Alexanders Newsletter - June 2008 Issue
Welcome to the June edition of our online newsletter
In this Issue

Welcome to the second edition of the online newsletter for 2008. We hope that you find the articles in this addition informative and helpful as you strive to increase you business’ potential. We continue to value any feedback or opinions that you may have as they allow us to improve the quality of our services to you, our valuable clients.

Included in this edition is information about how the Rudd government’s first budget will affect small businesses and some information relating to the end of the financial year, which is fast approaching! 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.

 

Preparing yourself for the End of the Financial Year

CalendarMany of our business clients like to review their tax position at the end of the financial year and evaluate any year-end strategies that may be available to legitimately reduce their tax. Traditionally, year end tax planning for small businesses is based around two simple concepts ie., accelerating business deductions and deferring income.

However, the ground rules were changed with the introduction of the Simplified Tax System (“STS”). Since the 2002 income year, businesses that elect to enter the STS will no longer determine their taxable income in the same way as they have done in the past.

In some instances, STS taxpayers will have greater access to year end tax planning due to particular concessions that only apply to them. In other instances, non-STS taxpayers may be better-off. The following are a number of areas that may be considered.

Although company tax rates will stay the same for the 2008 income year, (the current rate is 30%) there are still timing benefits to be had by accelerating any income tax deductions to the current income year.

Deductions generally fall into one of three categories:

Prepayments

STS Taxpayers

Non-STS Taxpayers

Prepayments will generally be fully deductible in the year they are paid where they cover a period of no more than 12 months.

Any part of the prepayment relating to the period up to 30 June is deductible in full. Generally, only 20% of that part of the repayment relating to the period after 30 June will be deductible.

Checklist

In addition, both STS and non-STS taxpayers may claim the following prepayments in full:

  • expenditure under $1,000;
  • salary and wages;
  • expenditure required to be incurred under law; or
  • expenditure relating to a pre-21 September 1999 contractual obligation

Kinds of expenses that may be prepaid:

  • Rent on business premises or equipment.
  • Lease payments on business items such as cars and office equipment.
  • Interest – check with your financier to determine if it’s possible to prepay up to 12 months interest in advance.
  • Business trips.
  • Training courses – consider booking and prepaying courses that run on or after 1 July 2008.
  • Business subscriptions.
  • Cleaning.

Accelerated Claims

This is where a business taxpayer brings forward the expenditure on regular, on-going deductible items. It could also apply to the purchase of plant costing less than $1,000 (for STS taxpayers only).

STS Taxpayers

Non-STS Taxpayers

STS taxpayers will be entitled to deductions on a “cash basis” only. Therefore, if they accelerate or bring forward expenditure they must ensure that they have paid the amount by 30 June 2008.

This covers the following expenditures:

  • general deductions
  • tax-related expenses
  • repairs

Non-STS taxpayers will be entitled to deductions on an incurred basis.

Therefore, there is no requirement for the expense to be paid by 30 June 2008. As long as
the expense has genuinely been incurred, it will be deductible.

Checklist

The following may act as a checklist of possible accelerated expenditure:

  • Repairs – repairs to office premises, equipment, cars or other business items.
  • Plant (less than $1,000) – items of plant costing less than $1,000 can be written-off in full in the 2008 income year (by STS taxpayers only).
  • Software (costing less than $1,000) – Business software costing less than $1,000 can be written off immediately rather than over 21/2 years (by STS taxpayers only).
  • Consumables/spare parts.
  • Client gifts.
  • Donations.
  • Advertising.
  • Fringe benefits – any benefits to be provided, such as property benefits, could be purchased and provided prior to 30 June 2008.
  • Superannuation – contributions to a complying superannuation fund, up to $50,000. However, deductions can only be claimed to the extent contributions are actually made, they can not be accrued.

Accruals

STS Taxpayers

Non-STS Taxpayers

STS taxpayers will generally only be entitled to deductions for expenses they have paid, which means they cannot accrue expenses as at 30 June 2008.

The accrual items in the checklist below will not, therefore, be deductible to STS taxpayers.

Non-STS taxpayers are still entitled to a deduction for expenses incurred as at 30 June 2008, even if they have not yet been paid.

Checklist

The following expenses may be accrued:

    • Salary or wages and bonuses – the accrued expense for the days that employees have worked but have not been paid as at 30 June 2008.
    • Interest – any accrued interest outstanding on a business loan that has not been paid as at 30 June 2008.
    • Commercial bills – the discount applicable to the period up to 30 June, where the term of the bill extends past 30 June 2008.
    • Commissions – where employees or other external parties are owed commission payments.
    • Fringe benefits tax – if an FBT instalment is due for the June 2008 quarter for example, it can be accrued and claimed as a tax deduction in the 2008 income year.
    • Directors’ fees – where a company is definitively committed to the payment of a director’s fee as at 30 June 2008, it can be claimed as a tax deduction.

If you require more information about the end of 2008 financial year, please do not hesitate to contact our office on (02) 9438 3233 or send us an email.

 

Budget News for Small & Medium Enterprises in 2008-09

Budget newsWith the introduction of the Rudd Government’s first budget in May, there have been many initiatives introduced that are relevant to small and medium businesses and their owners. The first of these initiatives, Clean Business Australia, will grant a total of $240 million to assist businesses and industries with energy and water efficient projects. The second of these schemes will provide $42 million over four years to establish Business Enterprise Centres that will assist and guide small businesses. In combination, both initiatives will allow small and medium enterprises to grow and move forward into the twenty-first Century.

The first Rudd Government project, Clean Business Australia, will comprise three smaller initiatives designed to combat climate change and improve the environmental efficiency of SMEs:

  • Climate Ready- will provide grants from $50,000 to $5 million to support research and development on a matching fund basis. These grants will be delivered to initiatives focused on solutions to climate change challenges.
  • Re-tooling for Climate Change- will deliver $25 million over 4 years to Australian manufacturers in order to improve production processes and reduce energy use and carbon emissions. SMEs will be able to apply for grants between of $10 000 and $500 000 to invest in projects such as water recycling and energy efficient manufacturing tools.
  • Green Building Fund- is designed to assist Australian businesses in implementing cost-saving and energy efficient measures through the improvement and refitting of already existing buildings. This Fund will grant $90 million over four years.

The second initiative promises to inject $42 million into thirty-six low cost business advisory centres designed to assist SMEs. The goals of this project are to maximize the growth potential, prosperity and sustainability of small business in Australia through the improvement of business skills of operators and independent contractors.

As climate change becomes increasingly more evident, the Australian Government will be introducing initiatives to allow SMEs to make affordable changes to operations and infrastructure. These grants, along with the proposed Business Enterprise Centres, should increase the efficiency and productivity of SMEs in Australia, thereby propelling them into the twenty-first Century.

To obtain further information about how new budget impacts your business, contact our office on (02) 9438 3233 or send us an email.


I can't give you a sure-fire formula for success, but I can give you a formula for failure: try to please everybody all the time.

-- Herbert Bayard Swope (1882 - 1958)

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.