Key Taxation Issues!

Directors of SME companies/committee members of not-for-profits, charities, sporting and social organisations need an understanding of taxation matters for the performance of their duties.

Some of the key taxation issues that are applicable to this group of people include:

Small Business Entity

Businesses with an aggregated turnover of less than $10,000,000 can obtain some benefits including:

• immediate depreciation write-off of the cost of a new asset costing less than $20,000;
• prepayments can be claimed;
• small business entities do not have to conduct a stocktake at 30 June. Whilst from a business management point of view, I think it is a good management discipline to be conducting at least an annual stocktake, it is not required for taxation purposes.

Progressive Changes to Company Tax Rates

You have probably noticed in the media the ongoing comments on the government’s attempt to lower tax rates for companies.

Companies with an aggregated turnover of less than $25,000,000 have a tax rate in 2017/2018 of 27.5% of the company’s profit.  All other companies have a taxation rate of 30%.

Key Taxation Issues for Directors of SME Companies

An awareness of the research and development rules that apply if the company is going to apply for a research and development tax rebate – the rebate for companies with turnovers up to $20,000,000 is 43.5% of the eligible research and development expenditure.

Directors need to be aware that, if the company proposes to spend money on research and development activities overseas, a special application has to be submitted to the Australian Taxation Office prior to the expenditure being undertaken.

There is a requirement for research and development projects to be registered with AusIndustry by 30 April in the following year of the tax year to which the expenditure relates.  This normally means 30 April of the year following the research and development expenditure.

Early Stage Innovation Company Capital Raising

The control of the Early Stage Innovation Company Capital Raising process is with the Australian Taxation Office and AusIndustry.  This is because investors in an approved Early Stage Innovation Company can obtain a tax rebate on their investment (up to $10,000 for a retail investor and $200,000 for a sophisticated investor based on 20% of the investment amount and a potential capital gains tax exemption if the shares in the company are held for longer than twelve months and less than ten years).

If the company wishes to qualify as an Early Stage Innovation Company under the “principles test” the company should be applying to the Australian Taxation Office for a ruling that can be shown to potential investors.

Capital Gains Tax

Directors need to be aware of the operation of the Capital Gains Tax.  Companies with turnovers under $2,000,000 can potentially qualify for an exemption from Capital Gains Tax.

Loan agreements

Directors should ensure that any loans that the company has received from a shareholder are appropriately documented and that an interest rate that complies with the Australian Taxation Office deemed interest rate or more is shown in the document.

Overseas Travel Expenses

Directors should ensure that appropriate instructions have been given to any director or employee that is travelling overseas on behalf of the company to ensure that they are maintaining a travel diary and keeping a detailed record of all expenditure that they wish to claim for reimbursement from the company.

Taxation Issues Applicable to Companies and Organisations

Australian Business Number

All companies need an Australian Business Number and most organisations will find it beneficial if they have applied for and been granted an Australian Business Number.

GST (Goods and Services Tax)

If the entity’s income is expected to exceed $82,500 including GST in the year, then the entity should be applying for registration under the GST rules.

Business Activity Statement

Every company and organisation that is registered for PAYG tax deductions and for GST should ensure that their Business Activity Statement is lodged on whatever the lodgement timetable negotiated with the Australian Taxation Office is e.g. monthly, quarterly or annually.

PAYG withholding tax applies to wage and salary payments made to employees and to any business that has not submitted a tax invoice when requesting payment.

Fringe Benefits Tax

Can arise from a variety of payments made by the employer for the benefit of an employee.  A separate lodgement process operates for Fringe Benefits Tax.

Motor Vehicle Expenses

The Australian Taxation Office is tightening up on claims for motor vehicle expenses – directors/committee members should ensure that appropriate documentation is being received by the company or organisation relative to claims for reimbursement of motor vehicle expenses.

Taxation Issues that Directors and Committee Members need to be Very Careful About:

• Superannuation payments need to be made otherwise the Australian Taxation Office can issue follow-up proceedings against individual directors.
• If PAYG taxation payments are not made, the Australian Taxation Office can recover from one or more of the directors of the company.
• Charities – committee members of charities should ensure that the charity has submitted an application so that the charity can accept “tax deductible donations”.

These are some of the issues that apply to SME companies and organisations and about which directors and committee members need to have some understanding.

In the Corporate Governance Network being presented by ESS Small Business our keynote speaker on taxation issues - Greg Redington, Partner of Coutts Redington, Chartered Accountants and former Chair of Queensland Football Inc., will discuss a range of taxation issues that affect SME companies, charities, not-for-profits, sporting and social organisations.

You can join the Corporate Governance Network at any time – twelve months subscription is $499 including GST or you can subscribe for individual webinar recordings for $78 including GST .  To obtain full information on the Corporate Governance Network, please logon to the ESS Small Business website – click Corporate Governance Learn More.

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Click here for a complimentary copy of Paper 012-015 “Tax Planning for Business People”.

If you have any questions on any aspect of the Corporate Governance Network or services provided by ESS Small Business, please send me an email peter@essbiztools.com.au or telephone me on 1800 232 088.

Have a great day!