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Tax Tips for Individuals 2022

Although your tax return is not due for a few months yet, the end of the financial year is nearing…have you captured all your work-related deductible expenses to make the most of your 2022 tax return?

Income

The Australian Taxation Office (ATO) automatically receives information from your employers about salary and wages that you have been paid for the financial year. You need to declare all income from other sources on your tax return as well.

  • Wages and salaries from employment.
  • Pensions, annuities or government payments such as JobKeeper.
  • Investment income including interest earned and dividends paid.
  • Cryptocurrency gains or losses.
  • Business or hobby income.
  • Foreign income.
  • Crowdfunding income.
  • Sharing economy income such as Uber or Airbnb.
  • Any other income such as prize money, compensation or insurance payments.

Even if you have only earned a small amount from one of these sources, it still needs to be declared on the tax return. Gather all your records for anything you have earned apart from salary and wage payments from employers.

You will need:

  • bank statements that show interest income;
  • proof of earnings from other sources such as crowdfunding or share economy platforms;
  • records of business or hobby income;
  • records of government payments received;
  • records from cryptocurrency wallets showing transactions and the balance of each currency at 30 June;
  • and records of any other payments received from overseas sources, prize winnings, insurance or investments.

Tax Deductions

Employees are entitled to claim work-related expenses as a tax deduction. To claim a tax deduction, you must have spent the money out of your own funds and not have been reimbursed by your employer. The expenses must relate to your earnings as an employee. Make sure you have invoices and receipts as proof of payment for any work-related expenses.

Expenses you may be able to claim

  • Vehicle and travel expenses – make sure you have a travel diary to record details of trips taken for your employment.
  • Clothing, laundry and dry-cleaning expenses – you can claim for occupation specific clothing, uniforms and protective gear.
  • Home office expenses – the shortcut calculation is still available this year for people who have worked from home due to COVID-19. This allows for a flat rate of 80 cents per hour for work time. You will need records of the hours you have worked from home to claim the ATO special rate. For people who usually work from home, check the ATO home office expenses calculator to maximise the allowable deduction.
  • Self-education expenses – some education expenses that relate to your current employment are claimable.
  • Tools and equipment – if you buy gear to help you in your job, these may be claimable. Small tools of trade, protective items, professional references and laptops are some examples of equipment you may be able to claim.

Occupation and Industry Specific Guidelines

The ATO recognises that some occupations and industries have specific requirements that employees need to pay for.

There are handy ATO fact sheets for many industries, including hairdressers, teachers, performing artists, hospitality workers, lawyers, medical professionals and more.

These guides are a great starting point if you are not sure what you can claim, but we can give you information tailored to your situation when you do your tax return.

Superannuation

If you have made personal superannuation contributions separate to your employer’s superannuation guarantee contributions, you may be able to claim this as a tax deduction. You will need to provide a notice of intent to claim form to your super fund and receive acknowledgement from the fund before doing your tax return.

 

Contact our office on 08 6118 6111 or hello@prescottsolutions.com.au to book a time with us now to prepare for your tax return and we’ll make sure you maximise your allowable tax deductions this year.




Business Tips: Setting KPIs and measuring performance

Once you begin trading, you’re faced with a new challenge – successfully managing the course of your brand-new business and making sure it’s a profitable enterprise.

It’s easier to manage your startup’s sales and finances when you have access to the best possible information and data about your performance. Tracking specific metrics and key performance indicators (KPIs) allows you to see how you’re performing against your targets – so you can take action to improve performance, sales, growth and profitability.

But which KPIs should you be tracking?

Sales and conversion rates

An obvious metric to track is the number of sales you’re making each month. You’ll have set a target for these sales in your business plan, so it’s important to record each sale and see how the startup is performing over the first six months of the business.

It’s also important to log and track the drivers that lead to these sales. How many sales enquiries are you receiving? How many of these enquiries are being converted into actual sales? How many customers are being engaged by your marketing campaigns, and is this engagement leading to interest in your products and/or services.

The more detail you can track from your sales and marketing activity, the more forensic you can get with which campaigns are actually delivering the goods.

Sales revenue and other revenues

When customers buy your goods, that creates income (or revenue) for the business. Ultimately, no business can succeed unless it’s generating enough revenue to keep the wheels turning in the business. So, tracking your sales revenue is a vital measure of your financial health.Tracking your various revenue streams over time keeps you in control of your finances and helps you make the right decisions. You can track performance against your revenue targets. You can forecast how much working capital you’ll have at a future point in time. And you can see if there’s enough cash in the bank to fund your projects and growth plans.

Cashflow and ongoing cash position

Good cashflow management is all about balancing the process of cash coming INTO the business and cash going OUT if the business. Recording and tracking your cash position is easy to do with the latest cloud accounting software and cashflow apps, so there’s no excuse for not tracking your cash position.

Ideally, you want the business to be in a positive cashflow position (with more cash coming in, than going out). But to achieve this, it’s helpful to see these cash inflows and outflows in real-time. With up-to-date metrics on your cashflow position, you can make informed decisions about spending, payment of bills and where additional cash and funding may be needed.

Debtor days and aged debt

When customers fail to pay your invoice on time, that creates an aged debt – money that you SHOULD have received but which the customer has yet to pay. An aged debtor report shows you which invoices are unpaid, which customers haven’t paid, and the total size of this debt.

Your debtor days number is a metric that shows the average number of days it takes your customers to pay you. Anything above 45 days is bad news, so you want to aim to keep this number between 14 to 30 days, if possible. A large amount of aged debt will leave a hole in your cashflow – and that can quickly start to impact on the day-to-day running of the business.

Gross profit margin

Generating a profit is crucial to the continued success of your startup. Having metrics to measure your profitability is an important part of managing your finances.

One common way to do this is to track your gross profit margin. This metric shows the amount of profit made BEFORE you deduct things like overheads and the cost of goods sold (COGS), shown as a percentage. The formula for calculating your gross profit margin looks like this:

Gross Profit Margin = Gross Revenue minus COGS, divided by Net Revenue, multiplied by 100

  • Deduct your COGS value from your gross revenue to find your gross profit.
  • Divide this gross profit by your revenue.
  • Multiply the resulting number by 100 to get a percentage.
  • This is your gross profit margin as a percentage of gross profit
  • A percentage of 50% to 70% is healthy, but aim for a big a margin as possible

By keeping a close eye on these financial metrics and KPIs, you have the best possible insight into the performance of your new startup – and that’s invaluable as your startup journey unfolds.

If you’re at the early stages of planning out your business idea, please do get in touch. We’ll help you set up a custom KPI dashboard to manage the future path of your business




Do Your Independent Contractor Agreements Measure Up?

Business owners need to classify workers correctly to minimise the risk of being penalised later for wrongly classifying workers as contractors when they should be employees.

It’s a common area of concern for business owners who engage contractors. Many Fair Work Ombudsman cases have resulted in severe penalties and back payments imposed for engaging someone as a contractor when they should have been paid as an employee.

What’s Required in Contractor Agreements?

You should have a comprehensive agreement with every independent contractor.

The contract should include:

  • Details of the nature of the working relationship to demonstrate that a genuine contractor relationship exists.
  • All rights and obligations of both the contractor and the business.
  • Terms and conditions of the agreement.
  • Whether superannuation applies.
  • The main factors used to assess the worker as a contractor such as independence, ability to delegate work, the basis of payment, the use of tools and equipment, the degree of control or the ability to take on other work.
  • The date of the next review of the contract.

Many factors are involved in assessing whether a worker is deemed to be an employee or contractor, and the relationship can change over time. There is no single overriding factor in deciding if a worker is truly an independent contractor. Therefore, each working relationship must be assessed separately and individually.

Time to Upgrade Contractor Agreements

If a lawful agreement clarifies the terms of engagement and addresses all aspects of the working relationship, this will reduce the risk of later being penalised because of wrongly classifying a worker. But for the contract to be relied upon in court, it must address all aspects of the working relationship in enough detail that there is no room for misinterpretation of terms.

Now is a great time to review and upgrade any agreements you have in place with contractors. Do they measure up?

Talk to us about getting reliable agreements in place for all your independent contractors so you can trust in the terms of the engagement.




Your Q4 2022 Deadlines for the Diary

Have you got all your March quarter obligations under control?

Soon enough, we’ll be into the last quarter of the financial year, often a busier time for small businesses.

We’ve highlighted some upcoming business lodgment due dates to help you get organised for the June quarter.

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Talk to Us About Lodgment Planning

If we’re already lodging on your behalf, lodgment extensions automatically apply. You may have earlier deadlines if you’re lodging activity statements and other forms directly with the ATO. If you need more time to lodge and pay, let us know, and we can help you meet your obligations or arrange a lodgment extension if required.

It’s good practice to plan for your lodgment dates, so you’re always on top of your cash flow planning for ATO liabilities.

Start getting organised for the busy June quarter now!




2022 Federal Budget

The 2022 federal budget has been released. It’s not the spending bonanza that it has been in previous years as the government tries to wind back Covid stimulus. In addition, pre-election budgets are always problematic as the announcements may not eventuate if there is a change in government.

Below are some key announcements from the 2022 budget


Businesses

Digital Adoption

Small Businesses will be able to claim an additional 20 per cent on business expenses and assets that support their digital adoption. This can include items such as portable payment devices, cyber security and cloud-based subscriptions.

We’ll need to wait for further clarity to confirm if laptops or similar devises are included in the bonus deductions.

An annual cap of $100,000 will apply for digital adoption expenditure.

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2023, however all claims will be included on the 2023 tax return.

Skills and Training Boost

Small businesses will be able to claim an extra 20 per cent deduction for external training courses provided to employees. The courses must be provided Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

The boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

Taxable Payment Report

Taxable Payment reporting is currently required annually for selected industries where payments to subcontractors are reported to the ATO to help combat the ‘cash economy’ and income not being declared.

The reporting frequency is set to increase to align with the BAS lodgement cycle, with the changes expected to take effect from 1 January 2024.

Australian Apprenticeships Incentive System

In its first phase, from 1 July 2022 to 30 June 2024, the Australian Apprenticeships Incentive System will support employers of apprentices in priority and non-priority occupations with a wage subsidy; with apprentices in priority occupations entitled to access direct financial assistance. Priority occupations are those listed on the Australian Apprenticeship Priority List.

From 1 July 2024, following a checkpoint to assess progress, support will be available for priority occupations only, through a mix of employer and apprentice payments, including a hiring incentive for employers; and training support payments for apprentices.

Boosting Apprenticeship Commencements and Completing Apprenticeship Commencements

The Boosting Apprenticeship Commencements wage subsidy supports businesses and Group Training Organisations to take on new apprentices and trainees, to build a pipeline of skilled workers to support a sustained economic recovery.

Through the subsidy, any business or Group Training Organisation that engages an Australian Apprentice between 5 October 2020 and 30 June 2022 may be eligible for a subsidy of 50 per cent of wages paid to a new or recommencing apprentice or trainee. This covers a 12-month period from the date of commencement, to a maximum of $7,000 per quarter.

After 12 months of this support employers will be eligible to transition to the time-limited Completing Apprenticeship Commencements (CAC) wage subsidy for the second and third years of an apprenticeship. Under the CAC, eligible employers will receive a 10 per cent wage subsidy in the second year of an eligible apprenticeship, up to a maximum of $1,500 per quarter per apprentice, and a 5 per cent wage subsidy in the third year of their apprenticeship, to a maximum of $750 per quarter per apprentice.

For more information, see Employer Incentives | Australian Apprenticeships

Instant Asset Write Off

Not a new announcement in the 2022 Budget but a reminder that the Instant Asset Write Off will continue to be available for assets installed and ready for use prior to 30 June 2023.


Individuals

Low and Middle Income Tax Offset (LMITO) extension

The LMITO will be increased from $1,080 to $1,500 for the 2022 financial year and will be available to individuals with income below $126,000.

Cost of Living Payment

The Government will provide a $250 economic support payment to help eligible recipients with higher cost of living pressures. The payment will be made in April 2022 to recipients of eligible social security payments and to concession card holders

Temporary Fuel Excise Reduction

There will be a temporary reduction in the fuel excise, with the excise be cut by 22.1 cents per litre. The reduction will be in place from 30 March 2022 until 28 September 2022.

While providing welcome relief at the bowser, Farmers, Transport and other industries will need to account for a reduction in the fuel tax credits claimed on BAS during this period


Women’s Budget Statement

This 2022-2023 budget includes a Women’s Budget Statement, focussed on issues particular to women. There are a raft of issues identified and measures aimed at solving them, including ending violence against women and children, increasing women’s participation in the workforce, improving women’s health and retirement prospects. Amongst the many elements of the Budget spending highlighted in this Women’s Budget Statement, the following stood out:

Child Care and Parental Leave

The Budget allows for an increase in the Child Care Subsidy for families with multiple children and removing the annual Cap on the Subsidy.

Eligible families will be able to access up to 20 weeks paid parental leave to be used by either parent. Currently the Paid Parental Leave is 18 weeks, plus 2 weeks Dad and Partner Pay, so whilst there is no additional government leave available, it does mean that families can choose who takes the available leave and when.

Leadership

To help improve gender equality in leadership roles, the Government has provided funding to the Australian Institute of Company Directors to deliver board diversity scholarships to support women to attend a company directors course.

The Office for Women will oversee a refresh of the Government’s BoardLinks platform to improve its functionality, including navigation and search capability, improving visibility of upcoming government board vacancies, promoting greater board diversity, and providing links to established networks and industry partners.

Superannuation

From 1 April 2022, the Government’s reform to improve the visibility of superannuation assets in family law proceedings will come into effect. The Australian Taxation Office will be able to share information with the Courts on superannuation assets held by parties during family law disputes. This will help deliver fairer and more equitable outcomes for women going through separation proceedings by reducing the scope for former partners to under-disclose their assets.

From 1 July 2022, legislation comes into effect that removes the $450 per month income threshold under which employees do not have to be paid the superannuation guarantee by their employer. The measure will improve the coverage of the superannuation system, making a real difference to the retirement savings of around 300,000 lower income workers per month, 200,000 of whom are women. Whilst we would also want them to tackle the reason why so many women are earning less than $450 per month, removing this threshold means that at least those impacted will be receiving superannuation.

Also from 1 July 2022, the work test for non-concessional and salary sacrificed contributions to superannuation for individuals aged 67 to 75 will be removed, and the eligibility age for the downsizer contribution will be reduced from 65 to 60 years. As women are more likely to make voluntary contributions to their superannuation than men, this additional flexibility will increase the ability for women to make contributions later in life.

The extension of the downsizer contribution scheme – where the family home is sold and proceeds are contributed to superannuation – the extension applies to younger cohorts which will particularly benefit people with moderate superannuation balances, including women; women currently account for around 55 per cent of downsizer contributions

Housing

Announced in the 2021-22 Budget, the Family Home Guarantee is the first housing policy designed to specifically help single parents. The Family Home Guarantee supports single parents to build or purchase a home with a deposit of as little as two per cent. To build on the early success of this program, the Government is doubling the number of places available under the Family Home Guarantee to 5,000 per year to 30 June 2025.


We will provide updates as more news/ information comes to light. As always, it’s important to note that the budget announcements aren’t real until the legislation has been finalised.

If you have any questions about how the Budget has affected you or your business, please contact our office on 08 6118 6111 or email hello@prescottsolutions.com.au

 

More Information

Whilst every care has been taken in its preparation no person should act specifically on the basis of the material contained herein. If assistance is required, professional advice should be obtained.




Have you taken an Odometer Reading for FBT?

Fringe Benefit Tax (FBT) applies to benefits to your employees that are additional to their salary or wage, such as personal use of a company vehicle.

Make sure you have your records in order, to take advantage of exemptions that might reduce your tax bill.

The Fringe Benefit year is 1 April to 31 March. In order to accurately account for your motor vehicle use, remember to take an odometer reading for the FBT period ending March 31st.

FBT lodgement and payment is due 21 May (or 25th June for electronic lodgements through us, as your tax agent).




WA Covid Support Packages (updated 27 April 2022)

With borders re-opening after two years, and new restrictions coming into place, there have been new assistance packages announced to support business in Western Australia.


Level 2 COVID-19 Business Assistance Package

Note: the decline in turnover was revised on 27 April 2022 from 50 per to 40 per cent, and a new tier was added for businesses with a 30 per cent decline or more.

A new COVID-19 Business Assistance Package has been announced for Western Australian businesses who have experienced a 50 per cent decrease in business for any two-week period since 1 January 2022. This program will provide support to all eligible businesses that meet the criteria.


Level 1 COVID-19 Business Assistance Package

Small business rental relief package


Outdoor dining and entertainment support package




Making sure your new business finances are in order

Getting your head around the basics of bookkeeping, accounting and good financial practice may not come naturally to all business owners. But the better you understand the numbers, the more control you’ll have over your business and your decision-making.

To get you started, here’s a rundown of some of the main financial terms and how they apply to the financial management of your startup.

Revenue and money coming into the business

Most of us understand that revenue is the income you generate through your sales. If you multiply your average sale price by the number of units sold, this is the top level number you get. It’s a gross figure (i.e. before any deductions) and gives you a clear idea of how much money the business is generating through its sales activity.

Revenue can come from various sources, and each income source is known as a ‘revenue stream’. Revenue streams could include product sales, income from services you provide, income from intellectual property you own (like patents) or income from assets the business owns, like property you rent out at a profit.

Having several revenue streams is a good idea, as it spreads your income generation across multiple areas and reduces the risk of one revenue stream drying up.

Expenditure and money going out of the business

Expenditure refers to any payments you make (either in cash or credit) against the purchase of goods and/or services. In a nutshell, expenditure is the money that’s going OUT of the business, so it’s important to have a good grip on these costs and to make sure you’re not spending any more money than you need to.

Costs that would fall under expenses include your supplier bills, your payroll expenses, your operational overheads and the costs of any raw materials and goods you buy to keep the business running. The less you pay out in these expenses and overheads, the more of your revenue will end up as profit – as we’ll see in the next section.

Profit and loss (P&L)

Your profit and loss statement (usually referred to as your P&L) is an incredibly important financial report to get your head around. The P&L summarises your revenues and expenditure over the course of a period – usually for the month, quarter or year that’s just ended – and gives you a breakdown of the profits and losses the business made during that period.

If you make more in sales revenues than you spend in outgoing expenses, you make a profit (and that’s vital to your success). For any business to be financially viable, your financial model MUST be able to generate profit. Without profits, the business can’t make money, you can’t reinvest back into the company to drive growth, and you (personally) won’t get paid anything.

Cashflow statements and positive cashflow

Your cashflow statement is another vital tool in your accounting toolbox. To keep the lights on in the business, you need enough available cash to cover your everyday expenses. Your cashflow statement shows you the cash inflows (money coming into the business from revenues etc.) alongside the cash outflows (payments to suppliers, or operational overheads etc).

For the business to have enough cash in the pot, your cash inflows MUST outweigh your cash outflows. This is called being in a ‘positive cashflow position’ and it’s a level of financial health that every startup should aim for. By tracking inflows and outflows, and projecting them forwards in time to create forecasts, you can make sure there’s always available cash in the business.

Improving your understanding of the numbers

It takes time to pick up the financial jargon and accounting terms that will help you understand your accounts. But don’t despair: as your startup journey evolves you’ll gradually begin to get your head around the important numbers, metrics and reports.

Other important finance terms to understand include

  • Turnover = the total sales revenue made in a period. It’s also sometimes called ‘gross revenue’, as it’s the number prior to any deductions being made.
  • Assets = the things you own in the business, like equipment, property or cash etc.
  • Liabilities = the things you owe to other people, like bills, debts and loan repayments.
  • Balance sheet = a snapshot of your assets and liabilities on a given date.
  • Working capital = your current assets minus your liabilities. In common usage, it’s the capital (money) you have in the business to keep the company operational and trading.
  • Funding = bringing additional capital into the business, usually in the form of business finance products like loans, or through private investment from outside sources.
  • Credit score = a rating given to the financial health and risk level of the business. The bigger the score, the lower the risk – and the better your access to funding.

If you’re planning for your business, please do get in touch. We’ll help you set up the ideal accounting system, so you’re in complete control of your finances.

Talk to us about your new business.




Super Guarantee Rate Rises in July to 10.5%

The superannuation guarantee statutory rate was 9.5% in July 2014. However, plans have been in place for some years now, to increase the rate to 12% incrementally.

In July 2022, the rate will rise from 10% to 10.5%. From then on, the rate will increase by 0.5% each year until July 2025 when it will reach the legislated 12%.

Prepare Now for the July Rate Rise

  • Review your current superannuation costs for all employees, both hourly and salaried.
  • Review any salary packaging arrangements. Is the agreement inclusive of superannuation or is super paid on top of the agreed salary?
  • For salary packages inclusive of super, you will need to check the contract’s wording to make sure you apply the changes correctly. This change may also impact annualised salary arrangements.
  • Calculate your revised payroll costs from July, showing the current wages and superannuation expense compared to the new rate from July 2022. Highlight the increased amount per month or quarter, so you know precisely what the impact will be.
  • Discuss the super rate increase with your employees now. Let them know that there will be an increase of 0.5% each year from now until July 2025 when the statutory rate will reach 12% and remain there.
  • Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July, so you don’t get caught short.

If you’d like help reviewing payroll costs and employee agreements, talk to us now, and we’ll make sure you have accurate reports to make planning for the rate rise easy.

Getting organised now means that you’ll be well prepared for your business’s increased costs when the first payment is due later this year.




Superannuation eligibility changes could impact your payroll

In addition to planning for the expected statutory super rate rise to 10.5%, some employers need to prepare for a significant change from July 2022.

Removal of the $450 Monthly Earnings Threshold

The $450 per month eligibility threshold has been removed for most workers.

This means employers will need to pay the superannuation guarantee contribution (SGC) on all ordinary earnings. Particularly if your business relies on a large pool of casual workers who earn less than $450 per month, you’ll notice the extra cost when it comes to paying SGC for the September quarter.

There are some exceptions to the rule – employees under 18 and domestic workers need to work more than 30 hours per week and earn more than $450 per month. Contractors deemed employees for superannuation contributions must earn more than $450 per month. There are different rules for international and temporary workers.

Single Touch Payroll Super Reporting

All your payroll details are reported to the ATO through STP. This includes super amounts owed to employees. Late payment and interest penalties are expensive, so this is one employer obligation you don’t want to miss!

Get Ready for Increased Payroll Costs

Be proactive and start costing your payroll now to budget for the increased payroll costs. You can also let your employees know about the changes coming to their super, so they know about their entitlements.

If you’d like a review of your payroll systems and costs, talk to us today. We’ll help you plan for the impacts of the increased super expenses on your business.