April 2008 Articles

Tax Implications in Financial Decision Making

Cash is King

Is a Self-Managed Super Fund for you?

News

Transition to Retirement

2009 Graduate Program

Changes to Hours of Operation

Talking Shop

You may be approaching a time of important decision-making concerning your life and business. You may wish to retire or hand the assets to the kids, or sell the business or a business asset. Perhaps you would simply like to take advantage of high property and business prices. All of these decisions are important and require careful planning especially when there is a tax component to consider.

The choices you make can be the difference between you paying no tax, or a hefty tax bill. There are very generous tax concessions in place for those in business. These concessions are known as the Capital Gains Tax (CGT) small business concessions. These concessions ensure that if you satisfy certain tests you can pay nil or greatly reduced tax. The sooner you involve your tax adviser the greater likelihood you will only pay the tax you need to.

A simple example:
John and Sally manufacture water tanks. They started the business 10 years ago by buying a warehouse for $100,000, which they used as the place to manufacture and sell water tanks. They have watched the business boom in the last five years and feel this is a good time to sell the business to get the best price. They have been offered $2.1 million for the business.

In the absence of the CGT small business concessions they could be taxed on:
Selling price: $2,100,000
Cost price: $100,000
Capital Gain $2,000,000
Less 50% discount $1,000,000

Taxable capital gain $1,000,000 (John and Sally would include $500,000 each in their tax return)

However, if John & Sally are eligible for the concessions a vastly different situation would apply:
Selling price: $2,100,000
Cost price: $100,000
Capital Gain $2,000,000
Less 50% discount $1,000,000
Less 50% active asset $ 500,000

Your choice of:

• Rollover* you have two years to purchase another business asset.

• Retirement exemption^# $500,000 each (life time limit)

* The rollover choice is where you are saying that you intend to purchase another business asset within two years. If you don't then in that later year you include the amount you rolled over or you can claim the retirement exemption and pay the amount into your superfund if you are still under 55.
# The retirement exemption can be claimed even if you are under 55, in which case you must pay that amount into an eligible superfund. If you are over 55 then you can keep it tax free.

Taxable capital gain $ nil.  As you can see the benefits are great.

If John and Sally had started the business over 15 years ago, and they are over 55, they get the whole amount tax free without having to apply any of the other choices.

Are you eligible for the concessions?

The turnover or net asset test
You must have a turnover of less than $2 million or your net (business) assets must be less than $6 million.

This means for example that if your turnover was $1.5 million and your assets $20 million you can still access the concessions. Alternatively if your turnover was $4 million but your net assets were less than $6million you would still be eligible.

The active asset test
The asset you are selling must be one actively used in the business. An example would be your business, the business premises, the farm, motel or shop. Excluded would be passive assets such as a rental property (commercial and residential), a vacant block of land, your holiday home.

It is important that you speak to us before you sell your business.

If you are not looking at selling the business, but want to take advantage of these concessions when you do sell, talk to us now!

Decisions made or not made now can affect your eligibility to these concessions.

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If you're over 55 and still in the workforce, the Transition to Retirement provision (TTR) in the Tax Act could be just the tonic you need.  By salary sacrificing all or part of your salary into super, you can save considerable tax, and then top up your reduced salary from your super savings, and in the process save more tax.

The options are numerous and the good thing is you can significantly boost your retirement funds along the way.  Talk to us at WHK.  We can walk you through the options and recommend the best strategy for you.

I hear it all the time in my work - "Yes Steve, we understand that we have made profits in our business but where is it? We don't see it in the bank balance!"

I saw a comment on a website recently that said "Profit is optional - cash is king". That's where I got the title of this article and it is true we don't pay bills with profits - the bills have to be covered by the cold hard stuff - cash.

The trouble with looking at profits only to determine our business success is that it gives us only a small part of the story. The comment made by my clients about the bank balance is a clue to solving this dilemma because - guess where the bank balance appears in financial statements - in the Balance Sheet. That's where I always look first.

If your business is growing, as many are in the building industry, you may not always be able to be hands-on with every part of it. The key is to manage cash flow by budgeting. And not just budgeting for profit but specifically for cash flow.  Key areas to concentrate on and control are - Inventory, Work in Progress, debtors, and particularly GST obligations. I like to help my clients by projecting these amounts using financial modeling software and coming up with an expected bank balance at the end of each month. Then they can see what the cash position is likely to be. Talk to your business advisor about using modeling software - it can really help. It takes the guess work out of it and enables the business owners to maintain control of that royal of all commodities - CASH.
 

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A self-managed superannuation fund (SMSF) is just one way to manage your superannuation benefits. The decision to establish and run a SMSF is important and should be very carefully considered.

Just some of the many issues to consider before making the commitment to establish a SMSF are:

• The financial and time burdens of operating a self-managed superannuation fund
  - many costs are largely fixed each year regardless of the size of the fund, which can either make a SMSF comparatively cheap or expensive.

• Your responsibilities as a trustee to comply with the legislation
  - there are severe penalties for trustees who misuse the fund's superannuation benefits and who do not comply with the relevant legislation.

• Determining whether you have a sufficient amount of assets to contribute to the fund to make it viable
  - ATO guidelines suggest a minimum requirement of $200,000, however many believe $300,000 is a more realistic minimum for a SMSF.

You should also ensure you have the appropriate blend of asset classes, investment diversification and expertise to manage the fund successfully. WHK Financial Planners are qualified to discuss whether a self-managed superannuation fund is the best retirement saving option for you.

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New Operating Hours
From the 31st of March, the Townsville and Kirwan office hours will be:
Monday - Thursday 8.00AM to 5.00PM
Friday 8.00AM to 2.00PM

A discussion-style presentation by WHK begins proceedings and is followed by morning tea on the deck by the pool.  Talking Shop meets every second month at
Seagulls Resort, 74 The Esplanade, Townsville QLD 4810.

The cost is $20.  10am to 11am

Friday 30th May, 2008
Friday 25th July, 2008
Friday 19th September, 2008
Friday 28th November, 2008

Relax and enjoy morning tea by the pool from 10:30am

Should you be interested in attending this session, or later sessions, please contact
Sonia Warrell on (07) 4722 9524.

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