Why changing your business structure just got easier
New rules that apply from 1 July 2016 mean that small businesses can restructure their business operations without triggering adverse tax implications.
Before the introduction of the new restructuring rules, if a business restructured from say a partnership to a trust, there was a possibility that the change in structure could trigger capital gains tax (CGT). That is, the tax law would treat the restructure the same way as a sale and the owners could be liable for CGT on their share of any gain based on the current market value of the assets being moved into the new structure.
While the existing CGT provisions already contain a number of roll-overs that can be utilised for business restructures, they generally only provide relief when assets are transferred to a company. Other concessions can potentially apply in a broad range of situations, but will not necessarily provide complete tax relief. This new form of roll-over relief can provide complete income tax relief when assets are transferred to a sole trader, partnership or trust if certain conditions can be met.
The conditions for accessing these new rules are fairly strict. Broadly, the key conditions are:
- The transaction is a genuine restructure of an ongoing business. So, the concessions can’t be used for winding down or selling a business.
- Each of the parties to the transaction is a small business entity (revenue under $2m) or is related to a small business entity in the year the transaction occurs. The turnover test is subject to some grouping rules.
- The business owners (the people who have ultimate economic ownership of the assets) and their share in those assets doesn’t materially change.
- The asset being transferred is currently being used in a business carried on by the current owner or certain related parties.
- Both the original entity and the entity the business is being transferred into need to be Australian residents.
- The parties involved in the transaction must choose jointly to apply the roll-over.
- None of the entities involved in the transaction are a superannuation fund or exempt entity.
For many small business owners, the business structure they start with is not always the best structure over time. There are a lot of reasons why a business owner might need to restructure:
- Risk & asset protection – separating assets from business activities will generally help protect the assets. Companies and trust structures offer greater protection then operating as a sole trader or partnership of individuals.
- Tax – Your business structure determines the tax rate you pay and how it is paid. In addition, some structures offer greater tax concessions throughout the life of the business (eg, for research and development activities) or on the sale of assets.
- Compliance – some structures are more expensive to maintain and administer than others and provide less flexibility for succession, sale, and the introduction of investors.
If you are looking at changing your business structure, there are a few overarching principles you should think about:
- Keep it simple – Your structure should be as simple as possible and each entity should have a clear reason to exist. The more complex your structure the more expensive it becomes and the more likely that the Tax Office will start querying whether the entity exists for commercial or tax reasons. If reducing tax is the primary reason for structuring something in a particular way then the tax office can seek to remove the tax benefits the structure might provide.
- Think of the future – Your structure should facilitate future growth and should allow for flexibility.
- Start with the end in mind – You should be aware of your exit strategies from the business. Your structure can make a difference to how you are taxed and what concessions you can access when you eventually exit.
- The commercial considerations – different structures have different implications for how you run and manage your business. You need to be clear about the commercial reasons for adopting one structure over another.
- Separate business activities from valuable assets – Where possible, ensure that valuable passive, business, or private assets are not subject to the risks associated with your business activities.
- Protect retained profits – In some groups the use of a dormant holding company can help protect retained profits that have been generated by trading entities. The holding company can then operate as the banker for the group of entities, lending funds to operating entities as required (security could be taken over assets of the operating entity).
- Separate risk between individuals – Within a family group, consider providing some additional asset protection by ensuring that only one spouse is a director of an operating company.
- Corporate trustees for a trust – The use of a corporate trustee is generally prudent to protect from the risk of being personally liable for the debts of the trust.
If you’re concerned about your current structure being a little ‘too old for tomorrow’ or haven’t reviewed your group structure in a while, let us have a look under the hood.
Reach out to make a time for us to have a chat about your structure. Let’s get you financially organised.
Managing Receipts: 4 Apps to Make Filing Receipts Quick and Easy
They say only two things are certain in life: death and taxes. For a lot of people, there’s also a third certainty in life: the pain of keeping track of every receipt when it’s time to do the taxes.
How many times has your bookkeeper or finance manager asked you for a receipt (that you swore you stuffed somewhere in the wad of receipts in your wallet) that you’ve then had to scramble and search everywhere to find?
You think to yourself: “I’ve got better things to do than this,” and you’re right. It’s a waste of your precious time that you could otherwise be investing in the growth of your business or maybe even going on a shopping spree and filling your wallet with a fresh wad of receipts!
Thankfully there are now some pretty cool apps out there that can take the pain out of tracking your receipts. Read on to see a list of the top four apps below.
Traditional bookkeeping is dead. Live bank feeds killed it.
Keeping on top of the books is hard. But what’s even harder is making good business decisions without real-time and accurate financials. If you want real-time financials, you need a real-time (cloud-based) accounting package like Xero, Quickbooks Online or MYOB Online.
The hallmark of cloud accounting is the live ‘bank feed’ functionality, where your bank transactions are automatically imported daily, which eliminates the majority of the tedious data entry associated with traditional bookkeeping.
This not only saves time and labour cost, it also allows you to have accurate numbers on your business – especially when you get into the habit of matching your bank transactions to your bills and invoices on a regular basis and asking your accountant for support when you need it.
Automatic vs Automagic
We need to be realistic about the efficiency gains of using the cloud. Although your bank transactions are automatically imported into Xero, for example, your financial data can still be inaccurate because of two reasons:
1. Not matched: Errors in matching your bank transactions correctly to bills, invoices etc. The other thing to make sure of is the applicability of tax. Making a systematic error with your account and/or tax coding can quickly throw your financials out of whack. Not sure if money you’ve invested should be revenue or a loan? What about tax, is that an expense or a liability? Learning the basics goes a long way. Take the time to watch self-help videos online or ask your accountant for help if you’re unsure.
2. Not documented: Not having the supporting documentation for your expenses – by law you are required to keep proper written evidence for business expenses that are deducted from your taxable profit. This will save you from getting pushed around by the tax man if you’re ever randomly selected for an audit.
Ideally, you want your scanned receipts to ‘live’ in your accounting software so all your information is in one place. But isn’t it incredibly time-consuming to scan each individual receipt and then attach it to the respective transaction?
Receipt-keeping add-on apps such as Receipt Bank or Shoeboxed can help by ‘automagically’ pushing your receipts from their software into Xero.
Bookkeeping on cruise control
If you’ve ever been on a long road trip, you know how helpful it is to switch on cruise control so you can worry less about maintaining the right speed and focus more on steering. Using a receipt-keeping app is the cruise control of your accounting toolbox!
The core benefit of using a receipt-keeping app (there will be slight differences in your workflow depending on which add-on you choose) is that you’re able to ditch the scanner and forget about manually dragging and dropping your receipts in your accounting software.
The top two reasons for using a receipt-keeping add-on are:
1. Your receipts are read by an intelligent machine (and often double-checked by a human) and the information is recognised via optical character recognition (OCR). This means you have to enter a lot less of the data in your receipts (i.e. date, amount, tax etc.)
2. The receipt-keeping add-on is able to learn ‘rules of thumb’ for allocating your expenses to their corresponding expenses categories. For example, you can teach the app to allocate every digital receipt for Google to your computer expenses account category.
Here a four popular apps for you to consider integrating with your accounting software:
- Shoeboxed: Their name is inspired by the good ‘ol days when you would cram your mountain of receipts in a shoe box and hand it over to your accountant to worry about (and probably delegate the data entry to the junior). Instead, you send your receipts via Shoeboxed’s ‘magic envelope’ and they process and verify all your receipts and get them ready for you to push to your accounting software. You also have the added option of using the smartphone app to take a snap of your paper receipts or email your receipts to your Shoeboxed digital inbox.
- Receipt Bank: This is a user-friendly alternative that has the same functionality as Shoeboxed (except there is an extra charge if you decide to use the postal option). Another handy option is using the Dropbox integration that automatically synchronises with Receipt Bank which means you retain ownership of your data if you ever decide to stop using the service.
- Entryless: A ‘no-frills’ low cost alternative to Receipt Bank and Shoeboxed that allows you to email your receipts to your digital receipts inbox.
- Expensify: This app will help you keep track of your receipts, but it’s geared towards viewing and approving your employees’ submitted expense claims. Expensify also allows you to track billable time.
If you’re falling asleep behind the bookkeeping wheel because of boring manual data entry, it’s time we had a chat about how paperless receipt-keeping solution can shift you into cruise control.
Get in touch to make a time for us to have a chat about your receipt handling systems. If we do it over a coffee, it’ll be our shout. (And we’ll scan the receipt!)