have some changes that will have to be dealt with accordingly. If you would like more information please contact our office on (02) 9438 3233.

---

Talent is what you possess; genius is what possesses you.

--Malcolm Cowley

---

Disclaimer: The information contained in this newsletter is not advice but is information of a general nature only. This is not a comprehensive coverage of any of the matters raised and we therefore recommend that before acting on any of the matters raised in this general newsletter, that you should discus the matter with us. This newsletter is provided to clients of Alexanders Accountants as a helpful guide and for their private usage only. We accept no responsibility to any other person acting on any of the information in this newsletter. We will not be responsible for any action taken by our clients who choose to act without seeking our prior consultation.