Welcome to the Accounting Evolution blog space. Here we aim to keep you informed – always, and entertained – where possible (it is tax and accounting after all), with selected content designed to keep you abreast of changes, trends, new products and anything else of interest in the world of Tax and Accounting. If you want to know what’s happening, come back regularly to the Accounting Evolution blog pages.

July 2020 Newsletter

July is here along with the winter chill. But July also signals the start of a new financial year and chances are most Australians are happy to say goodbye to the last one. This year more than ever it’s a great time to plan your finances for the year ahead, to rebuild or make the most of savings you have made during months of social isolation.

With an extraordinary financial year behind us, it’s a good time to take stock. After 28 years Australia’s record economic expansion ended due to the COVID shutdowns. Our economy contracted by 0.3% in the March quarter and looks set to contract 8% in the June quarter, confirmation that we are officially in recession. The Budget deficit for the 12 months to May was a record $65.5 billion or 3.3% of GDP, $61 billion higher than predicted just last December. Unemployment rose to 7.1% in May, the highest since 2001, with another 1.6 million Australians on JobKeeper payments.

Yet Australia is weathering the COVID storm better than most nations, with signs of building business and consumer confidence. Retail sales rose a record 16.3% in May, after a record 17.7% fall in April, while new vehicle sales fell 35% in the year to May. The ANZ/Roy Morgan consumer confidence index is up 42% on its record lows in March, while the NAB business confidence index rebounded to -20 points in May, up from a record low of -65 points in April.

Financial markets finished the financial year mixed, but in better shape than many feared. In the year to June, US shares rose 4.6% while Australian shares trimmed their losses to 10.8% after a partial rebound in the last quarter. Falling global demand hit crude oil prices (down 33%) and iron ore (down 14%). The Aussie dollar firmed 3.7% in June to finish the year at US69c as a mark of Australia’s sure handling of the COVID crisis.

Becoming a better active listener

Becoming a better active listener

We all want to be heard. Feeling truly listened to can boost your self-confidence, make you feel understood and strengthen the connection between you and others. In the workplace it can be the difference between feeling engaged or unappreciated.

In the book You’re Not Listening: What You’re Missing and Why It Matters, Kate Murphy writes: “Done well and with deliberation, listening can transform your understanding of the people and the world around you, which inevitably enriches and elevates your experience and existence.”i

The good news is with a little concentration, patience and practise you can develop your active listening skills.

Active listening instead of simply hearing

Ask that person with the glazed expression who is busy doing something while you’re talking to them if they’ve heard you, and they’ll probably say yes. They can parrot back what you’ve said but it’s unlikely they have let your words sink in.

The difference between hearing and active listening is that the latter involves your full attention, not just the ability to hear the sounds the speaker makes.

Why we’re not great at active listening

Active listening, is actually more difficult than any other form of personal communication. This is simply due to the fact that the rate at which we speak requires our brains to receive words at an extremely slow pace compared with its capabilities.ii Our brain has spare time for thinking while listening, which can be either used well or misused. This is made all the more difficult as our attention is pulled in many directions these days. Notifications on our phones and computers ping, we’re scrolling through websites, we often need to multitask – when we do have conversations it’s rare that we tune out these distractions and focus solely on the speaker.

Our emotional filters and perceived assumptions also influence our capacity to actively listen, as can our habit of trying to ‘get all the facts’, which prevents us from grasping broader concepts while committing facts to memory.

We can also misunderstand what it means to be a good listener. As the example above illustrates, perhaps you think the ability to repeat what was said means you’ve honed the art of listening. Or the fact that you can still hold a conversation while scrolling through your phone shows you can still listen.

Being an active listener is not something that comes naturally to many of us, but we can work at it.

The benefits of improved listening

While active listening is obviously beneficial to your interpersonal relationships as you’ll develop greater connections with the people around you, it also provides value to businesses. When people fail to hear and understand each other, productivity is impacted, mistakes occur, conflict can arise and processes break down.

Promoting active listening and platforms to enable communication, can improve customer satisfaction, enhance client retention and build company culture. Innovation and process improvements can also benefit as management hears suggestions and takes action.

How to actively work on your listening skills

How many times are you busy formulating your reply to someone before they’ve finished speaking? Most of us do this and it means we’re more likely to miss out on nuance, visual and verbal cues or an unanticipated revelation this way.

Recognise and moderate any preconceived assumptions or biases you may hold. Pause before rushing in. Ask for more information to help inform your response, using open-ended questions. Just as importantly, listen to yourself. How do your responses show that you respect the other person’s point of view?

Making a space conducive for listening is also important. This could be finding a separate room, stepping away from your computer and silencing your phone so you can focus on the conversation, maintaining eye contact and positive posture.

You won’t become an active listener overnight, but by making an effort to strengthen this ability you’ll undoubtedly reap the benefits.

i Murphy, Kate. You’re Not Listening: What You’re Missing and Why It Matters. Penguin. (Original work published 2020).


Family trusts under ATO scrutiny

Family trusts under ATO scrutiny

Family trusts have stood the test of time as a means of protecting family and business wealth, and managing the distribution of trust income in a tax-effective way. But the misuse of these tax benefits by a small minority periodically puts trusts in the firing line of the Australian Taxation Office (ATO).

With the ATO’s recent focus on potential tax avoidance by individuals who feature on annual rich lists, wealthy families and private businesses, trust structures are once again in the tax man’s sights.

The ATO is zeroing in on taxpayers with a net wealth over $5 million as well as large private companies and their associated subsidiaries with annual turnovers of more than $10 million. The regulator is particularly interested in taxpayers in this group with low transparency of their tax affairs, large or unusual transactions, aggressive tax planning, and a lifestyle not supported by their after tax income.

Cracking down on trusts

The ATO’s Tax Avoidance Taskforce is also concentrating on the use of trusts to split income. Its Trusts group is reviewing carefully the use of these structures by Australia’s top 500 private wealthy taxpayers and private business groups.

Trusts have already proved to be a fertile revenue area for the ATO. Over the past six years, the regulator has completed more than 950 trust reviews and raised more than $1.2 billion in tax liabilities, together with several successful convictions for serious tax fraud.

With predictions that by 2022 there will be over one million trusts in Australia being used as vehicles for business, investment and estate planning, the ATO is keen to ensure these structures are not being used for deliberate tax avoidance.

Of significant interest to the ATO are trusts engaging in tax planning behaviours such as tax ‘shuffles’, complex distributions, non lodgment and structures designed to prevent transparency.

Using trusts for business and family

Although the ATO is cracking down on tax avoidance by trusts, it also recognises that the majority of trust arrangements in Australia are used for genuine business and family reasons.

The main benefit of a trust is that it provides a simple way to separate the legal and beneficial ownership of assets. This means the trust has a trustee who controls the trust and legally owns the assets within it, while the beneficiaries (such as family members) receive any income that flows from these assets.

A simple example of a common trust structure is a self managed super fund (SMSF), where the fund trustee is the legal owner of the assets held by the fund (or trust). Members of the fund then receive the investment returns earned on the investment assets held within the SMSF trust.

For small businesses and families, the most common type of trust is a discretionary or family trust. This trust structure is very flexible and can offer valuable protection benefits for the trust’s beneficiaries, who can be immediate and extended family members, other family companies, or even charities.

In a discretionary or family trust, the trustee has absolute discretion on how the income and capital of the trust are distributed to the various beneficiaries. This can provide the trustee with a great deal of flexibility when allocating income to family members paying different marginal tax rates.

Benefits of a trust structure

Discretionary or family trusts can provide a range of tax, asset protection, estate planning and land holding benefits to families and small businesses.

In the right situation, they can offer you a way to pay lower taxes and keep money within the family. They can help with the accumulation of assets for younger generations and can provide simpler regulatory and tax reporting, plus the opportunity for discounted capital gains.

For professionals, small businesses and farming operations, a family trust can provide asset protection, as the trust structure prevents a beneficiary’s creditors from accessing key assets. So if your business goes bankrupt, your creditors are unable to touch the assets or property held within the trust.

If you would like to find out more about trusts and whether one is appropriate for your business or family, call us today.

Your post-COVID business repair kit

Your post-COVID business repair kit

With June 30 behind us and the economy slowly re-opening, most business owners are thinking about the challenge of repairing and rebuilding their finances after the COVID-19 lockdown.

Over the next few months, key tests will come with the withdrawal of government stimulus measures like JobKeeper and the return of your normal wages, rent and financing expenses.

An end to landlord rent deferrals and business loan repayment holidays, for those who had them, will make cashflow and debtor management increasingly important. Throw in closer scrutiny of on-going business viability by the banks and an end to higher debt amounts before creditors can issue statutory demands or initiate bankruptcy proceedings, and the future looks challenging.

Things to do now

Given the challenge, there are important actions you should consider in order to rebuild your business finances and get your tax affairs in order.

A great place to start is getting your Business Activity Statement (BAS) lodged promptly if you’re eligible for the Boosting Cashflow for Employers scheme.

Qualifying businesses will receive a second boost for the period July to September 2020 after you lodge your BAS. If you want to receive the stimulus you must lodge by the 28 July and 28 October quarterly due dates.

Check your tax compliance

It’s also important to ensure your Single Touch Payroll (STP) data remains correct, as the ATO is using it to actively review business entitlement for government support measures. Remember, the STP data is also likely to be audited in the future, particularly in relation to JobKeeper payments.

If you’re having payment or reporting difficulties, consider contacting the ATO as it’s offering tailored support plans for individual businesses. You may even be able to defer some of your tax obligations until later in the year.

Monitor your financial position

Key activities in the months ahead will be performing a detailed financial health check on your business and ensuring your budget matches current business conditions.

As the insolvency relief measures come to an end, regularly measure your solvency to ensure you do not accidentally trade while insolvent.

If you find yourself in financial difficulty, talk to us early on so we can develop a strategy to work through your problems.

Review your debtor management

You should also regularly check your debt position. Ensure you invoice promptly and follow up old debts.

If debtors have been severely affected by the pandemic, consider writing-off the debts. Debts can be written off against your income in the financial year in which they are written off, regardless of when you invoiced them.

Develop strong liquidity

During a recession, your cashflow and cash reserve positions need to be constantly monitored so you are forewarned of any potential problems.

You may also need to change your accounting processes. For example, changing your GST reporting cycle or moving to accounting for GST on a cash rather than accruals basis means you pay GST to the ATO when you actually collect it – not when you issue your invoice.

Consider asset purchases

If you are lucky enough to still have strong cashflow, you could take advantage of the government’s further extension to 31 December 2020 of the $150,000 instant asset write-off.

We can help you work out if your business has sufficient cashflow to make a purchase and whether it’s best to use the instant asset write-off or normal depreciation rules.

Review your business structure

A new financial year is also a good time to start long-term tax planning.

This could include looking at the appropriateness of your current business structure. The structure you started out with may no longer be the most tax effective if your business has grown, or for surviving a recession.

We can review your current business structure to see if it’s still the best option, or if changing it could help cut your tax bill. Restructuring from a sole trader to a company for example, could reduce your tax rate from 45 per cent to the flat 26 per cent company rate.

We can help you get your business back in business and ready for the future.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website or call 02 9098 5055 for more information on our available services.

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