Connect Winter- 2018
Financial news for tomorrow’s lifestyle
By John Osborne, Chairman
Yes, it’s that time again when the ATO puts out its hit lists. From analysis of previous years returns, the ATO at this time of the year issues a ‘hit list’ of occupations that they are going to target and give closer attention to. It does this each year and proves very effective for the Tax Office; people and businesses in the category they are targeting become a lot more cautious in their claims. The ATO claims that when they do this, their collection rates increase dramatically.
The ATO, now with sophisticated technology, is able to look closely at a range of claims for deductions and know for each particular industry or trade, what the percentage of expenses should be. If the claims fall outside of the expected range for that industry or trade, the business will be highlighted and the claim will be put under the microscope for further analysis. The ATO will then write to those individuals whose claims are outside the norms for that particular occupation.
Obviously, there is a tendency for people in the ATO target list each year to reduce the amount of their claims to avoid an audit. If you are concerned with how much you are claiming, seek advice. If your claim is genuine, you should not fear claiming what is legitimate.
THE BUSINESS LIFE CYCLE
When you go into business, you’re starting something new and you experience a range of emotions. You experience feelings of excitement, freedom from the constraints of normal full-time employment but also concern because you are leaving the security of paid full-time employment.
Stage One of Business Life Cycle
People go into their own business for many different reasons- some want to earn more money, others don’t want a boss to have to report to. Others want the excitement of building a business for themselves and having the flexibility and freedom it can provide. There are also those people who go into business for all the wrong reasons- perhaps running away from a job they just hate, looking for a new experience. If the new venture fails, it can be devastating both financially and emotionally.
The Start-up Business
You are excited about going into business. You take any new customer or client that comes to you. You do everything in the business. The business starts slowly at first and then you start to see growth in your business. Instead of working five days, 9 to 5, your days get longer and you start to work Saturdays to keep up to date with the workload and to deliver that special service. Your clients are getting that personal attention, you’re experiencing tremendous growth. But what happened with that freedom and flexibility you were looking for, going into your own business? Your workload has increased and you now find you work up to 100 hours a week.
Now it is time to stop and think about what you have got yourself into. The business you are in is obviously the right industry, according to the growth you are seeing. Perhaps it is the way you are managing your business.
The business has got out of control. You are now experiencing complaints from your customers. Some customers have left. The new employee you put on to help with your workload didn’t do the work to your standard and customers are noticing it and complaining. Mistakes are being made and now that WOW service you were offering at the start has dropped off.
Stage Two of the Business Life Cycle
You realise now that you have entered into a new stage in your business. Your 8-hour days are now 15 hour days. Mistakes are being made. The quality of work by your employee you put on to help you is not to your standard. Customers are complaining. There are delays in work and you are frequently arriving at appointments late or not at all. You realise that you are lacking skills in managing people and your business.
Your business now has two ways to go forward:
Stage Three of the Business Life Cycle: Have a Plan and Build Systems
Your choice now is to go back to running the business yourself, keep the business small- increasing your prices will achieve that- work long hours by yourself and probably suffer burnout. You now start to see your business decline and the freedom and flexibility you wanted in going into your own business has not materialised.
Putting a Plan in Place to Achieve Continual Sustainable Growth in your Business
Your aim in business should be as Michael Gerber says in his book, The E Myth, to create a productive, profitable business that works without me.
If you are to hire quality staff and put in systems and train them, hire staff but control them. Maintain a tight control over your customers and staff. You will then start to see your business grow again.
Why have a Business Coach?
Every great sports star, super star and business guru is surrounded by coaches and advisors. The world of business is moving faster and more competitive. We are weighed down with regulations and compliance. It is difficult to keep up with both changes in your industry and new innovations in sales, marketing, HR and management strategies and systems.
Having a coach is no longer a luxury; it is becoming a necessity. A coach can see the forest for the trees. A coach will make you focus on the game.
WHEN ELDERLY PARENTS ARE UNABLE TO HANDLE THEIR FINANCES
It is sad when you have to warn the elderly of the possibility of suffering financial abuse from their children. The elderly parents ask their siblings or children to buy something at the shops—the sibling or child, if they have no ethics, can take extra on the credit or debit card or cash from their parents purse without asking permission; which at the end of the day is outright stealing.
On a bigger scale, the parents have given their siblings enduring power of attorney. Property is transferred to their children on the grounds that the parents can continue to live in the home and be cared for. The siblings have access to their elderly parents bank accounts, supposedly on the grounds that they will take care of their parents finances, only to find that their children have been fleecing them of thousands of dollars.
The elderly parents did not envisage this to happen to them, but it happens all too often. When a solicitor is asked to draw up a will because their elderly parents are terminally ill, it becomes a dilemma of the solicitor to ensure that the elderly parents have the capacity to know what they are signing.
It is very hard for parents to have to report their children to the police. It is important to plan your estate carefully and to recognise the importance of what you are signing when appointing enduring power of attorney over to someone. If you have concerns about signing over to one of the family, use someone you can trust, who may not be a family member; or seek professional help.
SUPERANNUATION CHANGES IN THE BUDGET
Superannuating changes announced in the recent Federal Budget in May could be very helpful to boost our retirement savings. They are only small changes, but could have a profound impact on our funds.
There are still lost super accounts that have not been claimed. The recent figures show that by 2020, three million people with approximately $6 billion of lost super will be present. It may pay to go through your files and pull out those old super statements and get some advice to have them rolled over to your current superannuation account.
The government also made a number of other small changes that could help boost our savings. They banned superfunds from charging exist fees for people who switched funds. They also put a 3% cap on investment fees for funds that have a low balance. We can now have six members in our self-managed superfunds which is an increase from previous years. This means that you can bring in more of your family members into the funds, which combined could give you greater investment opportunities. We know governments love to play with superannuation but these are positive changes. There are other changes, such as new rules for lifetime income stream products and rules governing insurance in super, making insurance opt-in rather than opt-out. It is important to realise that insurance in super is not free and can be eating away at the balance in your fund, especially if it is not a large one.
PROPERTY INVESTMENT AND NEGATIVE GEARING
Australians have a love affair with property- in fact, one in every four taxpayers in Australia owns a rental property. While some people in Australia invest in property to enjoy tax benefits, this really should not be your objective in investing. Let’s face it; if you are claiming a deduction, you have made a loss. You then need to hope the growth in value of the property is going to outweigh the losses you are claiming. You need to have a long-term view when investing in property, especially now values are flattening out, or in some cases, dropping.
The good news is that you can claim outgoings in relation to your investment property, against assessible income. A big part of the available deduction is related to the interest you are paying on your borrowings. Other costs you can claim are property management fees, loan costs, insurance maintenance costs and repairs.
Be aware that the ATO puts property investors on its watch list and has done so for many years. Each year, the ATO contacts many thousands of taxpayers with rental properties and asks for justification for the claims they are making on their properties. A big mistake taxpayers with rental properties have, is claiming for depreciation on the property. It is imperative you have a depreciation schedule from a quantity surveyor. If you are claiming for travel expenses to visit your property, take care. If you intend to have a holiday on the Gold Coast at the same time as seeing your property, you cannot now claim for the time you actually saw the property and nor the ten days you spend in the sun on the Gold Coast.
Since 1 July 2017, deductions for travel expenses related to inspecting and maintaining or collecting rent for your investment property are not available.
Remember buying an investment property should be for investment and not for tax deductions. Even though you are getting a proportionate tax refund on your expenses, you are still out of pocket. The growth in your property value must increase by at least the amount you are out of pocket each year after receiving your tax deduction, otherwise you are falling further behind financially each year.
Remember in buying property, buy quality property in quality areas with good infrastructure around your property; schools, transport, shopping centres. Remember the three P’s: Position, Position, Position!
With the changing world and work environment we are now experiencing, it is important to upgrade your skills and education. There are still great opportunities in the job market for those who have upgraded their education and learnt new skills. Statistics show that the average worker throughout his or her working life will change their career up to seven times.
It is important to understand that in claiming for self-education expenses, be sure that the course you are claiming for specifically relates to your current income role, not one for an interest sake, such as a photography course or one you are hoping to have in the future. You are able to claim self-education expenses for costs you incur in undertaking a work-related course of study at a recognised place of education. You can also claim a tax deduction for self-education expenses if you work and study at the same time if the course is related to your current occupation or employment. Note however, that the ATO is strict in its attitude on claims for self-education. You cannot claim on a course that does not have connection to your current employment, even if it allows you to get another job. Seek advice on legitimate claims you can make.