BUSINESS SEMINAR SECURE YOUR BUSINESS AND FUTURE.

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1 BUSINESS SEMINAR SECURE YOUR BUSINESS AND FUTURE

2 SEMINAR OUTLINE 1. Federal Budget Small Business Benchmarks 3. Small Business Concessions 4. Tax Return Tips 5. Superannuation 6. Estate Planning

3 Federal Budget 2011 Not many important changes Generally disadvantageous to taxpayers Flood Levy $50,000-$100, % tax 100,001 and more 1% tax $70,000 wages ($70,000-$50,000) x 0.5% = $100 $130,000 wages ($100,000-$50,000)x0.5% + ($130,000-$100,000)x1%= $550 Dependant Spouse Rebate will be abolished if under 40

4 Federal Budget 2011 Motor Vehicle Immediate Deduction for first $5000 Immediate write off for assets valued under $5000 Others at 30% E.g: Vehicle $24,000, Machinery $4000 Now: Annually $3000 for MV and $400 for machinery New: First year $5000 for MV and $4000 for machinery Tax Saving: $5600 x 30% = $ % company tax rate FTB Part A for year olds will be increased

5 Small Business Benchmarks To detect businesses in cash economy The most important checks Small Business Benchmarks Living Expenses 1. Small Business Benchmarks ATO uses to identify businesses for audit Regular check is important Compare your business with the market

6 Small Business Benchmarks Ratio Kebab Shops Annual turnover range Low $75,000 - $150,000 Medium $150,000 - $600,000 High $600,000 - $2,000,000 Cost of goods sold / Turnover 38% - 48% 40% - 48% 38% - 42% Labour* / Turnover 0% - 7% 5% - 13% 12% - 20% Rent** / Turnover 20% - 28% 16% - 26% 13% - 21% E.g: Turnover $400,000; Purchases $176,000 / Wages $36,000 / Rent $84,000 Other (Electricity, Gas, Insurance ) 5%-15% = $40,000 Profit 16% : $64,000

7 Small Business Benchmarks Living Expenses Profit of business - $50,000 Depreciation - $5,000 Net Rent - $10,000 Spouse s Wages - $10,000 Total Income: $75,000 Mortgage Payment - $50,000 Other Living Expenses - $50,000 $25,000 more expenses where does it come from?

8 Small Business Concessions When you sell your business or assets There are concessions that you can use E.g: Your setup costs for your business was $100, years ago; Sold for $600,000 - $500,000 capital gain After 50% deduction, $250,000 will be taxed 15 year exemption No CG if over 55 and retired

9 Small Business Concessions If the business was established less than 15 years ago; Retirement Exemption Over 55 - $500,000 exempt Under 55 $500,000 exempt within super 50% Reduction Additional 50% Deduction Rollover Exemption 2 years exempt and then roll over to new business

10 Tax Return Tips For Businesses Structures Sole Trader Partnership Company Trust Company & Trust Write-off assets if under $1000 Car Lease Chattel Mortgage Upfront GST in next BAS

11 Tax Return Tips Director Fees E.g: Company profit $30,000 Company pays 30% tax : $9,000 Transfer to Director : $2,550 tax Time Management for Tax E.g: Company profit $30,000 Other income in this year is $100,000 - $30,000 dividend will be taxed at 38,5% - $11,550 tax Other income in next year is $6,000 - $30,000 dividend will be taxed at 16.5% - $4,950 Home Office Expenses

12 Tax Return Tips For Individuals Education Tax Offset (up to $390 and/or $780) Medical Expenses Offset (20% over $2,000) Travel Expenses Seminar, Conference, Business Meeting Total Days ($190 for Turkey per day, excluding accommodation) Work Related Expenses Car, Home Office, Self Education, Membership Donations Income Protection Insurance Private Health Insurance If individual income is over $77,000 or family income is over 154,000 additional 1% medicare levy

13 Tax Return Tips Time Management for Tax If less income is projected next year Upfront payment for mortgage, repairs Utilise capital gain in the year with least income Depreciation Schedule for Properties E.g: Purchased for $400, years ago and sold for $800, $400,000 capital gain, after 50% deduction $200,000 will be taxed Tax rate 30% - $60,000 tax 2. Depreciation rate 2.5% - Deduction per year for 10 years $10,000 Tax Rate 30% - $3,000 less tax every year, $30,000 in 10 years Current value of property is $300,000 after depreciation, $500,000 capital gain. After 50% deduction $250,000 will be taxed - Tax Rate 30% - $75,000 tax - $30,000 tax deduction for depreciation so $45,000 tax $15,000 less tax payable with depreciation schedule

14 Tax Return Tips Salary Sacrificing E.g: $100,000 wages 1. Tax $26, $30,000 salary sacrifice: Taxable wages $70,000 : $15,600 tax $30,000 will be taxed within super : $4,500 tax Total Tax : $20,100 Tax Saving $6,350 Co-contribution Voluntary Super Contribution $1,000 Government also contributes $1,000 Spouse Super Offset $3,000 voluntary contribution to spouse s super provides $540 offset

15 Superannuation Case 1: Business Property $3,900,000 No loan on it No rent deduction Setup a Self Managed Superannuation Fund for you (67), your wife(61) and two children (25,35)

16 Superannuation 2011 Undeductable Deductable You $ 150,000 $ 50,000 Wife $ 450,000 $ 50,000 Kid 1 $ 450,000 $ 25,000 Kid 2 $ 450,000 $ 25,000 Total $ 1,500,000 $ 150,000 $ 1,650,000 (42%) 2012 Undeductable Deductable You $ 150,000 $ 50,000 Wife $ 50,000 Kid 1 $ 25,000 Kid 2 $ 25,000 Total $ 150,000 $ 150,000 $ 300,000 (8%) 2013 Undeductable Deductable You $ 150,000 $ 50,000 Wife $ 50,000 Kid 1 $ 25,000 Kid 2 $ 25,000 Total $ 150,000 $ 150,000 $ 300,000 (8%) 2014 Undeductable Deductable You $ 150,000 $ 50, Wife $ 450,000 $ 50, Kid 1 $ 450,000 $ 25, Kid 2 $ 450,000 $ 25, Total $ 1,500,000 $ 150, $ 1,650,000 (42%)

17 Superannuation Tax Rate of the directors are 38.5% and market rent value is $400,000 Deductable Payment Tax Deduction Tax by Super Tax Saving 2011 $ 150,000 $ 57,750 $ 22,500 $ 35, $ 150,000 $ 57,750 $ 22,500 $ 35, $ 150,000 $ 57,750 $ 22,500 $ 35, $ 150,000 $ 57,750 $ 22,500 $ 35,250 $ 600,000 $ 231,000 $ 90,000 $ 141,000 Rent Tax Deduction Tax by Super Tax Saving 2011 $ 168,000 $ 64,680 $ 25,200 $ 39, $ 200,000 $ 77,000 $ 30,000 $ 47, $ 232,000 $ 89,320 $ 34,800 $ 54, $ 400,000 $ 154,000 $ 60,000 $ 94,000 $ 1,000,000 $ 385,000 $ 150,000 $ 235,000 Tax Saving in 4 years: $235,000 + $141,000 = $376,000

18 Superannuation Other advantages $1,155,000 capital gain exemption No tax for over 60 if retired No tax for over 65 All income is tax free including rent Asset protection for liquidation and bankruptcy Tax Free transfer to dependants after death Can include grandchildren

19 Superannuation Case 2: Need a warehouse and found a place for $600,000 Not enough cash for deposit Asset protection and less tax in the future Have $300,000 balance in Super

20 Superannuation What to do: 1. Setup SMSF and transfer super balance to SMSF 2. Apply for a loan within super for the rest 3. Rent the warehouse to the business Advantages: 1. Rent is deductible to the business 2. SMSF pays only 15% tax for the income 3. Protection against liquidation or bankruptcy 4. No tax after retirement or 65 and no Capital Gain 5. Transfer to dependants without tax consequences

21 Superannuation Figures: (Tax Rate of the Business 30%) $50,000 rent is deductible - $15,000 tax saving for the business SMSF pays the loan with rental income SMSF rental income is $30,000 after deducting expenses - $4,500 tax by SMSF Total Tax Saving - $10,500 per year No tax after retirement or 65 - $15,000 tax saving per year

22 Estate Planning Issues to Consider Transfer the wealth to beneficiaries smoothly Tax Effective Transfer Protection of assets against creditors and bankruptcy of beneficiaries Protection against a relationship breakdown Flexibility of distribution So it is important to prepare it professionally

23 Estate Planning Discretionary Testamentary Trust Trust created by will Should be included in the will Protected under Law Normally creditors or divorced partner can claim the assets It provides protection against them

24 Estate Planning Discretionary Testamentary Trust Tax Effective Structure E.g: Left a rental property to your wife - $100,000 rent per year Without Trust: $26,450 tax payable by the wife With Trust: Distribute to the wife and three children $25,000 income and $1,725 tax per person Total tax $6,900 Can be distributed differently every year

25 Questions Thanks