What’s involved in selling your business?

Selling your business can be a stressful time and unless you’ve done it before, it’s hard to know what to expect or what’s required to get the right result. We’ve put together the top issues for business owners or investors to maximise their results.

Understand what you are selling and the tax implications

What you are selling and how you are selling it will have quite different tax consequences.

For example, let’s say the business is operated through a company structure. If the company sells the assets of the business (e.g., goodwill, equipment, intangible items etc.,) then the immediate tax impact rests with the company. If your intention is then to flow the proceeds of the sale to the shareholders, then there is another taxing point that needs to be understood and managed. Depending on the circumstances there may be options for managing this in a more tax efficient way.

However, if the shareholders are selling their shares in the company, then the tax impact is managed at the shareholder level and dealt with by each of the shareholders.

The overall outcome from a tax and cashflow point of view could be quite different. It’s important that you get good advice as soon as you are thinking of selling the business to understand the taxing points triggered by the sale and what options might be available to improve the overall outcome, including the availability of any concessions and the conditions that need to be met to qualify for them.

The GST implications of any sale also need to be established up front. If the business is sold as a going concern, that is, it’s ‘business as usual’ despite the sale, then the sale is generally GST-free. But, to ensure the sale is GST-free the parties have to agree in writing that certain strict conditions have been satisfied. If this issue is not dealt with, the vendor may be left with an unexpected GST liability that will basically come out of the sale proceeds.

Finally, consider the liabilities. For example, if you sell your business but not all of the staff are staying on with the new owners, the vendors will generally be responsible for the cost of redundancies and other employment costs.

Get your house in order

Most purchasers will undertake some form of due diligence on your business. If you understand what the likely purchasers are looking for, you have the opportunity to ensure that your business is positioned the best possible way. This may mean cleaning up your balance sheet or sorting out other parts of the business in advance of the sale. This way, you remove possible objections to the sale and improve your chances of achieving a favourable sale price. 

Control the flow of information

During the sale process it’s not unusual to be asked for a myriad of information about your business, its performance, and for your financials. Just remember that not all prospective buyers are buyers – many will be looking for market knowledge and intelligence. It’s important to cascade information through to prospective buyers as required to limit the potential of over-sharing with competitors. Generally, sensitive information should only be released under due diligence once key terms have been agreed.

Warranties and indemnities

Warranties and indemnities are a standard part of most sales agreements to protect the purchaser against declining performance and significant changes in conditions from what has been declared. It is essential that you understand what you are signing up to even if the chances of the trigger event occurring are slim. This includes limiting the dollar quantum of any indemnity and its time period. In most contracts if you disclose information during the due diligence phase a warranty claim cannot be made against you – there can be an art in disclosure!

Restraints

Restraints are also a common part of a sale of business process particularly where the sale includes goodwill. Restraint clauses prevent you from selling your business then immediately starting a new business or becoming a part of a competitors business using the goodwill you established. Where restraint clauses are involved, it’s important to understand how long you are going to be out of the market for.

Update to Superannuation Reforms

 

Making sense of the super reforms

When enacted, the reforms will represent the single biggest change to superannuation since its inception. While there has been a softening of the original Budget announcements, there are still some very big changes coming your way.

Accumulators: Under 65s
The reforms likely to impact on you are:

Reduction in non-concessional contribution caps
If you are close to retirement age and looking to build your super balance, this change is incredibly important. From 1 July 2017, the annual non-concessional contributions cap will be reduced to $100,000 (from the current $180,000).

This means that if you are approaching retirement age, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year. You can do this using the ‘bring forward’ rule. This rule allows you to bring forward up to three years worth of non-concessional contributions in one year (and then make no or limited contributions for the next two years until you reach your three year cap). The advantage of using the bring forward rule now is that your three years worth of contributions utilise the current caps. If you contribute more than $180,000 this financial year but not the full $540,000, you still trigger the bring forward rule but any further contributions from 1 July 2017 are subject to the new $100,000 cap. That is, instead of your cap being $540,000 across three years, it might be $460,000 or $380,000. And, if you wait until after 1 July 2017 to trigger the bring forward rule, you will only be able to contribute up to $300,000.

If you want to make in-specie contributions – that is, contributions to super that are not cash such as listed shares, etc., then you should look at whether the cap reduction affects your ability to do this.

People with Large Super Balances & High Income Earners

The Government thinks that you are not using superannuation for its intended purpose – to fund retirement. As a result, the reforms introduce a whole series of measures that pare back the tax advantages for people with large super balances:

Non-concessional contributions capped at $1.6 million
Once your super balance has reached $1.6m, from 1 July 2017 you will no longer be able to make non-concessional contributions to super. So, you have until then to maximise your contributions (see Reduction in non-concessional contribution caps). Going forward, your super balance will be assessed at 30 June each year.

Concessional contributions cap reduced
From 1 July 2017, the annual concessional contribution cap will be reduced to $25,000 for everyone (currently $30,000 for those aged under 50 and $35,000 for those aged 50 and over).

30% tax on super extended to more taxpayers
High income earners with incomes of $300,000 or more pay 30% tax on contributions they make. From 1 July 2017, this threshold will reduce to $250,000.

Retirees and those Transitioning to Retirement

The reforms likely to impact on you are:

Tax concessions limited to pension balances up to $1.6 million
The reforms introduce a $1.6m ‘transfer cap’ on the amount you can hold in a superannuation pension. This means that if you are in pension phase, the balance of your pension needs to be no more than $1.6m. If not, from 1 July 2017 the Tax Commissioner will direct your fund to reduce your retirement phase interests back to $1.6m and you will be subject to an excess transfer balance tax. Your overall super balance can be more than $1.6m but only $1.6m can be transferred into a tax-free pension. Keeping the excess balance in super may still be worthwhile because of the low 15% tax rate.

If your spouse has a low superannuation balance, it might be worth thinking about how you can maximise your returns as a couple.

Earnings on fund income no longer tax-free
From 1 July 2017, the income from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income. For example, if your super fund earns interest from a term deposit, that interest is currently tax-free in a transition to retirement pension. From 1 July, that interest will be included in the fund’s assessable income.

Still Going: Over 65 and Still Working

Currently, if you are 65 or over, your superannuation fund can only accept contributions from you if you work at least 40 hours in a 30 consecutive day period in the financial year. The original Budget announcements abolished this work test. Unfortunately, this reform is not progressing and the work test will remain.

Wages & Self-Employed

There is good news if you are partially self-employed and partially a wage earner. Currently, to claim a tax deduction for your super contributions you need to earn less than 10% of your income from salary or wages. From 1 July 2017, the 10% rule will be abolished.

This means that salary and wage earners will be able to contribute to super and claim a tax deduction for their personal contributions. The caveat here is that these contributions together with employer contributions must remain within the reduced $25,000 concessional cap.

People with Low Super Balances and Broken Employment

There is a lot in the reforms for people who have not had the opportunity to build their super balances. The reforms likely to impact on you are:

‘Catch up’ super contributions
Normally, annual caps limit what you can contribute to superannuation. The reforms allow people with broken work patterns to ‘catch up’ their concessional super contributions. From 1 July 2018, people with super balances below $500,000 will be able to rollover their unused concessional caps for up to 5 years. Unused cap amounts can be carried forward from the 2018-19 financial year; which means the first opportunity to use these new rules will be 2019-20.

Tax offset for low income earners
A new tax offset will be available for people earning less than $37,000. The offset refunds any tax paid on super contributions.

Tax offset for topping up your spouse’s super
Currently, if your spouse earns less than $10,800, you can claim a tax offset of up to $540 if you make super contributions on their behalf. This offset is being extended to spouses who earn up to $40,000.

 

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
 

 

Changes to PAYG tax tables from 1st October 2016

In the May 2016 Budget, the government announced changes to the PAYG rates that mean the marginal tax rate of 37 per cent will start at $87,000 instead of $80,000 as of 1st July 2016.
Due to the election, the necessary legislation was delayed until August, and so the implementation of this change doesn’t actually come into force until 1st October 2016.

This means that from 1st October, anyone earning over $80,000 will have the amount of tax withheld from their wage reduced in line with the new PAYG tax thresholds.
Any extra tax that has been paid between 1st July and 1st October will be credited back to you when you lodge your 2017 income tax return.

Employers using electronic payroll systems will be advised on how to update their systems by their software provider. For employers who manually calculate wages, new tax tables can be found on the ATO website.

2016/17 Federal Budget Summary

The 2016-17 Federal Budget was handed down on Tuesday, 3rd May 2016.
This budget was designed to promote the governments focus on jobs and growth, and beginning to move away from the economies reliance on mining.
The budget contained a range of measures including tax cuts for businesses, significant changes to superannuation concessions, funding for infrastructure projects and a crackdown on multi-nationals channelling profits out of Australia.

A detailed budget summary can be found here.

 

The SuperStream Deadline is Fast Approaching!

Small businesses with employees must be SuperStream compliant by 30th June 2016. With just 2 months before this deadline, the ATO have announced that to date, more than 60% of small businesses are already SuperStream compliant.

This means that if you aren’t already compliant, it’s important that you take steps now to become SuperStream compliant by the deadline.

SuperStream is the standardisation of how employers make superannuation payments on behalf of their employees. Under SuperStream, superannuation payments for your employees must be made electronically, in a standard format.

There are a variety of ways you can make compliant payments:

  • If you are using payroll software, your software provider will provide details on how to make SuperStream compliant payments using their software, so make sure your software is up to date.
  • Your default superannuation fund provider can act as a clearing house for your superannuation payments. Typically that will allow you to make one payment to your superannuation fund provider and they will distribute the money to other funds on behalf of your employees.
  • Use the ATO Clearing House. The ATO provides a free clearing house service for small business (under 19 employees or under $2 million turnover). You can provide the ATO with the details of the employee payments you need to make via their online portal, do a bank transfer for the total amount, and the ATO will distribute the funds to the appropriate superannuation funds on your behalf.

There is some basic information you will need from your employees to set them up in any of these systems. You will need their Tax File Number, details of their superannuation fund and their member number, as well as the funds Unique Super Identifier number (USI) or fund ABN.

An employer checklist is available on the ATO website that provides more information on becoming SuperStream compliant. https://www.ato.gov.au/Super/Superstream/Employers/Employer-checklist–a-step-by-step-guide/?sbn

If you have any questions about Superstream, or how to become compliant, please contact our office for further advice.

Would You Like $150 Off Your Electricity Bill?

If you were eligible for Family Tax Benefit (FTB) Part A or B in the 2014/2015 year, then you most likely meet all of the other eligibility criteria to receive the Family Energy Rebate.  You need to hurry as applications for the current year rebate will close on 16 June 2016.  Details of eligibility, and how to apply, can be found on the Department of Industry Resources & Energy website.

Why Changing Your Business Structure Just Got Easier

New rules that apply from 1 July 2016 mean that small businesses can restructure their business operations without triggering adverse tax implications.

Before the introduction of the new restructuring rules, if a business restructured from say, a partnership to a trust, there was a possibility that the change in structure could trigger capital gains tax (CGT). That is, the tax law would treat the restructure the same way as a sale and the owners could be liable for CGT on their share of any gain based on the current market value of the assets being moved into the new structure.

While the existing CGT provisions already contain a number of roll-overs that can be utilised for business restructures, they generally only provide relief when assets are transferred to a company. Other concessions can potentially apply in a broad range of situations, but will not necessarily provide complete tax relief. This new form of roll-over relief can provide complete income tax relief when assets are transferred to a sole trader, partnership or trust if certain conditions can be met.

The conditions for accessing these new rules are fairly strict. Broadly, the key conditions are:

  • The transaction is a genuine restructure of an ongoing business. So, the concessions can’t be used for winding down or selling a business.
  • Each of the parties to the transaction is a small business entity (revenue under $2m) or is related to a small business entity in the year the transaction occurs. The turnover test is subject to some grouping rules.
  • The business owners (the people who have ultimate economic ownership of the assets) and their share in those assets doesn’t materially change.
  • The asset being transferred is currently being used in a business carried on by the current owner or certain related parties.
  • Both the original entity and the entity the business is being transferred into need to be Australian residents.
  • The parties involved in the transaction must choose jointly to apply the roll-over.
  • None of the entities involved in the transaction are a superannuation fund or exempt entity.

For many small business owners, the business structure they start with is not always the best structure over time. There are a lot of reasons why a business owner might need to restructure:

  • Risk & asset protection – separating assets from business activities will generally help protect the assets. Companies and trust structures offer greater protection then operating as a sole trader or partnership of individuals.
  • Tax – Your business structure determines the tax rate you pay and how it is paid. In addition, some structures offer greater tax concessions throughout the life of the business or on the sale of assets.
  • Compliance – some structures are more expensive to maintain and administer than others and provide less flexibility for succession, sale, and the introduction of investors.

If you are looking at changing your business structure, there are a few overarching principles you should think about:

  1. Keep it simple – Your structure should be as simple as possible and each entity should have a clear reason to exist. The more complex your structure the more expensive it becomes and the more likely that the Tax Office will start querying whether the entity exists for commercial or tax reasons. If reducing tax is the primary reason for structuring something in a particular way then the Tax Office can seek to remove the tax benefits the structure might provide.
  2. Think of the future – Your structure should facilitate future growth and should allow for flexibility.
  3. Start with the end in mind – You should be aware of your exit strategies from the business. Your structure can make a difference to how you are taxed and what concessions you can access when you eventually exit.
  4. The commercial considerations – different structures have different implications for how you run and manage your business. You need to be clear about the commercial reasons for adopting one structure over another.
  5. Separate business activities from valuable assets – Where possible, ensure that valuable passive, business, or private assets are not subject to the risks associated with your business activities.
  6. Protect retained profits – In some groups the use of a dormant holding company can help protect retained profits that have been generated by trading entities. The holding company can then operate as the banker for the group of entities, lending funds to operating entities as required (security could be taken over assets of the operating entity).
  7. Separate risk between individuals – Within a family group, consider providing some additional asset protection by ensuring that only one spouse is a director of an operating company.
  8. Corporate trustees for a trust – The use of a corporate trustee is generally prudent to protect from the risk of being personally liable for the debts of the trust.

The SuperStream Deadline is Fast Approaching!

Small businesses with employees must be SuperStream compliant by 30th June 2016. With just 3 months before this deadline, the ATO have announced that to date, more than 60% of small businesses are already SuperStream compliant.

This means that if you aren’t already compliant, it’s important that you take steps now to become SuperStream compliant by the deadline.

SuperStream is the standardisation of how employers make superannuation payments on behalf of their employees. Under SuperStream, superannuation payments for your employees must be made electronically, in a standard format.

There are a variety of ways you can make compliant payments:

  • If you are using payroll software, your software provider will provide details on how to make SuperStream compliant payments using their software, so make sure your software is up to date.
  • Your default superannuation fund provider can act as a clearing house for your superannuation payments. Typically that will allow you to make one payment to your superannuation fund provider and they will distribute the money to other funds on behalf of your employees.
  • Use the ATO Clearing House. The ATO provides a free clearing house service for small business (under 19 employees or under $2 million turnover).  You can provide the ATO with the details of the employee payments you need to make via their online portal, do a bank transfer for the total amount, and the ATO will distribute the funds to the appropriate superannuation funds on your behalf.

There is some basic information you will need from your employees to set them up in any of these systems. You will need their Tax File Number, details of their superannuation fund and their member number, as well as the funds Unique Super Identifier number (USI) or fund ABN.

An employer checklist is available on the ATO website that provides more information on becoming SuperStream compliant.

If you have any questions about Superstream, or how to become compliant, please contact our office for further advice.

Cloud Based Accounting

Cloud based accounting simply means that the accounting software and data is hosted on the internet. You are probably already using other cloud based services like internet banking, Gmail, Hotmail, Ebay, Paypal, etc. In the future the reliance on the cloud will increase as government departments like the ATO and Dept of Human Services for example, as well as other businesses require that more and more of the dealings you have with them happen online.

So what are some of the benefits of cloud based accounting, and why should you consider updating to a cloud based accounting package like MYOB Essentials,  MYOB AccountRight Live, Xero, etc?

  • Bank feeds – This is probably the biggest benefit. You can authorise your bank to send your data directly into your accounting software. This can result in substantial time savings for you because you no longer have to manually key all that data in yourself as you have in the past,  and you know the data is correct. All you need to do is code your transactions. You can automate a lot of that job through the use of rules and memorisations that will code transactions based on criteria you set.
  • Software always up to date – No more updating software from CD or downloads. No more updating your data, and your custom forms. That is all taken care of for you or becomes a highly simplified process.
  • Data always backed up and virus scanned – MYOB and other cloud providers have substantial resources they allocate to staying safe and secure and their business relies on getting these things right. They are required by regulation to have at least the same level of security as banks and other financial institutions.
  • Easier to interact with accountant – You can invite your accountant to have access to your file, so they can see the data in real time. No more backing up your data to a CD or USB and sending it to the accountants.
  • Easier to interact with ATO, bank etc – With the ATO SBR ( Standard Business Reporting) becoming a standard in 2016, direct interaction with software will increase. Data will be able to prefill into your software from other providers and sending information and reporting to them becomes an easy online process.
  • Access via browser – You can access cloud software from a web browser, which gives you the flexibility of being able to access your data from your phone or tablet, wherever you are.
  • Third party add ons – Many software companies create software for specific tasks like invoicing, rostering, stock control, etc. You may find one of these modules suits a certain function in your business very well, and these add-ons easily integrate into your cloud accounting software.

If you would like more information on cloud accounting options, contact Wayne (waynec@christiesaaa.com.au), and he will be happy to talk to you about what is needed to get started, and help you set up your cloud based accounting system.

 

 

Christies Online Portal

Christies Accountants and Advisors are implementing an online client portal to allow us to collaborate with you securely online.
The portal will allow you to safely access your documents in your own secure portal, and if required, electronically sign the necessary forms with a digital signature.

PortalYou will need your own email address to access a portal, as this will identify you for any documents that need to be digitally signed. This also ensures that security around who can access portals is maintained, as well as providing an audit trail of those accessing the portal.

Access to the portal will be available via computer, tablet or mobile phone, which means you have much greater flexibility to attend to your paperwork or tasks wherever you are.

Documents that require signatures can be electronically signed at the push of a button, and Christies will be notified automatically when a task has been completed.

One person can have access to several portals, so you will have a secure area for storage of your personal documents, financial statements and tax returns, as well as being able to access similar information for other entities that you may be a party to.

The portal is in the early stages of being implemented and but it promises to usher in some exciting possibilities, greater efficiencies and more flexibility in how we interact.