By David Rose
Welcome to the September 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 issue we will:
- Discuss the recent changes to the R&D tax incentive and what they could mean for you;
- Deliver a refresher on debt covenants;
- Stress the importance of holistic customer onboarding;
- Remind businesses of the upcoming closing date for export grant applications;
- Explain the need for directors to ensure items in balance sheets are correctly treated in light of a recent Federal Court decision;
- Explore how public relations can help boost your business profile; and
- Revisit the rules relating to home office running and occupancy expense claims.
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.
Research and Development Tax Incentive – Impact of Recent Changes
Under the current law, companies with a group turnover of less than $20 million may be entitled to a refundable tax offset equal to 45% of their Research and Development (R&D) expenditure and groups with a turnover greater than $20 million, a 40% non-refundable tax offset. However legislation has been introduced to Parliament that would see an across the board 1.5% cut to the R&D offset, down to 43.5% (from 45%) refundable tax offset and 38.5% (from 40%) non-refundable tax offset. The legislation was originally introduced to align the R&D Tax Incentive with the small business company tax rate cut (at that stage proposed, now legislated) of 1.5% from 30% to 28.5%.
Companies with R & D expenditure should be aware that the legislation proposes to introduce the R&D tax incentive rate cut effective from 1 July 2014 whereas the corporate tax rate cut for small business entities is effective 1 July 2015. Whilst the average taxpayer could ordinarily deal with that one year gap, the legislation introducing the reduced R&D offset has still not been passed or even heavily debated by the Parliament.
We are now into September 2015 and numerous R&D Tax Incentive claims have been lodged for the year ended 30 June 2015, however companies are left wondering if they should have claimed the currently legislated rates (45%/40%) or the proposed rates effective from the start of the 2015 year (43.5%/38.5%). If the legislation is passed, eligible companies that have claimed the higher rates will need to go back and amend/repay the difference in rates and vice versa for the companies that have claimed the lower rates where the legislation does not become law.
One spot of clarity in this darkness is that the Australian Taxation Office (ATO) has provided some guidance as to the administration treatment of R&D Tax Incentive claims. The ATO have advised that if you need to amend any R&D Tax Incentive claims due to the legislation becoming law, you can without any negative impact with regards to interest or penalties.
This leaves taxpayer’s with the following choice:
- Claim the R&D at the currently legislated rates (45%/40%) and if the Bill passes, amend and payback the variance; or
- Claim the proposed lower R&D rates (43.5%/38.5%) and if the Bill does not pass, amend and claim the additional 1.5% R&D tax offset.
As no penalties or interest will apply , our recommendation is to take option one above. This does, however, require the taxpayer to budget for the chance that if the rates are reduced there will be a requirement to pay back the 1.5%.
If you would like us to review your R&D position, please contact your Vincents tax advisor.
Public Relations – How to Use the Media to Help Your Business Thrive
When small business owners craft a strategic plan, they will often incorporate advertising yet overlook one of the most cost-effective marketing methods for SME’s – public relations opportunities. Targeted, thoughtful and engaging public relations activity can have a significant impact on the bottom line of a business and lead to meaningful connections and opportunities going forward.
If you are new to navigating public relations, the following are five hints to help you get started:
- Differentiate Yourself
Competition for media coverage is fierce. News breaks every day, all day – and this can often mean that long-planned feature stories will be bumped to make room for “in the moment” pieces. In order to spark the interest of the media, you need to differentiate yourself by delivering a compelling story and aligning your topic with current news trends.
- Partner with the Community
Finding a partner in your local area – for example a local school or charity – can often work to your advantage by showing your company’s commitment to the community (perfect for media coverage) and extend your brand’s reach through access to new prospects.
- Explore Expert Editorial Opportunities
You won’t always have on hand a media release that will be deemed newsworthy – but that doesn’t mean that you can’t play an ongoing role in media publications.Leverage off your particular area of expertise by seeking out opportunities to be a guest columnist.Editorials are free and are a great way to get your name out there, to take advantage of the media’s distribution lists and ultimately to increase traffic to your own company websites.
- Create a Private Twitter List to Monitor Media
Twitter is a perfect arena for you to follow the interests of reporters and media outlets closely.A clever tweak of your content to align with current trends and desires could give you the targeted edge that gets your company’s stories across the line.
- Use LinkedIn to Establish Contact
You can effectively pitch to the media using LinkedIn InMail.Contacting journalists via LinkedIn ensures you only contact the true decision makers/writers in an outlet and can also investigate the sort of content they usually cover and tailor your pitch email to suit.
Duties of Directors
A decision was made recently by the Federal Court in the CENTRO Properties case that all directors should be aware of.The court held that the directors were responsible for ensuring that there had been correct treatment of items within the balance sheet.The case arose over a challenge as to the treatment of some liabilities, which the court has decided should have been treated as “current liabilities” (i.e. could be repayable in the next 12 months), rather than long-term liabilities (i.e. liabilities that, in the normal course of business, don’t have to be repaid until 12 months’ time).
The court found that the “directors failed to take all reasonable steps required of them and acted in the performance in their duties as directors, without exercising the degree of care and diligence the law requires of them”.
Even though this case involved a major public company, decisions made in cases such as this, relate to all companies.This judgment emphasises a very important aspect of a company director’s duties when signing off on the financial accounts.Company directors need to have satisfied themselves that the financial accounts have been correctly prepared and that a correct calculation and allocation has been made of all assets and liabilities of the company.
If you have any concern relative to the treatment of any item within your financial accounts, please don’t hesitate to contact us for a discussion.
Navigating Debt Covenants
As the ability to borrow remains difficult in the current economic environment, it is imperative that businesses regularly assess compliance with their existing covenants in order to mitigate the risks of failing to meet them and to ensure their credit ratings remain sound.
What are Debt Covenants?
A covenant is a contractual promise to meet specified financial or operational tests during a loan term with the view to provide your lender with continued peace of mind regarding your financial health.
How Do I Meet My Requirements?
It is best practice to review your covenants, at least on an annual basis – as well as preparing a summary of those documents and reports upon which you’ve agreed to supply information to your bank, lender, finance company, etc. throughout the year. Providing these in advance of being asked is always a comfort to your lender that you are on top of your business affairs and key financial indicators.
Each covenant is different, so careful review of the requirements is essential. Some examples of typical financial covenant requests are:
- Working Capital to Borrowed Funds Ratio
- Debt to Equity Ratio
- Finance Charges Cover
- Average WIP and Debt Cover
- Provision of regular financial reports, including:
- Trading and Profit and Loss Account
- Trading and Profit and Loss Account Ratio Analysis
- Balance Sheet
- Balance Sheet Ratio Analysis
- Debtors’ Aged Analysis
- Creditors’ Aged Analysis
- Summary of Investment in Work in Progress and in Stock
- Updated Cashflow Forecasts
Cultivating and sustaining a strong relationship with your lender is a strategic move and one strongly suggested for small businesses. A fostered connection can go a long way when exploring your options and negotiating – and in particular assisting you if the need arises for you to request a waiver from a covenant. It is also advantageous to reach out to your local banker – as they are likely to be more understanding towards small businesses in their area.
If you need any help ensuring you remain compliant with covenant requirements your bank or finance company has imposed over its lending facilities to your business, please contact your Vincents tax advisor.
- exporting or planning to export;
- have spent more than $15,000 on export market expenditure in the 2014/15 financial year; and
- your turnover is under $50M,
then irrespective of your business entity you could submit an Export Market Development Grant application with Austrade. Applications close 30th November 2015. Speak to your Vincents advisor if you would like assistance or advice on this or any other Grant.
Effective Customer Onboarding
Customer Onboarding is the practice of welcoming new customers to your company in a structured and efficient way. It is a crucial component in developing ongoing relationships as those who are seamlessly onboarded will often stay longer and spend more money on further services with you.
There are a number of elements that should be considered when setting up effective customer onboarding and these can differ for each business. It is also important to remember that while the customer’s needs are always front of mind, holistic onboarding should also look after your company’s best interests.
The following are a few questions to consider when setting up an effective onboarding system:
- Do you have a credit application form for a potential new customer to complete and return to you?
- Do you check the potential new customer’s credit references and make a decision on the credit limit, Terms of Business, etc., to apply to that customer?
- Do you prepare and send an engagement letter that sets out the Terms of Business to which you’ve agreed?
- Is consideration given to whether the transactions, that are likely to occur with a new customer, warrant a registration being made on the Personal Property Securities Register (PPSR)?
- In this case, have you implemented systems that enable sending a new customer the Terms of Business Agreement and the Retention of Title Agreement for the customer to sign and return to you?
- Do you obtain full details of the people in the new customer’s organisation with whom your team needs to communicate with on an ongoing basis including procurement, accounts and marketing?
- If the new customer is a private company, do you request Directors’ Guarantees and, when you receive the Directors’ Guarantees, are they filed in an appropriate safe location so that they will be available if required at some future date?
If you would like assistance with creating a customer onboarding process that works to protect your company and provides clarity to your customers, please contact your Vincents advisor.
Home Office Running and Occupancy Expenses – Do You Qualify?
The Australian Taxation Office (ATO) has recently shown some interest in the area of home office running and occupancy expense claims. With technology enabling many more people to work from home than ever before, we thought it might be beneficial to revisit how the rules relating to these types of claims work
It is important to note that the type and characteristics of your home office will determine how and what you can claim as home office expenditure. The two types of home office expenses that can be claimed are Occupancy Expenses and Running Expenses.
Occupancy expenses include rates, interest, insurance, water and running expenses
In order to be entitled to claim occupancy expenses you must first establish whether your home office is also your place of business or whether it is merely a convenient place to work. Whether your home office is a place of business must of course be assessed on a case by case basis. The following are indicators that identify if the home office is a place of business or a convenient place to work:
- Clearly identifiable as place of business, e.g. signage;
- Not readily adaptable to private purposes;
- Used almost exclusively for carrying on business;
- Regular visits from clients; and
- Has a separate entrance from household for client use.
It should be noted that where your home office is within your main residence, claiming occupancy expenses can taint capital gains tax exemptions available in the event that you sell your main residence.
If you perform some of your work from home, that is, it’s a convenient place to work, then you may be entitled to a deduction for the cost you incur in running it, this could include:
- Depreciation on home office equipment, such as computers, printers, telephones, faxes;
- Work-related phone calls;
- Heating, cooling and lighting, (it should be noted that the set rate for this claim has increased to 45 cents per hour);
- Repairs to home office equipment; and
It is important to ensure, for substantiation reasons, receipts for purchases are kept in addition to a home office diary that highlights the number of hours and days worked from home during the year.
In summary it is important to know the difference between the two distinctive home office scenarios (place of business vs. convenient place to work). To minimise the risk in coming under the ATO spotlight talk to your Vincents advisor about your individual circumstances.
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.