Q: I have great sympathy for the businesses which were battered by the floods, fires and cyclones in Australia this year. These things can happen to anyone, any time. What should I do to make my business disaster-proof?

A: Identify which data and applications are critical to your business, then ensure you have them backed up off-site. Cloud-based storage facilities are ideal as they are stored securely on the internet. Always keep your back up data off-site so if something does happen to your business, you can retrieve the information after the incident.

Develop a workplace continuity plan. After a natural disaster your employees may not be able to make it to work for days or even weeks. Consider what your employees require to do their job from another location. Access to company information, data and an e-mail system may be required. Again, cloud-based systems may be the best solution for easy access.

Prepare a disaster response strategy. Work with your team to develop an evacuation procedure, develop a plan to save any key assets and securing the worksite against any damage. This type of plan will have a huge impact on the personal safety of your staff and the survival of your business.

Q: Some of my staff are happy to be paid overtime, but others prefer time off in lieu. What are the rules around this?

A: Firstly, check the conditions of employment in the relevant award or enterprise agreement. If there is nothing in there in relation to how overtime is to be handled, you should go by the default position of the National Employment Standards. This states that all employees must be paid for their overtime. Remember it is you or your manager’s responsibility to approve all overtime before it is worked.

Generally, employees covered by the same employment instrument (an award or an enterprise agreement) should be treated the same way: either they all get paid overtime or they all get access to time in lieu. Obviously what works for one employee may not work for another. You can offer both options to your employees. Just remember you will need to keep separate records for those who are paid overtime and those who receive time in lieu. So only do this if you are prepared to do so.

Time off in lieu is calculated at the ordinary time rate. For example, an hour of overtime equals to an hour off work. However, some of the modernised awards, employees are to be given up to two hours of time off for each hour of overtime worked. To look up the detail of the award covering your employees, for to www.fwa.gov.au which is the website of Fair Work Australia, the national workplace relations tribunal.

“Trying to stop thinking in the negative or towards the risks, is like telling someone to stop thinking about a green horse. The more they try to stop thinking about a green horse the more they think about it. The best approach is not to fight thoughts, but to acknowledge them.”

 So let’s look at a few investments before tax, fees and inflation:

1. THE STOCKMARKET

Expected return of 12.01% (All Ords accumulation index compound return since 1979). Risk four out of 10.

2. BONDS

10 year return of 5.5%. Risk zero

3. PAYING OFF THE MORTGAGE

Pretax return of 7.81% (Standard variable rate) which grosses up to 10.6% pretax. Risk zero

4. LOTTO

Expected return of one million percent. Risk of 100% loss is 9.99999999999 out of 10.

5. MARRIAGE

Expected average return of one extra income, zero to four kids, two possible inheritances, a free life coach even if you don’t need one, onerous school fees and a dog. Risk = long term love, fulfillment and satisfaction.

6. DIVORCE

Expected return of minus 50%. Risks unknown.

Lawyer

If you want a loan, expect a grilling from the lender.
Here’s what every lender will want to see.

1.  Operational Strength: The Commonwealth Bank told us, “The aim is to ensure that the business is healthy and growing, or is a start-up with great prospects. Having up-to-date information is important. Customers with a financial year ending in June should be thinking about putting forward trading results to June 2010 and also management figures, if available, for the months between June and the current date.
    
2.  Cash flow: CBA says, “Your business banker will need to check that you can meet ongoing repayments and this can be an area where businesses have difficulty. A good way to help overcome this is to put together a realistic cash-flow forecast.”
    
3. Security: This is all about risk. You will enjoy a lower interest rate if you put up residential property as security.
      
4. Your Experience. Your vision. The reason for the funding – and what it will deliver.
     
5. The lender will check your past credit history. Order a copy of your credit file at Dun & Bradstreet (www.dnb.com.au) or Veda Advantage (www.vedaadvantage.com). Make sure you correct any errors on the file.
     
6. Tax returns for the business for the past two years, plus personal tax rturns for the past two years.
     
7. Be prepared to deal with tighter credit terms. Lenders may cut the loan-to-valuation ratio or impose stricter repayment terms. Work out how you would manage with a smaller loan.
     
8. Be honest. A significant number of borrowers mislead credit providers (as many as 10 percent of applicants, according to Veda Advantage’s 2010 Australian Debt Study). Lenders are alert to the problem, and if you are found out, you won’t get the finance.

The May Federal Government Budget announcement included important changes to the way salary sacrifice to super will be treated.

The first change affects super contributions maximums, or caps. In the 2009 – 2010 financial year, the concessional contributions cap (for employer contributions, including salary sacrifice) will reduce to $25, 000 per person. For those aged 50 and over, the cap will reduce to $50,000. The non-concessional contributions cap (for after tax contributions) will be calculated at six times the concessional cap, so it remains at $150,000 in 2009 – 2010.

Note that the reduced limits apply to contributions received during 2009 – 2010, even if some of those contributions relate to employment before 1 July 2009.

The second change will see some forms of salary sacrifice super contributions included as ‘non-wage remuneration’ in various income tests for individuals. These include contributions that have been made by an employer or associate of the employer, for which the individual has or might reasonably be expected to influence the size of the contribution or the way the amount is contributed.

These contributions are called Reportable Employer Superannuation Contributions, or R E S C s, and from 1 July 2009, you’ll be required to report RESCs in PAYG annual withholding reports and employees’ PAYG summaries.

Speak to Taxwise (08-9248-8124) or our resident financial adviser, Mark Christie (08-9344-6495) to make sure you’re prepared for these changes, and that any affected employees are aware of the potential taxation implications of their salary sacrifice to super.

Compulsory acquisition of an asset.
This section explains your CGT obligations if your CGT asset is lost, destroyed or compulsorily acquired.

Generally, there are no CGT obligations for assets acquired before 20 September 1985 (pre-CGT).

There may be a situation where you receive money or another CGT asset (or both) as compensation when you dispose of an asset involuntarily (or under an insurance policy against the risk of such an event happening). In this case, you may be able to choose to:

• defer your liability to pay tax on any capital gain arising on the disposal, or
• get a CGT exemption for any replacement asset if you acquired the original asset before 20 September 1985.

This concession is known as a rollover. It may be available if one of the following events happens:

• all or part of your CGT asset is lost or destroyed
• your CGT asset is compulsorily acquired by an Australian government agency
• your CGT asset is compulsorily acquired by an entity (other than by an Australian government agency or a foreign government agency) under a power of compulsory acquisition conferred by an Australian or foreign law. However, the compulsory acquisition of minority interests – such as shares in a company – under the Corporations Act or similar foreign law are excluded
• you dispose of your CGT asset to an entity (other than a foreign government agency) after a notice is served on you inviting you to negotiate a sale agreement. You must have been informed that, if the negotiations are unsuccessful, the asset will be compulsorily acquired under a power of compulsory acquisition conferred by an Australian or foreign law. However, the compulsory acquisition of minority interests – such as shares in a company – under the Corporations Act or similar foreign law are excluded
• you dispose of land to an entity (other than a foreign government agency) where a mining lease was compulsorily granted over the land, the lease significantly affected your use of the land, the lease was in force immediately before the disposal and the entity to which you disposed of the land was the lessee
• you dispose of land to an entity (other than a foreign government agency) where a mining lease would have been compulsorily granted over the land, the lease would have significantly affected your use of the land and the entity to which you disposed of the land would have been the lessee
• a lease that had been granted to you by an Australian Government agency under a Commonwealth, state or territory law expires and is not renewed.

This rollover is not available for plant disposed of after 11.45am (by legal time in the ACT) on 21 September 1999 and other depreciating assets from 1 July 2001. Instead, if a depreciating asset is lost or destroyed or, acquired compulsorily or by forced negotiation (other than by a foreign government agency), the capital allowances provisions may allow for a balancing adjustment offset.

This means that rather than including an amount in your assessable income by way of a balancing adjustment, you can offset that amount against the cost of a replacement asset (or assets).

If you choose to take rollover, you do not need to lodge a written election stating your choice – it will be clear from the way you prepare your tax return.

You cannot choose to defer a capital loss but you can use it to reduce any capital gain made in the current income year or a later income year.

For rollover relief to apply, the replacement asset you receive cannot be a car, motorcycle or similar vehicle.

Further, from 1 July 2001, for rollover relief to apply, the replacement asset you receive cannot become an item of your trading stock, nor can it be a depreciating asset.

Marriage breakdown.
Read this section if your marriage or de facto marriage ended on or after 20 September 1985 and:

• you transfer an asset or a share of an asset to your spouse
• you receive an asset or a share of an asset from your spouse, or
• a company or trustee of a trust transfers an asset to you or your spouse.

When we talk about ‘your spouse’, this includes your former spouse or former de facto spouse. ‘Transfer’ of an asset means transferring ownership of an asset to the transferee spouse and includes ‘creating’ an asset in their favour (such as a right to use property). Where we talk about ‘an asset’, this includes a share of, or an interest in, a jointly owned asset.

The term ‘transferee spouse’ refers to the spouse to whom an asset is transferred, while the ‘transferor’ is the person (or a company or the trustee of a trust) who transfers an asset to the transferee spouse.

As a general rule, CGT applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse as a result of the breakdown of your marriage or de facto marriage, there is an automatic rollover in certain cases. You cannot choose whether or not it applies.

This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you.

Deceased estates.
If you are a deceased person’s legal personal representative or a beneficiary of a deceased estate, read this section to find out about the special CGT rules that apply.

When a person dies, the assets that make up their estate can:

• pass directly to a beneficiary (or beneficiaries), or
• pass directly to their legal personal representative (for example, their executor) who may dispose of the assets or pass them to the beneficiary (or beneficiaries).
• A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when a person dies without having made a will).

A legal personal representative can be either:

• the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will), or
• an administrator appointed to wind up the estate if the person does not leave a will.

Forestry managed investment scheme interests.
This section explains your CGT obligations if:

• you are a subsequent participant in a forestry managed investment scheme (FMIS), and
• you sold or otherwise disposed of your forestry interests in an FMIS in the 2008–09 income year.

Subsequent participant.
You are a subsequent participant if you are not an initial participant. In most cases, this means that you bought your forestry interest from an initial participant.

You are an initial participant if:

• you obtained your forestry interest from the forestry manager of the scheme, and
• your payment to obtain the forestry interest is used to establish trees.
  

Real estate and main residence.
This section explains your CGT obligations for real estate. Real estate includes –

• vacant blocks of land
• business premises
• rental properties
• holiday houses, and
• hobby farms

The CGT exemption for a main residence is also explained in this section.

Apart from the main residence rules, capital gains and capital losses on real estate are worked out under the rules set out earlier.

Land is a CGT asset. In some cases, improvements made to land are treated as separate CGT assets – see Separate assets. A depreciating asset that is found in a building (for example, carpet or a hot-water system) is also taken to be a separate CGT asset from the building. When a CGT event happens to your property, you must work out a capital gain or capital loss for each CGT asset it comprises (or balancing adjustment in the case of depreciating assets sold with the property).

The most common CGT event that happens to real estate is its sale or disposal – CGT event A1. The time of the event is:

• when you enter into the contract for the disposal
• if there is no contract – when the change of ownership occurs
• if the asset is compulsorily acquired by an entity – the earliest of when
  • you received compensation from the entity
  • the entity became the asset’s owner
  • the entity entered it under a power of compulsory acquisition, or
  • the entity took possession under that power.

If land is disposed of under a contract, it is taken to have been disposed of when the contract is entered into – not the settlement date. The fact that a contract is subject to a condition, such as finance approval, will generally not affect this date.

You are not required to include any capital gain or capital loss on your tax return for the relevant income year until settlement occurs. When settlement occurs, you must include any capital gain or capital loss on your tax return for the income year in which the contract was made. If an assessment has already been made for that income year, you may need to have that assessment amended. Where an assessment is amended to include a net capital gain and a liability for shortfall interest charge (SIC) arises, remission of that interest charge will be considered on a case-by-case basis. Generally, it would be expected that the SIC would be remitted in full where requests for amendment are lodged within a reasonable time after the date of settlement – which, in most cases, is considered to be one month. If you consider that the SIC should be remitted, you should provide reasons why when you request the amendment to your assessment. More information about SIC is available on the ATO’s website.

Tomorrow’s Episode……. Compulsory acquisition of an asset, Marriage breakdown and Deceased estates.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

Does capital gains tax apply to you?
These 4 episodes provide general background information about CGT and whether, and how, it applies to you.

How to work out your capital gain or capital loss.
These 4 episodes explain how to work out each capital gain or capital loss you made during the income year.

They do not explain how to work out your net capital gain or net capital losses carried forward to later income years. If you are completing the Tax return for individuals 2009 and want more information on how to calculate your net capital gain for the income year or net capital losses carried forward to later income years (including how to deduct any unapplied net capital losses from earlier years), Contact Taxwise on 9248 8124. For more information about companies, trusts and funds or about completing the CGT summary worksheet, Contact Taxwise on 9248 8124.

Keeping records.
You must keep records of everything that affects your capital gains and capital losses. Penalties can apply if you do not keep the records for at least five years after the relevant CGT event.

Keeping adequate records of all expenditure will help you correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. It will also help to make sure you do not pay more CGT than is necessary. If you have applied a net capital loss, you should generally keep your records of the CGT event that resulted in the loss for four years from the income year when the net capital loss is fully applied.

Keeping good records can help your beneficiaries reduce the impact of CGT after you die. If you leave an asset to another person, the asset may be subject to CGT when a CGT event happens to that asset in the future – for example, if your daughter (the beneficiary) sells the shares (the asset) you have left her in your will.

Tomorrow’s Episode……. Trust distributions and Investments in shares and units.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

If you realise that there is a mistake on your tax return, you should consider whether it would be appropriate to request an amendment to correct it. As time limits apply, you should do this as soon as possible.

Objections
If you disagree with certain Tax Office decisions, the law gives you the right to object and have the decision reviewed. Decisions you can object against include assessments, amended assessments, and some private rulings. You should consider lodging an objection if:

• you disagree with an assessment or decision you have received from the ATO
• there is a dispute over how the ATO has interpreted the law, or
• you are uncertain about your interpretation of the law.

When the ATO gives you a decision, they explain how you can get the decision reviewed and tell you the time limits that apply in requesting a review.

Reviews are carried out by an officer who did not make the original decision. The review will reconsider the facts, law and policy aspects of that decision.

Before you object
If you have questions, or disagree with the ATO’s decision, you should contact the ATO to discuss the decision before lodging an objection. Many misunderstandings can be resolved by simply talking to the ATO.

You can object against…
You can object against certain Tax Office decisions. Some of the decisions you can object against include:

• income tax assessments and amended assessments
• fringe benefits tax assessments and amended assessments
• private rulings about income tax
• private rulings about fringe benefits tax and fuel tax credits
• administrative penalty assessments for tax shortfall
• decisions not to remit an administrative penalty if the penalty is more than $220 after the decision has been made
• goods and services tax, wine equalisation tax, fuel tax credit and luxury car tax assessments
• excess contributions tax assessments
• superannuation contributions surcharge assessments
• termination payments surcharge assessments
• superannuation guarantee charge assessments
• decisions not to remit an administrative penalty
• reviewable goods and services tax decisions
• reviewable Australian business number decisions.

You cannot object against…
You cannot object against some Tax Office decisions. Some of the decisions that you cannot object against include:

• general interest charge
• late payment penalty
• shortfall interest charge (where the unremitted amount is equal to or less than 20% of the tax shortfall)
• a private ruling on goods and services tax, luxury car tax or wine equalisation tax – you can ask the ATO to make an indirect tax assessment and then object against that assessment
• a private ruling where an assessment has issued covering the private ruling period – you may object against the assessment
• administratively binding advice or advice about proposed changes to tax laws
• a decision not to remit an administrative penalty if the penalty is $220 or less after the decision has been made.
• If you cannot object against the ATO’s decision, the ATO can still talk to you about your issues and answer your questions. If you ask, in most cases they will review the decision consistent with good administrative practice.

You may also be able to get the decision reviewed by a court.

What happens after you lodge your objection?
Within 14 days of receiving your objection, the ATO will:

• review your objection and, if necessary, contact you or your representative to discuss it
• request further information, if required, to allow them to make a decision
• advise you if your objection will take longer than usual to decide (particularly where the objection raises complex matters) and negotiate a new due date with you for them to make the objection decision.

Unless the ATO has negotiated a completion date with you, they aim to make a decision on your objection (after receiving all necessary information) within:

• 28 days for private rulings on income tax or fringe benefits tax
• 56 days for all other objections.

By promptly responding to any requests from the ATO, you can help ensure that any delays will be minimised.

When the ATO makes their decision on your objection, they will review the facts and evidence provided by you and may decide to:

• allow your objection in full
• allow your objection in part
• disallow your objection.

Once the ATO has made their decision, they will generally send you:

• a notice of decision that includes the reasons for their decision
• information on how to seek an external review if you are dissatisfied with their decision
• information on how to pay any outstanding amount.

If the ATO has allowed your objection in full or in part, they will amend their original decision.

When considering an objection against a private ruling, the ATO may take additional information into account that they did not consider when making the original ruling. The ATO will tell you what the information is, and give you an opportunity to respond, before they make a decision. Where the new information makes a material difference to the facts of the original scheme or circumstances, the ATO may ask you to apply for a new private ruling. If this occurs, your objection is taken not to have been made, and will not be further considered.

Paying outstanding tax when objecting
As a general principle, the Commissioner expects that all debts will be paid on time, including those subject to an objection.

For more information, see recovering debt that is in dispute.

If an objection is decided in your favour, the ATO will refund to you or credit your account with any amount that you have overpaid. Where an overpayment of tax has been made you may be entitled to interest.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

A free electronic calendar is now available on the Tax Office website to help small businesses meet their tax and superannuation guarantee obligations throughout the year.

Tax Commissioner Michael D’Ascenzo said ‘Your small business tax calendar provides reminders of lodgement due dates for small businesses, bookkeepers and tax agents.’

“You can personalise the calendar quickly and easily by answering some simple questions about your business,” Mr D’Ascenzo said.

“Based on your individual circumstances, the calendar records all the due dates you need for the financial year, such as when to lodge your business activity statement and when to pay your employees’ superannuation.”

The updated calendar can now also be used by charities, not-for-profit organisations and deductible gift recipients to help them meet their tax and superannuation obligations.

Small businesses and organisations can also:

• record notes and reminders, such as appointments or payment due dates
  
• update the calendar at any time if their business structure or reporting obligations change, and
  
• print a one-page yearly planner for tax and superannuation obligations and due dates.
  

“If you run more than one business or have a number of clients, you can set up a unique tax and superannuation calendar for each of them, and tax agents can encourage clients to use the calendar to record upcoming appointments.”

Your small business tax calendar is designed for small businesses, including sole traders, with a turnover of less than $2 million, as well as charities and not-for-profit organisations.

The latest version of the tax calendar is now available and we encourage businesses to download a copy as it contains up-to-date information for lodgement and payment due dates.

To download a free copy of the tax calendar, visit the Tax Office website at www.ato.gov.au/TaxCalendar. The calendar is also available on CD by calling 13 72 26.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.