Investment Entity Packages

There are many different ways to structure your business; one of which is to establish a holding company.  

If this term is new to you, here’s some information about how it works and why it’s a strategy that might make sense for your business.  

What is a holding company? 

Holding companies typically aren’t trading entities. Their purpose is usually to own (hold) shares in other companies, which are referred to as ‘subsidiaries’. 

A holding company is also commonly used to hold: 

• IP (trademarks, patents, goodwill) 
• Cash 
• Real estate 
• Other investments 

Holding companies are protected from liquidations or other financial woes that might affect their subsidiaries. If a subsidiary goes under, the holding company usually won’t be responsible for covering the subsidiaries liabilities. 

An Australian example of a holding company is Seven Group Holdings, which has multiple subsidiaries including Coates, WesTrac and Seven Media Group.  

Typical Group Structure: 

Should you establish a holding company? 

Creating a holding company may work for your business for the following reasons: 

• Protection from liability: As mentioned above, holding companies cannot be held accountable for the debts and other liabilities of their subsidiaries. This means that if a subsidiary company goes under, there is no danger to the holding company. 

• Enables tax effective shifting of profits and cash from trading companies (subsidiaries) into a separate entity (ie the holding company), which results in improved asset protection 

• Cheaper loans: Holding companies can have greater financial strength than their subsidiaries, and hence can potentially obtain finance at a lower cost. They can then filter the contents of the loan to a subsidiary that is in need of capital.  

• Innovation: Having subsidiaries can foster innovation. Because subsidiaries are not a risk to the holding company, shareholders are less affected when a subsidiary is taking risks and pushing innovative limits. 

• Free form management: For the holding company, there is no lost time in managing subsidiaries, and for the subsidiaries, the holding company does not interfere with day-to-day management. 

• Asset control for less cost: A holding company only needs a controlling share in its subsidiaries, not necessarily one hundred per cent ownership. This can broaden the number of assets the company can control without extra cost. 

• Opportunities for acquisitions: Your holding company may acquire shares in or ownership of businesses outside of your own. 

 

If you’re a business owner, you may decide to set up a holding company for the above reasons or because you want to diversify and invest in new ventures without keeping all your eggs in one basket or overpaying on tax.  

 

What are the downsides of holding companies? 

A holding company may not work because of the following:  

• Establishing the company and ongoing costs: Forming a holding company is complicated and requires ongoing costs to remain legally compliant. It needs to have enough subsidiaries with enough profits to justify the expense.  

• Management issues: In cases where the holding company doesn’t own all of a subsidiary, there are minority shareholders to be dealt with and management issues can arise. It can also be an issue if the holding company operators lack knowledge of the sector in which the subsidiary is based. 

• Complexity: As soon as a holding company enters the picture, things like accounting and tax become more complex. This doesn’t have to be a bad thing; it simply means you need the support of the right people. 

 

Interested to switch to a holding company structure? 

If your business has reached the stage where creating a holding company may make sense, please reach out. Imagine Accounting can work together with you to create a plan and get the ball rolling.  

Want to know more about holding companies? Get in touch with Imagine Accounting in Chatswood today. 

 

End-of-year finalisation through STP Employers reporting through Single Touch Payroll (STP) need to make a finalisation declaration by 14 July each year. Making a finalisation declaration You need to make a finalisation declaration by 14 July each year to ensure your employees can access their finalised information to complete their tax return.  If you can’t make a finalisation declaration on or before the due date, you will need to apply for a deferral. This finalisation process is explained in detail in the STP employer reporting guidelines for STP employer reporting guidelines for phase 1 and STP employer reporting guidelines for phase 2. This includes making amendments for current and previous financial years. When you have reported and finalised your employees’ information through STP, you are exempt from: ·       providing payment summaries to your employees ·       lodging a payment summary annual report. For payments to your employees that were not reported through STP, you still need to: ·       give a payment summary to your employees ·       provide the ATO with a payment summary annual report for these payment summaries. Old reports in Xero are retired on 31/7/23 This is a reminder that Xero are retiring the old versions of their reports on 31 July 2023 at 4am AEST. After this you will no longer have access to old reports. Old reports are now outdated and Xero can no longer technically support them on their platform. We urge you to start using new reports now, so there is no disruption to your work when older versions are retired. Remember: these changes mean you’ll need to do your month-end reporting for July 2023 in new reports. What’s going to happen from 31 July 2023 at 4am AEST ·       You will have read-only access to old published and archived reports ·       You won’t be able to run old reports ·       Any saved drafts of old reports will be removed from Xero ·       You will not be able to create or edit old report packs in Xero HQ ·       There are some reports that won’t be retired on this date, as Xero are upgrading them in a different way or at a later date (see the full list on Xero Central) What you need to do now If you want to use new reports just as they are, then all you need to do is open the report and get started. To find new reports, click the Accounting menu in Xero, then select Reports. On the Reports screen, you can access and browse all Xero reports. For further information please click here Need help? If you have any questions or concerns, please get in touch!

 

This is a quick reminder that we are well and truly into tax planning time, and you should be reviewing your tax strategies for the end of financial year. If you haven’t already spoken to us about your tax planning needs this year, you can book a meeting with your Client Manager to get individual advice. To book a tax planning meeting, please get in touch with our office as soon as possible to organise a time. EOFY & Tax Minimisation Strategies 2023 – Checklist For more general tips and strategies, you can view our EOFY & Tax Minimisation Strategies 2023 – Checklist, which has tax planning strategies, legislation updates and key information for businesses, individuals and super funds. If you have any questions or concerns, please get in touch!

What the budget means for you, your business and your super. Here is a link to our 2023/24 Federal Budget Summary. Key measures include: Business: ·       $20,000 instant asset write-off – From 1 July 2023 until 30 June 2024, the Government will temporarily increase the instant asset write-off threshold from $1,000 to $20,000. ·       New Energy Incentive – Small and medium businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy. ·       Halving the increase in quarterly tax instalments – The Government will amend the tax law to set the GDP adjustment factor for pay as you go (‘PAYG’) and GST instalments at 6% for the 2024 income year, a reduction from 12% under the statutory formula. Individuals: ·       FBT – Electric Car Discount – The Government will sunset the eligibility of plug-in hybrid electric cars for the FBT exemption for eligible electric cars. This change will apply from 1 April 2025. Arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025 remain eligible for the Electric Car Discount. ·       Energy bill relief for some households ·       Encouraging doctors to offer bulk billing by tripling the incentive for children under 16, pensioners and other Commonwealth card holders ·       Increases to commonwealth rent assistance ·       Increases to JobSeeker and other income support payments Superannuation: ·       Increasing the frequency of superannuation guarantee payments – From 1 July 2026, employers will be required to pay their employees’ superannuation guarantee entitlements on the same day that they pay salary and wages. ·       Earnings for superannuation balances above $3 million taxed at 30% – From 1 July 2025, the Government will reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million. Individuals with a total superannuation balance of less than $3 million will not be affected. If we can assist you to take advantage of any of the Budget measures, please let us know. As always, we’re here if you need us!

It’s something people don’t really enjoy talking about, but the sudden death of a company director has the potential to impact many people outside of their family.  Here’s a look at why you need a succession plan and what happens if you or your company director passes away with no protective measures in place.  

Why have a business succession plan? 

You’re young, you’re healthy, and your company is still growing, why worry about who would take over if you weren’t around? It may seem like a problem for the distant future, but life can bring unfortunate surprises. As much as you don’t want to think about potential accidents or illnesses, the possibility of sudden and unexpected death is always there for everyone. By ensuring you have a smart succession plan, you will protect your business, your team and your family from a range of potential problems if the worst should occur.  Your plan doesn’t have to be complex but you should confirm in writing what should happen to the business and its assets if you pass away. If you have a good accounting and legal team, they will be able to help whoever steps in to execute your wishes.  

What happens to a company when the sole director dies with no succession plan? 

For companies with multiple directors, power can transfer to a surviving director while the shareholders elect someone new. For companies with sole directors, things are not so simple.  The problem if a sole director of a company dies without succession plans is that the company can find itself bereft of leadership. This creates a legal issue. According to the Australian Securities & Investments Commission’s (ASIC) Information Sheet 73, during a period with no director, the company may not be able to operate legally. At this point, it is expected that a near relative or other person will apply to the local supreme court for letters of administration. These letters are needed for the management of the estate. If there is no eligible party to take on this responsibility, the Public Trustee may step in to administer the estate. 

In either case, the whole process can take months. 

During this time, the business will not be able to operate legally. For many small businesses, this can be a death knell, especially in the current economy. It may even be difficult to quickly sell the company as there is no recognised owner to transfer funds to.  The worst case scenario if a sole director dies without a succession plan is that employees do not get paid and the Director’s family is left with an unsellable business.  

How to ensure your succession 

To ensure that your company and your family are protected, you, as a sole director, need to make a will. In your will: 

• Name beneficiaries of your shares in the company 
• Name a successor or grant power to an executor to name a successor in the event of your death or incapacitation 

To ensure your will is binding, the Australian Securities and Investments Commission says: 

“a will must be signed at the end by the testator, or by someone authorised by him or her, and the signature must be acknowledged by the testator in the presence of at least two witnesses who are not also beneficiaries under the will, who must themselves sign the will in the testator’s presence.” 

Where to begin 

As well as helping you grow your business, manage your compliance and do your taxes, your accountant can help you create your succession plan. In conjunction with your lawyer, you can talk through the operating model and finances involved with your business, and make a handover plan.  Part of being a responsible business owner is planning for the future and preparing for a worst-case scenario. Let Imagine Accounting help you with this task.  

Need help to protect your small business’s future? Contact Imagine Accounting today. 

The Government has announced a proposal to:
• remove fringe benefits tax (FBT) on eligible electric cars from 1 July 2022, and
• include the value of these exempt car fringe benefits in the calculation of an employee’s reportable fringe benefits amount.

This measure is not yet law. If enacted, this will apply from the FBT year beginning 1 April 2022.

How the Electric Vehicle FBT exemption will work
The proposed FBT exemption is intended to apply to cars provided by an employer to an employee under the following conditions:

Low and zero emission cars
• Battery electric vehicles;
• Hydrogen fuel cell electric vehicles; and
• Plug-in hybrid electric vehicles. Be careful here because this doesn’t include all hybrid vehicles. To qualify the car needs to be ‘plug-in’. A car that has an internal combustion engine will not meet requirements unless it is able to be fuelled by a battery that can be recharged by an off-vehicle power source.

The car was first held and used on or after 1 July 2022
• Where the car is first held and used on or after 1 July 2022. Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022, but was not delivered until after 1 July 2022 would be eligible for the exemption (even if an employer acquired legal title to the car before 1 July 2022). However, a car delivered to you prior to 1 July 2022 would not qualify.
• A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022.

Value below luxury car tax threshold for fuel efficient vehicles
• The value of the car at the first retail sale must be below the luxury car tax threshold ($84,916 in 2022-23) for fuel efficient vehicles. The luxury car tax threshold generally includes GST and customs duty but excludes other items such as service plans, extended warranties, stamp duty and registration.

If an electric car qualifies for the FBT exemption, then associated benefits relating to running the car for the period the car fringe benefit is provided, can also be exempt from FBT. Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year.

Can I salary sacrifice an electric car?
Assuming your employer agrees, and the car meets the criteria, salary packaging is an option. While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available. For a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing.

Government modelling suggests that for individuals using a salary sacrifice arrangement to pay for a $50,000 electric vehicle, the saving would be up to $4,700 a year.

Who cannot access the FBT exemption
Your business structure makes a difference
By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.

Exemption is limited to cars
As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers.

In light of the increasing number of cyber-attacks we wanted to provide you with Cyber Security Tips as well as ensure you that Cyber Security Protection has and continues to be extremely important at Imagine Accounting.

Cyber Security Protection at Imagine Accounting
We are committed to protecting your data and your businesses data. We have a robust security system in place and work with an external IT Company who manages our security architecture. The following precautions are in place (including but not all):

• Firewall on server and individual PC’s
• Security software kept up to date on server and individual PC’s
• Installation and monitoring of active antivirus
• Bit-locker encryption on all hard drives.
• Multifactor authentication on 365 (Microsoft) and all apps that contain client data.
• Sensitive data including TFNs and corporate keys are encrypted before emailing.

Cyber Security tips for Businesses
Cyber security is one of the biggest threats facing small businesses today.

The Australian Cyber Security Centre (ACSC) leads the Australian Government’s efforts to improve cyber security and have put together a Small Business Cyber Security Guide. This has been specifically designed for small businesses to understand, take action, and increase their cyber security resilience against ever-evolving cyber security threats.

Ashwin Pal (husband of our Client Director Nitasha Pal) – is a Cyber Security Expert and has also put together a paper providing advice for businesses.

Cyber Security tips for Individuals
Scams try to trick you into paying money or give out your personal details. There are many types of scams that pretend to represent government, including myGov. In order to avoid falling victim to scams and identity threats the following measures are recommended – please click here to view the recommendations.

Please be aware that Services Australia and myGov will never send you an email or text message asking for your:

• username
• password
• myGov PIN
• secret questions and answers
• personal details.

When you are signed in to myGov, the messages in your myGov Inbox are secure. It’s safe to open links included in myGov Inbox messages. Find out more about current scam alerts on the Services Australia website. Find out how to identify the different types of scams on the Scamwatch website.

The team are here to help you. If you have any questions, please reach out.

Last night Labor handed down its first Federal Budget since the election earlier this year. To help you determine how the Budget impacts you and your business we have put together A Guide to the 2022-23 Budget 2.0..

Key measures include:
• Child care subsidy increase
• Added flexibility and an expansion of Paid Parental Leave
• Aged care reforms
• Change to the taxation of off-market share buy-back by listed companies
• The scrapping of the initiative to self-assess the effective life of intangible assets
• Scrapping of the announced but not legislated 3 year audit cycle for SMSFs
• Energy grants for SMEs (but no detail yet)
• Tightening of the thin cap rules and the denial of deductions for intangible assets between related parties in certain circumstances
• More cash to the ATO to pursue personal income tax non-compliance and multi-nationals
• More funding for the Tax Practitioners board to pursue dodgy tax agents
• ‘Downsizer’ eligibility reduced to 55

If we can assist you to take advantage of any of the Budget measures, please let us know. As always, we’re here if you need us!

As we commence the new financial year here is a reminder of what changed on 1 July 2022. Business ·         Superannuation guarantee increased to 10.5% ·         $450 super guarantee threshold removed for employees aged 18 and over ·         Small business GST and PAYG tax instalments lowered (the total tax liability remains the same, just the amount the business needs to pay through the year is lowered) ·         ATO guidance on how profits of professional firms are structured comes into effect introducing new risk criteria ·         New guidance on unpaid trust distributions to corporate beneficiaries comes into effect that may treat some unpaid distributions as loans and trigger tax consequences Individuals ·         Superannuation guarantee increased to 10.5% ·         Work-test repealed for those under 75 to make or receive non-concessional or salary sacrifice super contributions (the work test still applies to personal deductible contributions) ·         Age for downsizer super contributions reduced to 60 years and older ·         Value of voluntary super contributions that can be withdrawn under the First Home Saver Scheme increased to a total of $50,000 ·         New ATO guidelines on trust distributions come into effect primarily impacting distributions to adult children ·         Home loan guarantee scheme extended to 35,000 per year for first home buyers and 5,000 per year for single parents ·         Australia’s minimum wage increased New South Wales Floods, July 2022 – Disaster Recovery Payment The Australian Government Disaster Recovery Payment (AGDRP) is a lump sum payment to help you if you’ve been significantly affected by New South Wales floods in July 2022. You must meet eligibility rules to get the Payment. If you’re eligible you’ll get: ·         $1,000 per adult ·         $400 for each child younger than 16. There are 3 steps to claim the Australian Government Disaster Recovery Payment. Further information and how to claim can be found here.

With money flying around in all directions (and out the door faster than ever), it’s essential to have a financial budget for your business. Without something in place, you can potentially find yourself in debt to suppliers, with a tax bill you’re not able to pay or in trouble because you have failed to keep up with your PAYG and super obligations to your staff.

The start of a new financial year is the ideal time to review and update your budget. With many suppliers changing their prices as of July 1st, this task is more important than ever.

If you have never put together a formal business budget or if it has been some time since you took a good look at yours, here are some tips to get you started:

What is a business budget?

A budget is a plan that helps you track your income and expenses so you can stay on track financially. Creating a budget for your business will help you make better spending decisions and avoid debt.

In a perfect world, your budget will include all your expenses as well as some ‘breathing room’ for extras, and you will always spend within your limits. However, the reality is that costs and requirements can change on an almost daily basis, especially in a post-pandemic world. This is why you need to pay attention to your budget and review your plans against the reality of your spending regularly.

When you build a business budget, it is likely to include the following:

– Estimates of future sales and cash flow
– Estimates of future expenses
– Estimates of loan repayments and capital expenditure
– Estimates of staffing costs

In accounting terminology, a budget is reviewed with the help of a profit and loss statement, balance sheet and a cash flow statement.

Budget categories

‘Expenses’ is a big label to use in your budget and you will need to break them down.

For example, your business will have lines on its budget for all or some of the following:

– Stock and inventory
– Storage
– Marketing
– Financial management
– Rent
– Utilities
– Vehicles
– Office supplies
– Equipment and machinery
– Staff and contractors

It’s important to think carefully about which categories are most relevant to your business and which ones you need to allocate the most money to. For example, if you’re a retailer, inventory is likely to be a key budget category and you will have to keep a close eye on how your spending compares to your sales. On the other hand, if you’re a service-based business, marketing may be more important (and you’ll need to track how effective it is to know whether you should expand or reduce this budget).

There’s no one-size-fits-all answer when it comes to building a budget for your business. The funds you allocate to different areas will depend on your profit and your strategy. If you’re pursuing growth, for example, you may decide to make equipment purchases a priority and create room in your budget to pay off an asset loan.
You may find you need to do some forecasting before you set your budget, so you can get a clear idea of what you expect to earn as well as how much you will spend. Take a look at our recent article about forecasting here.

How to review your budget

Creating a budget is one thing. Reviewing it regularly is the next very important step, especially in an economy with rising inflation. As mentioned, your expenses will change and you need to make sure expenditure is not exceeding what you know the business can afford.

When you conduct a review, you’ll look into the following:

– Income: This is the money coming into your business from sales, investments, and other sources.

– Expenses: This is the money going out of your business to cover costs like rent, inventory, payroll, and marketing.

– Profit: This is the difference between your income and your expenses. We have put together a guide to help you understand what profit is and to learn how to make sure your business remains profitable, no matter what.

– Cash flow: This is a measure of how much cash is coming in and going out of your business each month. Read more about how to manage your small business cash flow effectively and accurately here. 

– Break-even point: This is the level of sales at which your business covers its expenses and begins to make a profit.

Include these elements in your budget to get a complete picture of your business’s financial health. When you conduct your review, you’ll be able to understand what is driving the most sales and where you are losing the most money. If you can optimise your key revenue drivers and take action to reduce costs, the result will be more effective financial management and a better chance of healthy profits.

July is an excellent time of year to get your books in order and create a financial budget for the year ahead. Of course, if you require assistance, we can help create a custom budget for you.

Want help to create an effective business budget? Contact Imagine Accounting today.