This edition contains useful articles on innovation for small business' which is critical in today’s competitive environment. We have also highlighted some changes to the online tax system for businesses.

We hope this information is informative as well as usual for your business' continues success. 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.

Key Dates for 2008

With the busiest accounting period steadily approaching, please find the attached checklist in order to help you arrange your tax matters.

BAS

• Monthly activity statements due: 21st of each month
• Quarterly activity statements due:
  28 February 2008, 28 April 2008, 28 July 2008

GST

• Quarterly GST due:
  28 February 2008, 28 April 2008, 28 July 2008
• GST annual return due: the same date as your income tax return, or before 28 February for those who are not required to lodge an income tax return.

FBT, PAYG and Superannuation

• FBT return due: 21 May 2008
• PAYG two instalment payers: 21 April 2008, 21 July 2008
• Super contributions due: 28 January 2008, 28 April 2008, 28 July 2008

INCOME TAX RETURNS

• 28th February 2008 – Due Date for newly registered companies.
• 31st March 2008 – Certain companies are requested to lodge returns on this date
• 15th May 2008 – Final lodgement for all other companies not previously requested

If you require more information on due dates for your lodgements, please do not hesitate to contact our office on (02) 9438 3233 or send us an email.

More Tax Back This Year!

Australian Taxation Office (ATO) has introduced new concessions on loans made by private companies. It will give businesses the opportunity to correct past mistakes and avoid penalties under Division 7A of the Income Tax Assessment Act 1936 (Division 7A).

Division 7A deems that any loans or payments by private companies to shareholders or their associates are treated as assessable income unless they are repaid or placed on strict commercial terms stipulated in Division 7A. This is still valid when a trust distributes accounting profits to a company (corporate beneficiary) and then loans the cash to shareholders or associates of that company.

The change signifies the Commissioner of Taxation now has the power to ignore the implications of Division 7A in situations of honest mistake or when an unintentional oversight has occurred, for transactions made after 30 June 2001.

In the past if a private company issued a loan without a loan agreement, it would be deemed an unfranked dividend to the shareholder for that year. This would mean the shareholder is required to pay income tax plus penalties on the whole amount of the loan. If the private company and shareholder did not use a registered tax agent they might not be aware of the need to comply with Division 7A, so would now be considered an unintentional oversight.

To correct the situation the private company and shareholder would need to enter into a loan agreement in which it agrees to comply with all the requirements Division 7A and the shareholder making a payment for the interest and capital payable under the above loan agreement before the end of the year. In this situation the shareholder does not need to formally apply to the ATO requesting that it exercise its discretion to disregard the deemed dividend.

The ATO advises that companies are allowed to lend money to shareholders; however such loans must be documented and accompanied by a written agreement to repay the loan within a specified period of time along with a commercial rate of interest. But failure to supply such documentation is a breach of Division 7A which enables the ATO to deem the loan to be an unfranked dividend and tax it accordingly.

To obtain further information and take advantage of the opportunity, contact our office on (02) 9438 3233 or send us an email.

Changes to Online Tax for Small Business

According to the Tax Commissioner, Michael D'Ascenzo, the use of the tax portal for businesses has been lower than anticipated. The Australian Tax Office (ATO) has improved its service offering to small business as a result of a report that stated that businesses with less than $2million annual turnover owe more than $6billion in tax debts. This alarming amount is two thirds of the total amount owing to the ATO.

One of the main reasons for the slow uptake of the business tax portal by business owners is that they often rely of their tax agents to do it for them, as the tax system is complex and small business owners generally have bigger things to worry about.

The Tax Commissioner recently revealed that the ATO was working on several measures to ensure that the level of uptake for the business portal increased such as revamping the online portal site in 2009 that will allow business or their tax agents to manage their debts online including; entering into repayment arrangements and lodging superannuation guarantee arrangements.

The current details that a business is able to view online about their account details include;

• activity statement accounts
• income tax accounts
• fringe benefit accounts
• excise information
• some superannuation accounts
• account balances including overdue amounts, and
• general interest charge (GIC) calculations.

Refunds are also able to be requested if your accounts are in credit. However these refunds will not be issued in real time as refund requests are subject to the standard checks during processing (this includes checks for debts against other Tax Office accounts and other Australian Government liabilities).

The primary reason that the ATO is pushing for business to utilise the business tax portal was in a hope of making the tax information provided to business owners easier to understand and act on. As a result of this they are hoping to reduce the amount of debt owed by small business. The ATO has already had some limited success in reducing the growth rate of debt from 6.4% in 2005-06 to 5.4% in 2006-07, and collections of superannuation guarantee charges exceeding forecast results by 5.6%.

The Federal Government also recently revealed that it has launched the first tender process for the implementation of the standard business reporting program (SBRP), a key component of which will be an easy-to-use online portal for lodging government documents.

With the implementation of the SBRP the main objective is to cut red tape by allowing businesses to lodge information at just one point rather than having to duplicate compliance efforts across the many government departments.

If you would like more information on the above services please contact our office on (02) 9438 3233 or send us an email or visit www.ato.gov.au/businesses/.

Moving into Exports

Small and medium enterprises (SMEs) now have the opportunity to increase export ability, thanks to a new range of bank offerings.

In the past, many businesses have found it difficult to obtain finance because finance was often designed for companies built around physical plant and equipment, which could be used as security. However, recently the banking market has experienced intense competition due to high growth in the number of new entrants, like HSBC and BankWest.

Ian Murray, executive director of the Australian Institute of Export, says "This is a very positive environment for SMEs" and believes the competition has resulted in changes in bank attitudes, with many being more open in terms of financing for exports.

But banks have needed to rethink their offerings for a long time, to include the new market of service-based exporters. As the market place changes, banks need to follow to accommodate or they will lose business to others who will.

NAB TradeAssist is a new product that allows SMEs to borrow against invoiced amounts due to them with letters of credit, as long as they have suitable insurance. This assist with the major problem of cashflow, as these companies are usually required to bear up-front costs to meet an overseas order.

The change will be particularly beneficial for companies with high-growth strategies in the service sector, and those with business models based on expertise or intellectual capital.

Another option for SMEs seeking to expand is the Government-owned Export Finance and Insurance Corporation (EFIC), which supported Australian exports and overseas investments worth $1.4 billion in 2006-07, more than double the previous year.

One EFIC product that has been particularly successful is the Headway facility, which operates as a guarantee to a bank. It allows an SME to borrow additional funds without extra security, and is designed to support general export funding rather than a specific export transaction or contract.

The traditional finance provider may not be the best option for your business and further investigation into individual packages offered will be beneficial in the long term.

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

Australian Businesses Fail to Innovate

According to recent statistics released by the Australian Bureau of Statistics (ABS) the size of a business directly influences the size of their business clients. In other words a small business is more likely to have other small businesses as their clients and larger businesses still favour dealing with other large businesses.

Only 13% of small to medium businesses (SMEs) reported that they derived their main source of income from their dealings with large businesses, with the majority of their income being obtained from the general public and other SMEs.

One of the key reasons for this statistics could be attributed to the fact that most small to medium businesses don’t see innovation as a priority for their business, with quality and financial matters a more important focus. Only 14% of Australian businesses said they measured their business success to a certain extent on innovation.

Innovation can include but is not limited to the following;

• Improving or replacing business processes in order to increase productivity and develop wider range of products or services.
• Developing new or improved products or services.
• Adding value to existing products and services in order to help differentiate your business from its competitors.

19% of businesses reported the implementation of a new product or service during the year end 30 June 2006. Of this number big business made up the most numbers with 43.4% being employers with more than 200 staff, as opposed to 16.5% of employers with less than four staff.

Another innovation scheme introduced by 21% of businesses in the year ended 30 June 2006 was new operational processes. Once again larger businesses with over 200 staff dominated this category with 45.9% in contrast to the 15.7% of smaller businesses.

A higher proportion of businesses introduced new services (13%) than new goods (10%).

One of the main reasons why businesses failed to innovate was due to barriers. These barriers to innovation included;

• Lack of skilled people within the labour market (17%) – particularly for small businesses.
• Lacked of skilled people within the business (14%).
• Cost of development or implementation/introduction (11%).

Small businesses faced fewer difficulties than larger businesses when trying to create a culture of innovation. Recent figures from the ABS illustrate that the greater the number of employees that a business has, the more likely it is the attitude of staff towards change was perceived as a barrier to innovation. 19% of businesses with 200 or more staff members described this as a barrier to innovation compared to 4% of business with up to 4 staff and 10% of business with 5-19 staff.

The benefits that can occur if you decide to innovate can include the following;

• Improve productivity.
• Reduce costs.
• Allow you to be more competitive.
• Help to build the value of your brand.
• Help establish new partnerships and relationships.
• Increase turnover and improve profitability.

On the other hand businesses that fail to innovate can run the risk of the following occurring;

• Losing market share to competitors.
• Falling productivity and efficiency.
• Losing key staff.
• Experiencing steadily reducing profits and margins.
• Possibility of going out of business.

In today’s competitive market businesses need to set themselves apart from their competitors, in order to continue to grow and survive. For more information on this article please contact our office on (02) 9438 3233 or send us an email.

Greater Protection for SMEs

Thanks to some recent changes to the Trade Practices Act, small and medium enterprises (SMEs) now have improved protection from large corporate bullies. The changes relates to section 46 of the Trade Practices Act, addressing companies who abuse their market power by under-cutting with the specific intention of destroying competitor’s businesses or create an impenetrable barrier for new entrants.

Other changes to section 51AC of the Act will assist in giving guidance to the courts as to what is considered to be unconscionable conduct when negotiating the supply or purchase of goods or services. If a business has entered into a contract where they believe they have been taken advantage of, this could amount to "unconscionable conduct".

These amendments give small and medium businesses greater support and clarity when it comes to prosecuting against predatory pricing and unconscionable conduct.

However, the underlying purpose of the Trade Practices Act is to promote competition for the benefit of consumers, which means businesses are encouraged to behave in a competitive manner without breaching it. But if the competition results in reduced participants within the market and therefore reduced choice, consumers are the real looses and the Act is there to protect them. This means rival business are allowed to continue to discounts its product or services, without meaning that they have engaged in predatory pricing.

Under the changes to the Act, in pursuing allegations of predatory pricing by a business rival, the following has to be determined:

• The price is less than the "relevant" cost.
• A competitor has a substantial market share.
• The predatory pricing took place over a sustained period.
• An intention to put the SME out of business or prevent it from entering a market.

Penalties for breaching section 46 are especially significant, ranging up to a fine of $10 million, three-times the benefit gained by the corporation, or 10 per cent of the corporation's annual turnover. Penalties for an individual can be up to $500,000.

By giving SMEs more tools to bring corporate bullies to line, SMEs can be sure of a more long term future.

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

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Our greatest glory is not in never falling, but in getting up every time we do.

-- Confucius (551 BC - 479 BC)

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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.