May is here and in cooler regions the colours of autumn are all around. In Canberra, Treasurer Josh Frydenberg is putting the finishing touches to the May 11 Federal Budget which will no doubt dominate the national conversation in coming weeks.

Australia’s economic recovery gathered steam in April, despite a spike in coronavirus cases overseas and vaccine delays. Australia’s trade surplus stood at a healthy $8.5 billion in March, underpinned by strong export prices for our commodities. Iron ore prices rose 16% in April and 21% over the year to date, due largely to renewed demand from China. China’s economic growth rebounded an extraordinary 18.3% in the year to March. Prices for our oil, copper, coal and beef have also recorded strong gains.

Higher commodity prices pushed the Aussie dollar up 2.4% in April to US77.72c, although record low interest rates are keeping stronger gains in check.
Australian consumers are gaining confidence in the recovery, despite the winding back of government stimulus payments. The Westpac-Melbourne Institute Index of Consumer Sentiment rose 6.2% in April to its highest level since 2010. One reason could be booming house prices, up 2.8% in March and 6.2% over the year, according to CoreLogic. Not so welcome are rising petrol prices which hit a 13-month high in April. While higher prices lifted inflation by 0.6% in the March quarter, it is still running at a low annual rate of 1.1%.

Rising employment is also a cause for optimism. The jobless rate fell from 5.8% to 5.6% in April and the Federal Government has announced it is targeting a rate beginning with a 4, supported by big spending initiatives in its upcoming Budget.

SMSF member limit to rise

While it’s not yet in force, the limit on SMSF member numbers is set to increase from the current four to six members later this year.

For some SMSFs, this will be a welcome change and will mean additional family members can join their existing fund.

Implications of the rule change

The new legislation is currently before Parliament and should come into force in the second half of 2021.

Although 93 per cent of SMSFs only have one or two members, for larger families the reforms will provide greater flexibility to add extra members. This could include adult children and their partners.ⁱ

While adding members to your SMSF will be easier, there are potential drawbacks as well as opportunities to including multiple generations in the one fund. So it’s important to think through the ramifications and get professional advice before acting.

Benefits of additional members

Larger SMSFs can have a number of benefits, including the potential to lower the overall fees paid by members. Many annual running fees – such as the annual auditing fee – are charged on a fixed dollar basis, regardless of the number of members.

With more members, costs per member will reduce. Adding extra members to an existing SMSF also avoids the expense of running several SMSFs to cover all family members.

Adding members to your SMSF will also create a larger pool of super money to invest. A higher overall fund balance increases your choice of potential investments and can improve diversification.

You will also have more negotiation and purchasing power and it can make it easier to implement certain tax strategies.

Wealth transfer benefits

In many situations, having all the family members in a single SMSF can help with intergenerational wealth transfer.

It can potentially streamline your estate planning and provide tax advantages as ownership of key assets is retained within the SMSF, reducing buy/sell costs and capital gains tax bills.

Given the lower annual contribution caps since 2017, having more fund members can also help an SMSF have the capital to purchase larger assets such as your business premises.

Additional members also make it easier for one or more of the SMSF’s trustees to travel overseas for an extended period without endangering the fund’s complying status.

More complex decision-making

Expanded funds can work well if all the members agree and get along, but the SMSF structure can make managing conflict difficult.

More members mean more risk of a dispute. Relationship breakdowns between fund members can also be a problem, particularly if account balances need to be withdrawn or divided between divorcing partners.

Additional trustees also reduce the control an individual trustee has over decision making, which is often the key reason for establishing an SMSF.

Bigger funds also mean more complex administration and slower, inefficient decision making. Appointing and removing trustees can also become harder.

Considering the different generations

Investing appropriately for additional members needs careful management. If the SMSF includes several generations, designing your fund’s investment strategy will be more complex, as it must suit members with diverse risk profiles and investment horizons.

With more members, paying out death benefits can be trickier. Payment decisions made by other trustees may not be what the deceased member intended. If the SMSF’s key asset is a business premises, the fund may have limited liquidity to pay a benefit.

An enlarged SMSF can also create the potential for financial abuse, with elderly fund members outvoted or manipulated by younger trustees.

Look before you leap

Trust legislation in some Australian states prohibits more than four individual trustees in a trust, so SMSFs looking to add members need to check the rules in their state.

Trustees will also need to check the SMSF’s trust deed. Some deeds prohibit more than four members, so it must be amended before additional members can join.

Amendments may also be needed to cover who and how many trustees are required to sign documents and cheques on behalf of the SMSF.

If you’d like to discuss these proposed changes or the running of your SMSF please give us a call.

i https://data.gov.au/data/dataset/self-managed-superannuation-funds/resource/ad70308d-ff84-4313-81d1-e30d0b274f29

Testing your weaknesses for a stronger business

The past 12 months have proven that in business as in life, there will always be factors out of our control. That’s why it’s important to put measures in place to manage the factors that you are in control of.

Many businesses have recently been given some strong lessons in where their vulnerabilities lie. Even if your business came through 2020 relatively unscathed it’s now a good time to think about these areas and put some measures in place to become more robust. While it can be difficult to protect your business against all of the potential unknowns out there, let’s look at some common risks and business weaknesses that you can address.

Disaster recovery plan

A disaster recovery plan (DRP) helps keep your business afloat and functioning well despite an emergency – whether it be through an information security risk, the loss of assets from a natural disaster such as bushfires, or even human error, such as deleting data.

These plans are quite often developed in the early days of a business and then kept in a drawer, only to be forgotten about in the day to day running of the business. While you shouldn’t need to consult the plan on a regular basis, it pays to re-familiarise yourself with it and if you don’t have one at all, now is the time to make one!

Interruptions to supply

Another area to investigate is your relationship with your suppliers. Are you reliant on particular suppliers or contractors? If so, you’re open to risk. What would happen if they are no longer able to supply to you because they cease their current services or their business folds?

Perhaps geographical instability or supply chain uncertainty could affect your supplier or contractor. The Global Supply Chain Risk Report found that increasingly buyer relationships are with suppliers located in high-risk countries.ⁱ

Assess and develop redundancies to ensure the continuation of a quality supply of the product or service. Figuring this out before an issue arises will mean you have options, should the situation unfortunately rise.

Client experience

You know your business back to front, but put yourself in the shoes of your customer. How do they access information about your business, where do they go for help and what potential roadblocks do they face in securing your services?

It’s worth testing every touch point your client makes with your business. Doing so will give you valuable insight into what their customer journey is like, whether it’s experienced in person, online, through support, accounts and day to day.

Mystery shoppers, a service often provided by market research organisations, are trained to report on what they find when doing an ‘audit’ of a business. You don’t necessarily need to hire a research company, a family member, friend or acquaintance could undertake the process. Perhaps they walked into the reception of your office and were ignored by your receptionist, or they had the door held open for them and were offered a friendly greeting. They may have had issues navigating your website or were left hanging on the phone for a long time. Their perspectives, as people with no vested interest in your organisation, are incredibly valuable.

Online assets

Don’t just focus on the external ‘face’ of your business though – you also should ensure that internal systems and intellectual property are protected. This has become increasingly difficult as the traditional work paradigm moves to remote work and flexible work arrangements. Penetration testing, or a pen test is where a simulated ‘cyberattack’ is performed so any weaknesses can be detected. Through this test you’ll find out how vulnerable your systems are to unauthorised hacks.

This preventative measure can save your business by establishing and strengthening security measures which ensure your continued service online, workflow within the business and client data management.

Reviewing where you are vulnerable and assessing which aspects of your business or processes can be improved is a worthwhile task for any business. Knowledge is power and identifying your weaknesses gives you the opportunity to address them and build a stronger foundation for business growth and success.

i https://www.dnb.co.uk/perspectives/supply-chain/global-supply-risk-report-q12018-cranfield.html

Federal Budget 2021-22: Focus on tax

Support for Australia’s businesses and our personal finances was at the heart of this year’s Federal Budget as the Morrison Government continues its attempts to strengthen the post-lockdown economy.

Once again Treasurer Josh Frydenberg made tax measures a key part of his Budget speech, announcing extensions to several of the Government’s signature tax support measures, together with new tax incentives and funding for job training and skills. These measures are designed to boost the continuing recovery of small and family businesses, which the Treasurer called the “engine room of the economy”.

LMITO extended again

With a federal election due next year, a key Budget announcement was another one year extension to the low and middle income tax offset (LMITO) for 2021-22. This measure will provide a tax offset of up to $1,080 for individuals and $2,160 for dual income families.

Continuation of full expensing and loss carry-back

The temporary full expensing and loss carry-back measures announced last year are also being extended to help businesses bring forward investment and access tax benefits. Eligible businesses with an aggregate annual turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets until 30 June 2023.

Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund will be available when companies lodge their tax returns for the 2020-21, 2021-22 and 2022-23 financial years.

Patent box

To provide incentive for Australia’s medical and biotechnology companies to commercialise their research, the Government is introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at a concessional rate of 17 per cent, which is significantly lower than the normal 30 per cent corporate rate. The new tax incentive is designed to encourage locally-based R&D and may be extended to the clean energy sector.

Adopting digital technology

As the digital economy continues to change the way we do business, small businesses will be supported to adopt digital technologies through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Service. They will also benefit from further $15.3 million in funding to help with the introduction of e-invoicing.

Employee share schemes reintroduced

To help businesses attract and retain talent, the Budget removes the cessation of employment taxing point for tax-deferred employee share schemes. This means tax on shares received as part of these schemes can now be deferred for up to 15 years.

New apprenticeship funding

The Government announced an additional $2.7 billion in funding for apprenticeships and traineeships. Businesses will be paid a 50 per cent wage subsidy over 12 months for new apprentices or trainees signed up by 31 March 2022.

There will also be an additional $500 million for low-fee or no cost training through the existing JobTrainer program to support training in digital skills and upskilling in industries like aged care.

New tax umpire

The Government is also making it easier for small businesses to pause or modify the collection of debts under dispute with the ATO. They will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.

Removal of SG threshold

Small businesses with low-income or part-time employees will need to revisit their Superannuation Guarantee (SG) contributions. This follows the Government’s commitment to remove the current $450 per month threshold before an employer needs to start making SG contributions for an employee.

Tax cut for brewers and distillers

And finally, it’s cheers all round for our artisan brewers and distillers. From 1 July 2021, those eligible will receive full remission (up from 60 per cent) of any excise paid on alcohol produced up to the new $350,000 cap on the Excise Refund Scheme.

Information in this article has been sourced from:

– The Budget Speech 2021-22 – https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/ speeches/budget-speech-2021-22

– and Federal Budget support documents – https://budget.gov.au/

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.