Dendra Accounting Group

November Tax Update

Carbon Tax Preparation

The House of Representatives has passed the legislation for the introduction of a Carbon Tax from 1st July 2012.  Small business operators need to start thinking about the impact that the Carbon Tax scheme will have on their business operation.

Whilst it is true that the price on carbon will be paid by the emitter, (this is basically restricted to about 500 corporations), the cost effect will affect every small business operator.  This is because the carbon cost will be passed through the economy by the emitters in various ways.  Higher power prices and production costs will be the main areas affected by the Carbon Tax but there will undoubtedly be others including local government rates.  One of the real issues for SMEs to think about is - if you have long term contracts, will you be able to adjust prices because of the extra costs that you will undoubtedly incur as a result of the Carbon Tax?  If you have long term contracts, then we suggest you discuss these contractual issues with your solicitor.  Also, if you are the recipient of a long term contract from a supplier, does the contract allow you to reject an increased supplier cost based on the carbon tax?  If you are in this category, we suggest you discuss this issue with your solicitor.  The scope and coverage of the Carbon Tax means that some industries will have to pay the carbon tax and others will not, at least for now. The industries which will have to pay the Carbon Tax include:

• power generation;
• industrial facilities;
• mine emissions;
• some transport operations such as shipping, aviation and rail;
• non transport fuel use (eg. non transport LNG [liquefied natural gas] and diesel); and 
• non legacy waste (after 2012).

The industries that are not included, at this stage, are:

• agriculture and land; 
• biofuels;
• household transport and light commercials; and
• fuel used on land and international aviation.

The tax is generally paid by the producer of the emission, but the cost will be passed through the community.  Households receiving taxable incomes of less than $60,000 per annum will receive some inducements from the federal government.  People earning over $60,000 per annum will not have any adjustment.

Borrowing in your Self Managed Superannuation Fund

In September 2007 changes were made to the Superannuation Industry Supervision Act (SISA) which allowed Self Managed Superannuation Funds (SMSF) to borrow to purchase specific assets. This means that a SMSF can invest in certain limited recourse borrowing arrangements, however there are various specific conditions that must be met. Some of these conditions are:

·         The borrowings are used to acquire a single asset, or a collection of identical assets that have the same market value (that are together treated as a single asset), which the fund is not otherwise prohibited from acquiring.

·         The acquirable asset is held on trust (Bare Trust) so that the SMSF trustee receives a beneficial interest in the asset.

·         Any recourse that the lender has under the arrangement against the SMSF trustee is limited to rights relating to the acquirable asset. This limitation applies to rights directly or indirectly relating to a default on the borrowing and related charges or directly or indirectly relating to the SMSF trustee's rights in respect of the acquirable asset (for example, rights to income from the asset).

The rules governing borrowing through your fund are quite complicate however the illustration below shows how a typical arrangement would work:

A Separate Trust (Bare Trust) is required to be established which will hold the asset, the SMSF is a beneficial owner of this the asset acquired. This way the lender takes security over the asset held in the bare trust, but does not have security over any other assets that may be in the SMSF. The SISA is very specific in the way in which the Bare Trust and loan arrangement are to be set up and the ramifications of not correctly setting up the arrangement can be costly. If you are interested in further exploring borrowing through an SMSF, please contact us.



New Research & Development (R&D) Scheme
 

The Australian government’s new research and development scheme, known as R & D Tax Incentive, commenced from the 1st July 2011 and applies to research and development expenditure incurred after that date.

The new tax incentive has 2 components - The first relates to companies with turnovers up to $20 million per annum.  These companies are entitled to claim 45% refundable tax offset for eligible R & D expenditure.  Other companies are able to claim 40% non-refundable tax offset.  Key changes that have been made to the previous R & D system include:

• Removal of the $2 million cap on R & D expenditure for companies with turnovers of under $5 million.  
• Replacement of the 10% cap on the amount of overseas expenditure that could be expended as part of an R & D project.
• R & D plans are no longer required, but the legislation sets out the requirements for record keeping and we therefore suggest that companies continue to prepare R & D plans as part of their corporate record keeping to satisfy AusIndustry and the Australian Taxation Office that appropriate procedures have been adopted for each R & D project.

Registration needs to be made on an annual basis.  This can be made up to 10 months after the end of the financial year, so the first deadline for registration, under the R & D tax incentives, will be 30th April 2013.

The legislation introduces the concept of companies being able to apply for Advance Findings.  This is an application that goes to AusIndustry to enable them to issue a written finding as to whether a proposed R & D project is eligible expenditure under the R & D Tax Incentive.  Advance Findings apply for the financial year in which they were given and to 2 subsequent financial years.

If you are conducting research & development in the current financial year, we recommend that you have a discussion with us in relation to the record keeping requirements of the R & D Tax Incentive and the possibility of applying for an Advance Finding.
 

What's it Mean

Accounts Receivables... (also known as trade debtors) is the amount owed to the business by customers in the form of regular accounts for sale of goods or services.  It is normal to prepare a list of accounts receivables at the end of each reporting period.  It is good management practise to prepare a debtors' aged analysis which shows the time period that the debt has been outstanding to your business (normally shown as 30 days, 60 days, 90 days etc.) but in some businesses it is shown as 7 days, 14 days, 21 days etc.   

Accounts receivable (trade debtors) management is an activity that should take place each week and should be reviewed by business owners as it has a major impact on the cashflow of your business.

The information contained in this Update is general in nature and will apply differently to every individual and business. You should contact Dendra to discuss how any of the above strategies may apply to your particular circumstances.