Determining if a business is a small business entity

1. An individual, partnership, company or trust is a small business if it:
   • Operates a business for all or part of the income year; and
   • Has less than $2 million aggregated turnover.
2. The aggregated turnover includes the annual business turnover, excluding passive income, of:
   • The taxpayer;
   • The taxpayer’s connected entities; and
   • The taxpayer’s affiliates.
3. An entity is connected with the taxpayer if either:
   • The taxpayer controls or is controlled by that entity; or
   • Both the taxpayer and that entity are controlled by the same third party.
4. An affiliate is an entity who acts or could reasonably be expected to act in accordance with the taxpayer’s directions or in concert with the taxpayer in relation to their business affairs.
5. The $2 million aggregated turnover test is met if:
   • The taxpayers's aggregated turnover was less than $2 million in the previous income year; or
   • The taxpayers's aggregated turnover in one of the two previous income years was less than $2 million, and their current year aggregated turnover is likely to be less than $2 million as reasonably estimated at the first day of the current income year; or
   • The taxpayers's actual aggregated turnover was less than $2 million as worked out at the end of the current income year.
6. For more information, click here.

Licence requirements for market stalls

1. Whether a taxpayer sets up a market stall to sell their second-hand goods or cupcakes at the local farmer’s market or annual fair, certain types of registrations, licences, permits or insurance may be required.
2. To assist taxpayers, the business.gov.au website has compiled information on common licences that market stall owners may need to apply for.
3. Although the applications required may be overwhelming, they are important in helping to protect the taxpayer and their investments in their market stall business.
4. Common applications and regulations taxpayers may need to consider include:
   • Footpath usage/obstruction permit from the local council;
     
   • Insurance for public and product liability;
     
   • Products meet the product safety and standards requirements and trade measurement laws; and
     
   • Temporary food licences.
     
5. Regulation and license obligations vary in each state, territory and local council, so taxpayers need to check their obligations for each government level.
6. For more information, click here.

Contractors, independent contractors and subcontractors

As an employer, it is important to determine whether the worker you hired is considered an employee or contractor.

Employees and contractors have different entitlements with regards to receiving various paid leave and superannuation guarantee.

Contractors fall into 3 main categories with subtle differences.

A contractor describes a person, business or organisation that contracts with another entity for work at an agreed price.

Independent contractors run their own business and are hired to do tasks based on their contract. They generally use their own processes, tools and methods to complete tasks.

A subcontractor is an independent contractor that has been hired by another independent contractor to help complete their contracted work.

A worker may be a contractor, however in certain circumstances, Government agencies such as the Fair Work Ombudsman and the Tax Office may classify them as an employee.

For more information, click here.

ASIC - renew or lose business name

ASIC has cancelled more than 95,000 business names in the first half of 2015 after business name holders failed to pay their renewal notice.

ASIC urges business owners to maintain business name records and ensure renewal fees are paid when due to avoid the business name being cancelled.
Business names can be renewed with ASIC online for either a period of 1 or 3 years.

If business owners are unsure of their renewal date, they can search for their business name on ASIC Connect Search or log into their ASIC Connect account.

Business name guidance is available on topics such as renewal fees, renewal period options, how business name holders will be notified about their next renewal and outlines what happens after the renewal process has been completed.

For more information, click here.

Are the costs of travelling between work and home tax deductible?

1. The cost of travelling between work and home is usually private in nature and not deductible even if:
   • Minor work-related tasks are done on the way to work;
     
   • Travelling between work and home is required more than once a day;
     
   • The taxpayer is on call;
     
   • Access to public transport is limited;
     
   • The taxpayer works outside normal business hours; or
     
   • The taxpayer does some work at home.
     
2. However, deductions may be available for the travelling costs in some situations such as:
   • Between two separate workplaces;
     
   • From the taxpayer’s normal workplace to an alternative workplace, such as a client’s premises, and back to their normal workplace or directly home;
     
   • From the taxpayer’s home to an alternative workplace for work purposes, then to their normal workplace or directly home; and
     
   • From home to work if the taxpayer needs to carry bulky tools and equipment used for work and cannot leave them at their workplace.
     
3. Travelling between work and home may be deductible if the taxpayer carries out itinerant work. The following factors may indicate that the taxpayer does itinerant work:
   • Travel is a fundamental part of work, not just because it is convenient to the taxpayer or their employer;
     
   • The taxpayer travels to a 'web' of workplaces throughout the day;
     
   • The taxpayer’s home is a base of operations; and
     
   • The work site location is often uncertain;
     
4. For more information, click here.

Streamlined GST reporting option for quarterly lodgers

1. Taxpayers who pay GST quarterly are now given three options:
   • Option 1: Calculate and report GST quarterly;
     
   • Option 2: Calculate GST quarterly and report annually; or
     
   • Option 3: Pay GST instalment quarterly and report annually.
     
2. Option 2 was introduced to streamline the GST reporting obligations for taxpayers.
3. Taxpayers electing option 2 are required to report the following amounts on their quarterly Business Activity Statements (BAS):
   • Total sales at label G1;
     
   • GST on sales at label 1A;
     
   • GST on purchases at label 1B; and
     
   • Wine Equalisation Tax and Luxury Car Tax at labels 1C, 1D, 1E or 1F if applicable.
     
4. Taxpayers are then required to lodge an ‘Annual GST information report’, which will be mailed to them, to report the annual amounts for the following items:
   • Export sales at label G2;
     
   • Other GST-free sales at label G3;
     
   • Capital purchases at label G10; and
     
   • Non-capital purchases G11.
     
5. Taxpayers need to lodge the annual report by the due date of their tax returns or 28 February of the following financial year if they are not required to lodge an income tax return.
6. For more information, click here.

$20,000 instant asset write-off for small businesses has become law

1. New and second hand assets acquired between 7.30pm on May 12, 2015 and June 30, 2017 can now be immediately written off by small business entities.
2. Assets costing $20,000 or more will continue to be deducted over time using a small business pool.
3. The low pool value threshold will also increase to $20,000 to allow for an immediate deduction if the pool balance is less than $20,000 at the end of an income year.
4. The 'lock-out' rule has been suspended until the end of June 30, 2017. This means small business entities that have previously elected out of the simplified depreciation regime can now re-enter the scheme without having to wait for the 5-year lock-out period to lapse.
5. A small number of assets may not be eligible for the accelerated depreciation, including:
• Horticultural plants;
• Capital works;
• Assets allocated to a low-value pool or software development pool;
• Primary production assets that have been elected to be depreciated under the normal depreciation rules rather than the simplified depreciation rules; and
• Assets leased to another party on a depreciating asset lease.
6. For more information on the new law, click here.

Tips for service-based businesses

1. A service business serves its customers by selling their time, skills and knowledge to achieve a result. Examples include accountants, lawyers and financial advisers.
2. Business owners can attract more customers to the business by:
   • Knowing the services they provide well, so they can attend to all customer queries;
     
   • Having success stories, testimonials and examples ready to share with the potential customers; and
     
   • Knowing their point of difference or unique selling point that sets them apart from their competitors and using this knowledge advantageously when marketing the business.
     
3. To have an effective pricing strategy, it is important that a business:
   • Research its competitors and similar businesses;
     
   • Review all business costs; and
     
   • Consider how its own pricing may influence who its potential customers are.
     
4. For more information, click here.

Claiming home office expenses

The type of home office expenses taxpayers are eligible to claim as a tax deduction will depend on the primary use of the home office.

Where the home office is the sole location for conducting a business, taxpayers can claim occupancy costs, such as rates, mortgage interest, rent and insurance together with running costs, apportioned depending on business use.

Where a home office is used for work-related purposes and the taxpayer has a main office elsewhere but chooses to work from home, taxpayers can only claim running costs.

When claiming running costs, taxpayers can choose to claim on the basis of apportioning actual expenditure or use the Tax Office fixed rate of 45 cents per hour.

The Tax Office rate covers costs including decline in value of computers and other assets, electricity, internet and phone rental costs.

Taxpayers need to keep a diary over a 4 week period demonstrating the average time spent using the home office for business purposes.

The 45 cents rate for home office expenses applies from July 1, 2014, which is up from 34 cents.

For more information, click here.

Discussion open to employers regarding the new payroll reporting procedure

Single Touch Payroll is a new reporting system where employers are required to electronically report payroll and superannuation information to the Tax Office when employees are paid, using Standard Business Reporting-enabled software.

Single Touch Payroll will be available from July 2016 to streamline the employers’ reporting obligations by:

• Providing a digital channel to simplify the process of completing tax file number declarations and Super Choice forms;
• Notifying superannuation funds and government agencies, such as Centrelink, when an employee ceases employment; and
• Eliminating the need to report employees’ PAYG withholding through activity statements and payment summaries.

Employers may be required to use or acquire appropriate payroll software in order to comply with Single Touch Payroll.

The Tax Office is asking employers and other stakeholders to provide comment on:

• Transition arrangements;
• Suggestions on how to minimise implementation and compliance costs; and
• The potential for employers to remit employee PAYG withholding and the superannuation guarantee at the same time employees are paid.

For more information, click here.

Deducting amounts from employees' pay

Taking money out of an employee’s pay is called a deduction.

An employer is allowed to deduct money from an employee’s pay only if:

• The employee agrees in writing and it is principally for their benefit;
• The deduction is allowed by law, a court order or the Fair Work Commission; or
• The deduction is allowed under the employee’s award or registered agreement

Money cannot be deducted from an employee’s pay if:

• The deduction benefits the employer directly or indirectly and is unreasonable in the circumstances; or
• The employee is under 18 years of age and their parent or guardian has not agreed in writing.

Employers cannot take money out of an employee’s pay to fix up an overpayment made as a result of a payroll error, unless the deduction is allowed under a registered agreement, award, legislation or court order.

Instead, the employer and employee should discuss and agree on a repayment arrangement.

If the employee agrees to repay the money, a written agreement must be made and specify:

• The reason for the overpayment;
• The amount of money overpaid;
• How repayments will be made by the employee; and
• The frequency of repayments.

If the repayment cannot be agreed on, an employer may need to seek legal advice.

For more information, click here.

Australian small business and family enterprise ombudsman

The Government has committed itself to transform the Australian Small Business Commissioner into the Australian Small Business and Family Enterprise Ombudsman.

This proposed change has been released to the public for consultation.

The Ombudsman functions and powers will include:
• Commonwealth-wide advocate for small business and family enterprises;
• Concierge for dispute resolutions; and
• Contributor to the development of small business friendly Commonwealth laws and regulations

Interested parties can submit their comments on the exposure draft legislation by no later than Tuesday, 7 April 2015.

Submissions can be made either by post or electronically.

For more information, click here.

Deductible Home Office Expenses

Claiming running expenses and occupancy expenses depends on whether or not a taxpayer’s home is their place of business and if they have an area set aside exclusively for business activities.

If the taxpayer’s home is their main place of business and an area has been exclusively set aside for business activities, they may be able to claim both running and occupancy expenses.

Where a room of a home is used for business activities but the taxpayer has another permanent assigned office available elsewhere, the taxpayer may only be able to claim running expenses.

It is important to keep a diary or similar record keeping document to record any running and/or occupancy expenses being claimed for about a four week period each income year for substantiation.

Alternatively, the taxpayer may choose to claim certain expenses using the fixed rate provided by the Tax Office for that particular income year.

The Tax Office has provided a table to determine the type of home office expenses that may be claimed based on how the business is operated from home. Click here for the table.

To assist in determining your entitlement to occupancy expenses and estimated deductions, the Tax Office has made available a calculator. Click here to access the calculator.

For more information, click here.

GST treatment of selling a business as a going concern

Generally, the sale of a business is a taxable supply and subject to GST.
However, if the sale is a supply of a going concern, it is treated as a GST free supply.

As a result, the seller does not have to charge 10% GST on top of the selling price.

The sale of a business as a going concern is GST free if all of the following apply:

• The sale includes all things necessary for the business to continue operating, such as inventory and equipment; 
• The business is carried on up until the day of sale;
• The sale is for a consideration;
• The purchaser is registered, or required to be registered for GST; 
• Before the sale, the seller and the purchaser have agreed in writing that the supply is of a going concern

Stamp duty can be minimised on the sale of a business as a going concern because it is calculated based on the gross selling price, inclusive of GST.
For more information, click here.

Common BAS errors

1. Businesses that are registered or required to be registered for Goods and Services Tax [GST] and PAYG Withholding need to prepare a BAS.
2. Activity statements are personalised to each business and any options which they may have chosen at the time of registration. Items which taxpayers may need to disclose include:
   
   • GST;
   • PAYG Instalments;
   • PAYG Withholding;
   • Wine equalisation tax;
   • Fringe benefits tax; and
   • Luxury car tax.
   
3. The Tax Office has published a list of common errors made by businesses when submitting their BAS and provided explanations on how to rectify these errors.
4. Some of the common mistakes frequently made include:
   

   Problem	Solution
   Including wages and superannuation contributions as purchases at label G11.	Wages should be reported at W1. Superannuation contributions do not need to be disclosed.
   Including dollars and cents.	Only whole dollars need to be shown on the BAS. Avoid cents, decimals, commas, symbols or words.
   Not including the sale of a business.	The sale price of a business, including any GST, must be reported at G1. When it is a GST-free sale of a going concern, the amounts still need to be disclosed at G1 and at G3. If it is taxable, include GST at 1A.
   Not reporting amounts withheld from payments when an ABN has not been quoted.	If an ABN has not been quoted, you must report amounts withheld from payments at label W4.
   Lodging activity statements after your FBT return.	If you pay FBT by instalments, all BASs must be lodged inclusive of the BAS for the FBT year ending March 31 before your FBT return is lodged. Allows undelayed processing of your FBT account.

   
   Click here to access the full list of common BAS errors.

GST treatment for hire purchase and lease arrangements

Under a hire purchase arrangement, an asset is:

• Purchased through instalment payments;
• Used while the instalments are being paid; and
• Not owned by the purchaser until the final instalment has been paid

Under a lease arrangement:

• The owner of the asset is the person who grants the lease (lessor); and
• The lessee uses the asset for a specified time and, in return, makes a series of payments that can be fixed or variable.

For a hire purchase agreement entered into after July 1, 2012, GST credits may be claimed on the purchase price of the asset immediately at the time of purchase.

For an agreement entered into before July 1, 2012, the accounting method used will determine whether GST credits can be claimed upfront or over the life of the hire purchase.

In addition, GST credits on any fees and charges incurred under the hire purchase may also be claimed, depending on when the agreement was entered into.

Under a lease arrangement, GST credits can only be claimed as each lease payment becomes due or paid, depending on the accounting method used.

If the lessee chooses to take ownership of the asset at the end of the lease, GST credits can be claimed for any GST paid in the price of the purchase.

For more information, click here.

Tax Office benchmarks for small businesses

The small business benchmarks were introduced by the Tax Office to assess the performance of small businesses and to identify businesses that may be avoiding their tax obligations.

The benchmarks are financial ratios developed from information provided by businesses on activity statements and tax returns.

The benchmarks are updated annually using the latest available data across more than 100 industries. The current benchmarks are based on data from the 2012-13 financial year.
Small businesses that are found to be falling outside the benchmarks in their respective industries may attract an audit by the Tax Office.

However, business owners can similarly use the benchmarks published to assess their performance and understand the differences, if any.

For more information on how the Tax Office uses these small business benchmarks to check compliance, click here.

To access the small business benchmarks, click here.

Taxpayers leaving Australia

Taxpayers who intend to leave Australia other than for recreational purposes may need to consider whether their tax residency will change.
A taxpayers tax residency status may change whether the move is a once off overseas job assignment, a permanent departure or for regular contractual obligations.

Taxpayers that remain as an Australian tax resident will continue to lodge their income tax return as per normal declaring Australian and foreign sourced income.

Taxpayers who leave during the income year may be required to lodge an income tax return up to the date of departure if they will no longer be a tax resident from that point onwards.

Other than lodgment requirements, taxpayers may need to also consider:

• Treatment of their main residence;
• Treatment of their other capital gains tax assets;
• Continuance of their private health insurance cover;
• Balance on their higher education loans; and
• Their superannuation benefits.

For more information, click here.

Building and construction industry - Taxable payments annual report

The purpose of the Taxable payment annual report is to improve the tax compliance for contractors within the building and construction industry.

Data reported will assist the Tax Office to detect contractors who have not lodged their tax return or those who have not included all their assessable income in their tax return.
For the 2014/15 financial year, the Taxable payments annual report is due for lodgment by August 28, 2015, with penalties applicable for late lodgment.

Payments made to contractors will need to be reported on a cash basis if it relates to activities such as construction, demolition, design, destruction, dismantling and removal.
Generally, this includes both labour and materials, whether itemised or combined unless the labour component is only incidental.

The Taxable payments annual report can be lodged by one of the following methods:

• Online using the Business, Tax Agent or BAS Agent Portals or Standard Business Reporting; or
• Completing a paper form.

For more information, click here.

Should your business adopt cloud accounting?

Cloud accounting refers to online accounting systems where data is stored and updated online, and can be accessed using different devices from multiple locations.

Benefits of using cloud accounting include:

• Access to live data, which reflects the most up-to-date information about the business;
• Downloading bank account transactions directly from the bank to eliminate the majority of manual data entry mistakes;
• Easy access, which only requires log-in details and may eliminate the need to install accounting software;
• Auto-update for changes in accounting and tax laws is available with some systems, which eliminates the need to manually upgrade the business system as a new software version is released; and
• Flexibility – users can access to and work on the online data almost anytime and anywhere, provided that they have internet connection.

Factors to be considered before moving to a cloud environment include:

• Which business processes or systems should be moved to the cloud;
• How business processes can be streamlined and simplified before a shift is made;
• Whether the cloud system enables a business to meet its reporting obligations;
• Which cloud accounting providers provide the most suitable package and how much it will cost; and
• Whether the cloud system can cope with the business changing conditions