By David Rose
Welcome to the June edition of VIN-sight – delivering small business advice to our clients on a regular basis that moves beyond the accounting foundations we already provide and focuses on business strategies that help automate, simplify and advance systems, procedures and profits.
In this last issue for the financial year, we will:
- Provide some commentary on the upcoming election as well as sharing some predictions for the Australian economy;
- Highlight the opportunities available to SME’s for crowd-sourced funding investments;
- Explain the new capital raising for businesses allowed through the early state innovation legislation; and
- Share some timely EOFY tax planning tips.
As always, please contact your usual Vincents advisor if you would like more information on any of the issues raised in this issue of VIN-sight.
Another Election Campaign!
The lead up to the election on 2nd July 2016 will present many opportunities for business people to consider policies, announced by all of the major parties.
It’s pleasing to see that the economy is growing at least in volume terms; however the Reserve Bank’s decision to reduce the interest cash rate to 1.75% last month highlights some considerable concerns by the Reserve Bank Board Members. Residential property prices have continued to surge in the major capital cities, however a number of banks have recently made decisions to curtail lending to overseas residents for home financing. It will be interesting to see what effect this decision has on residential property prices.
The Australian currency has recently performed higher than initial expectations.
One of the last acts of the Senate was to pass legislation for the innovation companies that were announced by the Prime Minister in December 2015.
Australian Economic Predictions*
|Real GDP Growth %|
|Wage price index|
*Based on Commonwealth of Australia data.
Crowd Sourced Funding Companies
Crowd sourced funding investment will be available from the 1st July 2016 following the Senate’s approval of the Crowd Sourced Funding Bill on Wednesday 4th May 2016.
This legislation presents opportunities to small/medium enterprises wanting to raise capital. The key attribute of Crowd Sourced Funding Companies are that they will be public companies with a maximum asset value of $5M and sales of under $5M per annum. The maximum amount of capital that can be raised in a twelve month period is $5M. The maximum amount that a “Retail Investor” (i.e. not a “Sophisticated Investor”) can invest is $10,000 per company per annum.
A “Sophisticated Investor” is defined as a person with net assets (within the previous 2 years) of at least $2.5M or gross income over $250,000 (in the last 2 financial years). There is no limit to the amount of investment by a “Sophisticated Investor”.
A Crowd Sourced Funding Offer document must be prepared for each capital raising activity. Companies that wish to raise capital utilising the Crowd Sourced Funding legislation will need to prepare a range of documents including:
- Business Plan;
- Budget and Cashflow Forecast;
- Marketing Plan;
- Intellectual Property Summary;
- Statement of Share Price Calculation; and
- Appoint three directors and a company secretary.
Each company needs to appoint an intermediator which will be a business which holds an Australian Financial Services Licence to act as an intermediator. If you are interested in considering utilising Crowd Sourced Funding as a means of raising capital for your business operations, please contact your Vincents advisor for a discussion.
Early Stage Innovation Legislation
The Early Stage Innovation legislation was passed by the Australian Senate on Wednesday 4th May 2016 and allows new capital raising opportunities for many businesses.
This legislation will be welcomed by Entrepreneurs wanting to raise capital for their inventions and investors seeking special taxation treatment. Generally, an eligible company would have been formed in the last three years but it could have been formed in the last six years, subject to specific tests on the company’s expenditure.
Eligible companies will have:
- expenditure of less than $1M per annum; and
- assessable income of less than $200,000 per annum.
However, any grant funds that have been received from the Accelerating Commercialisation Grant are not included in the assessable income calculation for the company.
Eligible companies must pass a 100 point innovation test relating to one or more of:
- research and development expenditure;
- participant in Accelerating Commercialisation program;
- participant in an approved Accelerator Program;
- has the company raised in-excess of $50,000 in equity capital from arms’ length investors;
- has the company registered any patents or plant patents in the previous five years;
- has the company registered any innovation patents or registered designs in the last five years; or
- the company is generally focused on developing for commercialisation one or more new or significantly improved products, processes, services, marketing or organisational methods.
“Retail Investors” (i.e. not a Sophisticated Investor) can invest up to $50,000 per annum per company and there is no restriction on the amount that a “sophisticated investors” can invest (“Sophisticated Investor” can have annual earnings in-excess of $250,000 or net assets worth more than $2.5M).
Investors in an Early Stage Innovation Company will be entitled to a 20% investment rebate up to a maximum of $200,000 rebate per company per annum. They will also be entitled to Capital Gains Tax exemption if they hold the shares in the Early Stage Innovation Company for more than one year and less than ten years.
To be eligible as an Early Stage Innovation Company the companies will also require:
- Business Plans;
- Budgets and Cashflow Forecasts;
- Marketing Plan;
- Intellectual Property Summary;
- Commercialisation Strategy;
- Calculations of share price.
If you are interested in having a discussion with us relative to determining your eligibility as an Early Stage Innovation Company or the concept of forming a company which would be deemed to be an Early Stage Innovation Company for the purpose of capital raising for your business projects, please do not hesitate to contact Kim Reynolds, Director in our Taxation Advisory team.
30 June 2016 Year End Tax Planning
With the end of financial year fast approaching, it is important to consider your estimated tax position and if there is anything that you can do to minimise tax payable. Evaluating your financial affairs holistically – including income, deductions and investment structures – can go a long way towards ensuring you get the most out of any potential tax savings.
Below is a list of helpful pointers that may assist you in managing your 2016 income tax obligations:
- Consider if income can be deferred to a later year.
- Consider whether deductions can be brought forward to the current year.
- Consider prepaying expenses to bring forward deductions (if eligible). Individuals prepaying non-business amounts and small businesses are not subject to the prepayment rules if the period is 12 months or less.
- Review your Debtors ledger and write off any bad debts prior to 30 June 2016. You will need to prepare a minute approving the write off and amend the relevant BAS for the GST.
- Consider whether any offsets are available.
- Ensure statutory obligations in relation to employees (superannuation guarantee contributions, payroll tax, etc) have been met.
- Superannuation is deductible when actually received by the superfund (not paid to the clearing house or payroll intermediary if you use one), so arrange to pay any employer or personal super contributions prior to 30 June to obtain the relevant income tax deduction in the 2016 year.
- Consider maximising your superannuation to the contribution cap of $30,000 (or $35,000 for those 49 and over at 30 June 2015).
- Review super contributions made by you, or by your employer on your behalf, to ensure that you do not exceed your relevant contributions caps.
- If you are over 60, you should consider commencing a Transition to Retirement pension. Once aged 60, pension income received is exempt from tax. Depending on your age, working status, and previous non-concessional contributions, this may then be re-contributed back into your superannuation fund.
- Small businesses (group turnover less than $2M) are able to claim an immediate deduction for capital acquisitions of up to $20,000. Consider acquiring assets prior to 30 June 2016 so that the deduction may be available, rather than leave until the 2017 financial year.
- Primary producers can claim an immediate deduction for the cost of fencing and water facilities and depreciate over 3 years the cost of fodder storage assets.
- Review your listing of fixed assets and scrap any of those that are no longer being used.
- If selling any capital assets, note that it is the contract date, rather than settlement date, that triggers a capital gains tax event. Consider entering into a contract for sale after 30 June if a capital gain is expected to arise.
- If you have capital gains arising in the 2016 year, consider whether any assets which may result in a capital loss should also be disposed of prior to 30 June to offset any current year capital gains.
- If assets have been sold during the year, consider eligibility requirements for the general 50% CGT discount and the small business CGT concessions?
- Trustees should consider whether intended beneficiaries are eligible to receive a distribution in accordance with the terms of the trust deed.
- Consider whether the trustee can stream capital gains or franked dividends to particular beneficiaries.
- Trustees are required to determine how income will be distributed to beneficiaries by 30 June. Trust distribution minutes/resolutions will be required to evidence the decision made.
- Unpaid trust distributions made after 16 December 2009 by a trust to a company may be treated as a loan by the company to the trust. Review any UPE’s to determine whether loan agreements/minimum repayments are required.
Loans to shareholders (or their associates) (Division 7A):
- Review loan agreements/loan facility agreements to ensure they are still valid/relevant.
- For pre 4 December 1997 loans
- Check if the loan has increased or whether the terms have changed.
- Consider whether some repayment may be required.
- Loans made before 30 June 2015
- Calculate minimum repayments required to be made by 30 June 2016.
- Determine whether minimum repayments will be made via dividend or other means.
- Ensure loans are treated separately from loans made to the same borrower in earlier years.
- Where the loan is not going to be repaid by the lodgement date of the company’s 2016 income tax return – has a loan agreement been entered into?
- Loans made since 1 July 2015
- Where shareholders have used assets owned by a company, consider whether a payment should be made to the company for the use.
- Consider whether any dividends should be paid to shareholders before year end.
Self Managed Superannuation
- If you are currently drawing a pension from your Fund, ensure you have taken your 2016 minimum pensions.
- Independent market valuations MUST be obtained for any asset where there is not a readily available market (such as property) if one has not been obtained in the past two years or there has been a significant change in the value of the asset since last revalued.
- Ensure all collectable assets comply with the new regulations which take effect from 1 July 2016, or are disposed of by this date. The new regulations include ensuring collectables are not used by a related party, displayed or stored in a related parties private residence, that they are insured and that you have minuted the basis for the decision on where the collectable is stored.
- Ensure all breaches of the SIS act are rectified by 30 June 2016.
- Ensure all assets are correctly held, being owned by the trustee with a designation to the superannuation fund by 30 June 2016.
Should you wish to discuss any of the above items or require any assistance with your year end tax planning, please contact your Vincents advisor on (07) 3228 4000.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.