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Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Business Tax Tips – Capital Gains Tax Concessions for SME – Don’t get caught out

Terry Hayes, writing at Smart Company, warns that many SME businesses can get caught out by not knowing the Capital Gains Tax  Concession rules. He has a link to another article with details, but in this one he writes…

…A fundamental threshold is the necessity to meet what is known as the maximum net asset value test (MNAV) in order to qualify for the concessions. Under that test, the value of all the CGT assets of the taxpayer, entities “connected with” the taxpayer, the taxpayer’s “affiliates” and entities “connected with” the taxpayer’s affiliates must not exceed $6 million. Such assets would include a debt owed to the taxpayer.

A recent case before the Administrative Appeals Tribunal (AAT) highlighted the importance of passing that threshold test and what is required to do so. It is one of the most fundamental issues that a taxpayer will confront when seeking to obtain the benefit of the small business concessions.

The AAT confirmed the Tax Commissioner’s view that a taxpayer failed the MNAV for the purpose of qualifying for the CGT small business concession because of a $500,000 capital gain he made in relation to the sale of his finance broking business.

The taxpayer argued that a debt of $1.1 million owed to a related entity had a nil value and should not be taken into account for the purpose of the MNAV test as it was “statute-barred” from recovery. However, the AAT found otherwise on the basis that the debt had been legally acknowledged as recoverable and legally in existence at the relevant time.

The taxpayer was a beneficiary (and trustee) of a family trust that held units in a unit trust which operated a finance broking business. The business was sold in the 2008 income year for a capital gain of $500,000 to which the taxpayer was entitled.

The issue in this case was whether the capital gain could be reduced or disregarded under the tax law, if the taxpayer and his related entities satisfied the maximum net asset value test. In particular, just before the sale of the finance broking business, did the sum of the net value of the assets of the applicant and his related entities exceed $6 million?

The taxpayer argued that, in determining whether the MNAV test was satisfied, a loan of $1.1 million made to him by the family trust prior to 1998 had a nil value and was not to be taken into account as it was “statute-barred” from recovery. In particular, he claimed that the family trust could no longer sue for the debt because of the six-year statute of limitation – where it had not sought repayment of the debt because it may have been used to repay a debt of another entity in the group that had become insolvent.

However, the AAT found that the fact that the taxpayer signed the balance sheets of the family trust for the 2003 to 2008 income years (in his capacity as trustee) was sufficient acknowledgment in writing that the debt was still legally in existence as an asset of the family trust in the year in question and it had a market value equal to its face value in the balance sheet records. The inclusion of the $1.1 million debt meant the taxpayer failed the MNAV and therefore could not reduce his $500,000 capital gain under the small business concessions.

The AAT also noted that the trustee of a trust has the authority to sign off on such balance sheet records as an agent of the trust (which the AAT found was equivalent to the situation where directors of a company sign balance sheets of the company in pursuance of their duty as directors).

That the CGT small business concessions continue to catch out taxpayers, for varying reasons, is some cause for concern. While it may be true that ignorance of the law is no excuse, the complexity surrounding these concessions still confounds many. May be its time they were simplified. No doubt the government’s Tax White Paper reform process will look at them.

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MYOB – Overpayment of Retention – How do I deal with the overpaid retentions?

MYOB – Overpayment of Retention – How do I deal with the overpaid retentions?

MYOB – Overpayment of Retention – How do I deal with the overpaid retentions?

ClientA regular client called me in for several issues – but the main one was that a customer had overpayment of Retention owed. In the Building industry a customer usually withholds an amount – say 10-15% of the Invoiced amount over, and only pays once the job is completed and all parties are satisfied – the Retention. The client calculated that an extra $10,200 over the $4,000 Retention, had been paid, and she had called the customer but they were sure it was correct – how to deal with it?

Answer – Depending on the method you use – some create another invoice for the Retention amount, to be paid later, some just leave the invoice with the balance (Retention) still open, as in this case.

 She would be checking her figures again, but no other jobs were outstanding, so it wasn’t several Retentions owed together either.

So I suggested just add another line and include details of the payment date and total and that $10,200 was over paid. Then she could Receive Payment to the invoice for the full $14,200 payment.

Then create ANOTHER invoice but with NEGATIVE $10,200 so it becomes a Credit Note/Invoice, save it, and email to customer.

Then in the Sales Register under the Credits tab, find the Credit, highlight it, then in the lower LHS you can “Refund” – this generates a Cheque, linked to the Credit Note, uses up the Credit Note and allows refund by manual cheque or EFT Transfer to the client bank account.

For more detail on how to handle customer overpayments – see MYOB Support Note HERE

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Business Finance 101 – Understand the difference between Mark-Ups and Margins when Pricing

Business Finance 101 – Understand the difference between Mark-Ups and Margins when Pricing

Understand the difference between Mark-Ups and Margins when Pricing

It is common to not understand the difference between Mark-ups and Margins when it comes to pricing. This is part of the costing of goods and services, and either is not quite the same as the other.

We usually start with a cost price of the quantities for materials and labour, let’s say $1000.

If we Mark-up we add on top to the cost – let’s say 30%, then $300 is added and the sell price is $1300.

But the $300 compared to the Final Price is 23% of $1300, ((300/1300)X100). This is the Margin.

So if the Margin target is 30%, just adding 30% to the cost is incorrect.

To get 30% Margin on $1300 sell price is $390 (30% is 0.3 times $1300 gives $390). And the $390 from $1300 leaves $910 cost price to buy the goods.

And $390 is 42.8% Mark-up of $910. So if costs are $910 the calculation to achieve 30% margin is $910 x 1.428 = $1299.48, round up to $1300.

Many businesses wonder why they don’t get the profit they expect, and sometimes this is the reason. So check your figures and see if your Margins and Mark-ups are what you were expecting, and understand the difference between them!

Need help? Not sure? Call for FREE 30min advice / strategy session today! 0407 361 596 Aust

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Reckon/Quickbooks – Stock on Hand value adjustment

Reckon/Quickbooks – Stock on Hand value adjustment

Reckon/ Quickbooks – Stock on Hand value adjustment

An interesting issue from the Reckon Community – Stock Value Adjustment 

Leanne We commenced a new clean data file for a small community supermarket store as at 1/7/14. We imported the stock but then learnt that the SOH does not get brought across. The stocktake taken (stock on hand) as at 30/6/14, has been manually entered into a new data file, however for some reason the values do not agree, something was amiss with a couple of average prices. We tried to then do a stock value adjustment whereby we manually compared the stock valuation report from 30/6/14 in old data file to stock valuation report as at 30/6/14 in new file and then entered the correct values where applicable into new data file as at 30/6/14, without adjusting the on hand stock. Then a stock valuation report was printed as at 30/6/14 and the “stock values” did not match. Can you advise if the adjustment is a straight dollar replacement as we have done? If so any clues as to why the values might not agree?

Graham replied – It may be that some items that where on-hand at 30/6/14 have since been made inactive. Reckon Accounts inexplicably (and incorrectly) does not include Inactive items in the Inventory Valuation Summary Report. Are there any items you had on hand at 30/6/14 that are now inactive? You will need to make these active again so the 30/6/14 report reflects their value.
My approach to this whole job would be to generate this report and export to excel in both the old file and the new file, then use excel to do the hard work for you to identify which products have changed Qty and/or values. If you haven’t got the expertise to do this, I can do it for you on a fee for service basis. It’s only a couple of hours work involved, but it could save you hours and hours work if you have a few thousand items.
Graham Boast Reckon Accredited Consultant

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Business Tips – Do’s and Don’ts in Selling

Business Tips – Do’s and Don’ts in Selling

Business Tips – Do’s and Don’ts in Selling

Most businesses hate selling – so what Do’s and Don’ts in selling can we learn, to do better at selling or product/service? Here are some tips from the MYOB blog 

Is selling an art or a science? Do you need special skills to sell to your customers, or can anyone do it? I believe selling is an art and a science, and it’s all about understanding what your customer’s needs are and how they think about things. It’s not rocket science — just common sense — but reviewing the principles is always a good thing.

Do research client needs. The number one do of sales is to research your client’s needs. This is best done before a sales call, personal visit or before they give a response. If that’s not possible, then when your potential client is in front of you, ask lots of questions and listen closely to the answers to find out their needs.

Do show the customer how a product or service fits their needs. Demonstrations are best when possible.

Do answer all their questions. Be honest, and answer any questions as best as you can. Research anything you are unable to answer on the spot. Get back to them with the information when you have it. In particular, answer the question about price. You can always provide a range to help people work out if they are in the ballpark.

Do be upfront, especially if asked about sales commissions.

Do understand your competition. If your customers are not shopping with you, whom are they buying from? Know the difference between you and your competitors. Ask why the customer chose your competitor over you. Be able to communicate to the customer what the differences are between you and your competitor so that they can make an informed decision. In sales, it shows confidence to point out both your strengths and weaknesses.

Do give your best price when you are asked. Don’t expect customers to come back so you can then give them your best price. Customers have researched prices online, and they may not come back to give you a second chance.

Do communicate your sales process. Explain the benefits of your particular process.

Do ensure your sales material both online and offline have consistent messages and branding. Provide your information in different formats so that you can sell in the best way for the customer. Consider video and audio as well as words.

Do allow potential customers to ‘check you out’ by providing testimonials and past client contact info. Testimonials build trust and show you are confident in your work.

And don’t forget the don’ts!

Don’t try and sell something that doesn’t meet the needs of the customer.

Don’t try and close the sale too soon.

Don’t try and manipulate the sales process so that the customer has to do it your way. Be flexible to the customer’s needs and what it is that they’re looking for.

Don’t take a lost sale personally. If someone rejects the sale, they may not be rejecting you. It might just be that you or your product is not the best fit. Be gracious and encouraging, and they will be more likely to come back to you if they made the wrong choice.

Too often sales people follow a hard and fast formula to get sales, without considering if this process is helpful to the customer or meeting their needs. Selling is an art and a science — it’s about making the sales process as easy as possible for the customer. Highlight the features and benefits of a product; answer any questions directly; and be creative with overcoming obstacles by providing flexible solutions

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Bookkeeping – Entering Annual Leave calculation that was missed

Bookkeeping – Entering Annual Leave calculation that was missed

Bookkeeping – Entering Annual Leave calculation that was missed

Client emailed Sorry to be a nuisance… this is so confusing and I am stuck.

Staff X took a week off from Monday 22nd February to Monday 29th Feb for his honeymoon and was back to work on Tuesday 1st March.

         Paid X 18/02/2016 covering period Mon 8th to Sun 14/2

         Paid X 3rd March covering period 22nd   Feb – 28th Feb

         Did not pay X on 25th Feb – covering period Mon 15th to Sun 21st

         Don’t know what I was thinking here….

How do I enter the correct information (45 hours annual leave) in MYOB?

Answer It is a matter of looking at what you HAVE DONE in MYOB, and working out what is missing –

Here is a summary of what I understand – see excel FREE download

You can alter amounts if you wish (NOT in blue boxes as they have formulas).

It just looks like do the NEXT pays to catch up Hol hours and make note in the memo of the payslip before recording.

Maybe need to redo an earlier pay – see notes in the excel.

If still not sure, we can discuss.

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Business Finance 101 – What does it mean Profit is not Cash? Does that explain where is my profit when there is no money in the bank?

Business Finance 101 – What does it mean Profit is not Cash? Does that explain where is my profit when there is no money in the bank?

What does it mean Profit is not Cash? Does that explain where is my profit when there is no money in the bank?

Are you showing a profit in your business, but wonder where is your profit, when there is no money in the bank? And what does it mean when accountants say “Profit is not Cash?”

If you have cash sales, profit will usually correlate closely. But if you invoice clients for goods and services, the timing of when customers pay has an effect on the cash the business actually has. Not everyone pays on time, but if they did you would have regular cash flow, and only be delayed by the initial terms at the beginning eg 7 days, 30 days. Regular payments will mean regular flow of money to cover your expenses.

What if clients are late paying? Then the debtors on your balance sheet will grow (that is where the invoice “waits” for payment) until the client pays.

As an example, in our previous post explaining Profit and Loss, see HERE we gave an example of Profit and Loss resulting in $15,000 profit.

bus-profit-loss-diagram

But what if you were only paid half of the sales at the end of the period (which is more close to reality – eg most pay the next month or two…)

Sales (invoices)                                   $100,000

But only paid (actual cash)                $50,000

Which goes to bank (in assets)

Net Left                                                    $50,000

Which sits in debtors/receivables (in assets)

NotePROFIT would be same in accounting terms,

but CASH Profit would be -$35,000 (negative!)

That is, what this is – if you still had paid all your bills, you would still have to find $35,000 to pay them – see here

 Business Cash Profit

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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