Exciting news for small businesses! Two significant changes are happening for the 2024 financial year, thanks to new laws passed by Parliament recently.
First, the instant asset write-off threshold has been raised from $1,000 to $20,000 for business annual aggregated turnover less than $10 million. This means that small businesses can now write off purchases of assets costing less than $20,000 in 2024 financial year. This change is a big boost for cash flow, as businesses can claim the tax deduction immediately instead of spreading it out over several years.
To take advantage of this, the asset must be bought and either used or installed and ready to use between 1 July 2023 and 30 June 2024. For example, if you buy an industrial fridge, it needs to be delivered and installed by 30 June 2024 to qualify for the write-off.
If the business is registered for GST, the cost of the asset must be less than $20,000 after deducting GST credits. If the business is not registered for GST, the cost must be $20,000 including GST. If the asset is only partly used for business, to determine the amount you can claim, subtract the portion used for private purposes. The remaining balance, which is the portion used to earn assessable income, is typically considered the taxable purpose portion (or business purpose portion). Although you can only deduct the taxable purpose portion, the total cost of the asset must be below the $20,000 threshold.
This new threshold applies to each asset individually. So, a small business can deduct the full cost of several items as long as each one costs less than $20,000. Additionally, a Bill is currently before Parliament to extend this increased threshold to 30 June 2025.
Another great benefit for small businesses is the new small business energy incentive. This incentive provides an extra tax deduction of 20% for the cost of eligible assets and improvements that make your business more energy-efficient or support electrification, such as purchasing of an air conditioner that replace a gas heater, installing time-shifting devices which allow electrical appliances to operate at off-peak times, etc.
There are some exceptions for the energy efficiency solutions, such as no bonus deduction for electric vehicles, solar panels, capital works, etc. Also, the maximum bonus deduction is $20,000, which means you can spend up to $100,000 on qualifying expenses happened between 1 July 2023 and 30 June 2024. Different from the Instant Asset Write-Off, this incentive is available to businesses with an annual turnover of less than $50 million. However, businesses with an annual turnover less than $10 million may can potentially claim both the Instant Asset Write-Off and Small Business Energy Incentive for the eligible assets and improvements. To read the details about the policy, please refer to our previous article ‘Empowering Your Business with Electrification: Unlocking the $20k Tax Deduction’.
Summary
These changes provide fantastic opportunities for small businesses to improve their cash flow and invest in energy-efficient equipment. With the increased write-off threshold and the energy incentive, make sure to check if your purchases qualify and take full advantage of these new laws.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The main residence exemption typically shields your family home from capital gains tax (CGT) upon its sale. However, as with many tax matters, it’s not straightforward. Below, we delve into the key aspects of the Main Residence Exemption to provide a comprehensive guide.
Qualifying as Your Main Residence
A home is usually deemed your main residence if:
You and your family live in the house.
Your personal belongings are in the house.
You receive mail at this address.
You register this address on the electoral roll.
Utility services like telephone, gas, and electricity are connected in your name.
You intend for it to be your main residence.
Interestingly, there is no specific time requirement for how long you must live in the home. The intention of making it your main residence is the key factor.
Generally, CGT applies to home sales unless you qualify for an exemption, partial exemption, or can offset the tax with a capital loss. If you’re an Australian tax resident, you can claim the full main residence exemption if:
The home was your primary residence for the entire ownership period.
You didn’t use the home to generate income.
The land area is 2 hectares or less.
Partial Exemption
If your home was used to produce income, you may qualify for a partial exemption. This often arises in cases where you:
Run a business from home (working from home is acceptable).
Rent out the home or a part of it.
Since July 2023, platforms like Airbnb must report transactions to the ATO, which will match this data against reported income.
Foreign Residents and Changing Residency
Foreign residents cannot access the main residence exemption, even if they were residents for part of the ownership period. If you’re a non-resident when you sell the property, the exemption likely won’t apply. Conversely, if you’re a resident at the time of sale and meet other criteria, you could qualify for the exemption even if you were a non-resident for part of the ownership period.
The Absence Rule
The absence rule allows your home to remain your main residence for tax purposes even if you are not living there, under certain conditions:
Rented Out: The home can be rented out for up to six years and still qualify as your main residence.
Not Producing Income: If the home is not rented out and not producing income, it can remain your main residence indefinitely.
It’s crucial to note that applying the absence rule to one property prevents you from claiming the main residence exemption on another property during the same period.
Timing
Your home generally qualifies as your main residence from the time you move in. If you move in as soon as practicable after the settlement date, it’s considered your main residence from the acquisition date.
If you buy a new home but haven’t sold your old one, you can treat both properties as your main residence for up to six months without affecting your main residence exemption eligibility. This applies if your old home was your main residence for at least three continuous months within the 12 months before you sold it and was not used to produce income during any part of that time when it was not your main residence. If selling the old home takes more than six months, the main residence exemption may apply to both homes only for the last six months before selling the old home. Before this period, you may choose which home is your main residence, with the other becoming subject to CGT.
If your new home is rented when purchased and you cannot move in, it is not your main residence until you do. Unforeseen circumstances, like hospitalization or an overseas work posting, might allow the main residence exemption if you move in as soon as practicable after resolving the issue. Inconvenience is not a valid reason, and documentation is required.
Couples and Main Residences
For couples, the rules are slightly different. Couples cannot claim the full CGT exemption on two separate homes. You have two options:
Single Main Residence: Choose one home as the main residence for both.
Split Exemption: Nominate different homes as main residences, splitting the exemption between you.
If you choose different homes:
Owning 50% or less means the home is your main residence, qualifying you for the exemption.
Owning more than 50% means the home is your main residence for half the period.
Divorce and the Main Residence
Assuming the home is transferred between spouses (not involving a trust or company), both individuals used the home solely as their main residence during their ownership period, and all other eligibility conditions are met, a full main residence exemption should be available when the property is eventually sold.
If the home qualified for the main residence exemption for only part of the ownership period for either individual, a partial exemption might be available. In this case, the spouse receiving the property may need to pay CGT on the gain from their share of the property received as part of the settlement when they eventually sell it.
Conclusion
While the Main Residence Exemption offers substantial benefits, the rules can be complex and vary based on individual circumstances. Factors such as changes in residency status, periods of absence, and property use can all impact your eligibility. Therefore, seeking professional advice is highly recommended to navigate these rules effectively and ensure you are maximising your tax benefits.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
As of 1 July 2024, personal income tax cuts are now active. Additionally, the superannuation guarantee (SG) rate has increased by 0.5% to 11.5%. Employers need to update their payroll systems, including salary sacrifice agreements, to accommodate these changes. PAYG withholding will also be affected.
The ATO has reminded employers to ensure they are meeting their super guarantee obligations. The definition of an employee for SG purposes is broad, including temporary residents, backpackers, certain company directors, family members working in the business, and some contractors. Make sure your classifications are accurate.
Employers must verify that the correct fund details and tax file numbers are provided to the super fund for their employees. SG payments must be made into the employee’s fund by the quarterly due date, with the next payments due by 28 July. Missing the deadline incurs the super guarantee charge (SGC), which includes the outstanding SG, 10% annual interest from the start of the quarter, and an administration fee. SGC amounts are not tax-deductible.
Wage Increases
From 1 July 2024, the national minimum wage has increased by 3.75% to $24.10 per hour, or $915.90 per week. This increase applies from the first full pay period on or after 1 July 2024. Typically, there is no direct link between minimum wage increases and inflation.
Private sector annual wage growth slightly decreased to 4.1% in the March quarter of 2024 from 4.2% in December 2023, indicating that wage growth may be stabilizing.
Interest Rates and Cost of Living
RBA Governor Michelle Bullock has highlighted that inflation is the main cause of cost of living pressures, not interest rates. Interest rates are used by the RBA to control inflation. Since inflation is easing more slowly than expected, the RBA may make further adjustments. Inflation dropped from 7.8% in December 2022 to 3.6% in the March quarter but rose again to 4% in May, affecting hopes for stable interest rates.
Business Confidence
The latest NAB business survey shows a decline in business confidence, which fell into negative territory in May as conditions continued to soften. Businesses have faced eight consecutive months of declining forward orders, leading to a cautious outlook. GDP saw marginal growth in the March quarter, while per capita consumption continued to decline. However, the labor market remains strong, with unemployment at 4% in May.
Treasury forecasts a slight improvement in economic growth (GDP) to 2% in 2024-25, a modest but credible outlook.
Migration and Labor
Post-pandemic, Australia saw a surge in migration with the return of international students, working holiday makers, and temporary skilled labor to address shortages. In the year ending 30 June 2023, overseas migration added a net gain of 518,000 people to Australia’s population, the highest on record.
The 2024-25 Federal Budget estimates a drop in net migration to 260,000. While migration pressures on housing have been well-publicized, the positive impact on labor supply was significant. Post-COVID, Australia faced severe labor shortages that hindered supply chain recovery.
From 1 January 2025, student visa numbers will be capped. Student visa grants were already down 34% in March 2024 compared to the same period in 2023. The government’s focus is shifting towards skilled migration, with an increase of 7,175 employer-sponsored places, although skilled independent visas will decrease by 13,475. The minimum salary requirement for sponsoring an employee (Temporary Skilled Migration Income Threshold) will rise to $73,150 from 1 July 2024.
Strategic Business Management
Businesses often fail because they don’t understand or monitor their operations effectively. Managers need to stay on top of their numbers to identify and address issues early. Profitability issues can weaken a business, but cash flow problems can be fatal. It’s crucial to plan, track, and measure cash flow, including managing debtor collections and inventory and maintaining a rolling three-month cash flow position to provide early warnings of potential problems.
Effective business management also involves overseeing cash flows, operating budgets, cost control, and debt management. By maintaining control over these areas, businesses can reduce their risk exposure.
Small businesses often absorb increasing costs. Raising prices during challenging times is not a betrayal; it’s a necessity. If the cost of doing business rises, this should be reflected in pricing unless the business can afford to make less for the same effort or is in a highly price-sensitive industry following the lead of larger competitors.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
A recent tax case of Duncan and Commissioner of Taxation [2024] AATA 974, the Administrative Appeals Tribunal (AAT) looked at a situation where a taxpayer, Mr. Duncan, tried to claim large deductions for meals eaten during his work trips. As the new financial year arrives, the tax return has been started. This case in time has shed some light on the meal expenses deduction claiming for the tax return season.
The Situation
Mr. Duncan is a long-haul truck driver who spent 282 days on the road in the year in question. He claimed a deduction of $100 per day for food and drink, which added up to a total of $28,200 for the year. This amount was just below the Australian Taxation Office’s (ATO) reasonable amounts (See TD 2023/3), so Mr. Duncan believed he did not need to provide detailed evidence for these expenses.
The ATO’s Response
The ATO agreed that Mr. Duncan spent $8,393 on meals at cafes and restaurants because these expenses were supported by his bank statements. However, the ATO did not accept the remaining $20,000 deduction because there was not enough evidence to support it.
The Arguments
Automatic Deductions Claim:
Mr. Duncan argued that he was entitled to automatic deductions up to the ATO’s reasonable amounts without needing to prove he spent the money.
The AAT disagreed, stating that the law requires the expenses to be actually incurred, even if the claim is below the ATO’s reasonable amounts.
Evidence of Grocery Expenses:
Mr. Duncan tried to show some expenses by providing evidence of purchases at supermarkets and stores near his home.
The AAT found it difficult to determine which meals were eaten during his trips and which were not because the purchases were made near his home.
Tribunal’s Decision
The AAT ruled against Mr. Duncan, highlighting that even if the claimed deductions are below the ATO’s reasonable amounts, taxpayers still need to prove that the expenses were actually incurred.
Important Lessons
Substantiation Exceptions: The rules can reduce the need for keeping every receipt and invoice, but taxpayers still need to incur the expenses.
Evidence Requirements: The ATO can ask for evidence on how deductions were calculated and require proof that the expenses were incurred.
Good Practices: Keeping a detailed diary or log of trips and meals, along with bank and credit statements, can help support deductions and reduce the risk of ATO challenges.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Prepay deductible expenses, make superannuation contributions, and plan charitable gifts for the 2023-24 financial year.
2. Superannuation Contributions:
If your total superannuation balance permits, make a one-off deductible contribution up to the $27,500 cap.
Utilize unused concessional cap amounts from the last five years if your super balance was below $500,000 on June 30, 2023.
Ensure you’re under 75, lodge a notice of intent to claim a deduction, and receive acknowledgment before filing your tax return.
For those aged 67-75, meet the work test to make personal contributions.
If your spouse earns less than $37,000, contribute to their super for a $540 tax offset given other conditions are met.
3. Offset Tax Bills with Super Contributions:
Use larger personal super contributions to offset taxes from capital gains if you sold any shares or property to avoid a large tax bill.
4. Charitable Donations:
Donations over $2 to registered DGRs are tax deductible.
Consider public or private ancillary funds for structured giving and potential immediate deductions.
5. Investment Property:
Get a depreciation schedule to maximize deductions for property wear and tear.
Risks for Individuals
1. Work from Home Expenses:
Claim either using the 67c per hour method or the actual expenses method.
Keep accurate records and receipts for claims.
2. Investment Property Deductions:
Claim expenses only if the property is genuinely available for rent.
Properly apportion loan interest and distinguish between repairs (immediate deduction) and capital improvements (deducted over time).
Co-owned property expenses must be claimed according to ownership percentage.
3. Gig Economy Income:
Declare all income from platforms like Airbnb, Uber, etc., as the ATO matches reported data.
New reporting rules for ride-sourcing, taxi travel, and short-term accommodation platforms started from 1 July 2023.
Opportunities for Businesses
1. Bonus Deductions:
Instant asset write-off for assets under $20,000, pending legislative approval.
Energy incentive of additional 20% deduction for energy-efficient assets, pending legislative approval.
20% bonus skills and training boost deduction for employee training by registered providers.
2. Write-off Bad Debts and Obsolete Equipment:
Write off bad debts and obsolete plant/equipment by 30 June.
3. Advance Tax Deductions:
Commit to directors’ fees, employee bonuses, and June quarter super contributions in June.
Risks for Businesses
1. Tax Debt and Reporting Obligations:
Failing to lodge returns signals issues; ATO can issue assessments.
Seek assistance for meeting obligations and managing tax debts.
2. Professional Firm Profits:
The ATO is reviewing profit distributions in professional services firms, architects, lawyers, accountants, etc., to ensure appropriate income reporting and tax payments.
Need Help?
For guidance on maximizing your deductions and minimizing risks, reach out to us today 0292213345.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The Australian Taxation Office (ATO) has issued a stern warning to trustees, emphasizing the importance of carefully considering how and to whom trust income is distributed. In recent years, trust distribution arrangements have faced increasing scrutiny, and trustees must meticulously review their practices to ensure compliance with relevant regulations. It is a good time to recapitulate this before the end of financial year distribution.
Understand your Trust Deed
One of the main concerns is that trustees may not be looking at their trust deed before distributing income. The trust deed is a legal document that outlines what the trust can do and who can receive income. It’s crucial to review this document before making any decisions.
Steps for Reviewing Your Trust Deed
Check the Deed and Amendments: Make sure that any actions taken by the trustees are in line with what the trust deed says.
Vesting Date: The trust deed specifies the procedures when the trust vests. Upon vesting, trustees may be required to distribute income and property to designated beneficiaries, losing their discretion in this regard.
Identify Beneficiaries: Determine who the beneficiaries are and understand their entitlements to income and capital.
Resolution Timing and Requirements: Review any conditions for trustee resolutions, including deadlines and the need for written resolutions, eg. it has to be done by 30 June.
Streaming Income: If you plan to allocate capital gains or franked distributions to certain beneficiaries, ensure the trust deed allows this.
Family Trust and Interposed Entity Elections
A family trust election ties the trust’s operations to a specific family group, helping protect losses and franking credits but potentially causing tax issues if misused. An interposed entity election brings an entity into an individual’s family group. Trustees need to understand the consequences of these elections before distributing income, as distributing outside the family group can result in hefty family trust distribution taxes.
Who really benefits?
The ATO is also vigilant about arrangements where income is allocated to beneficiaries who do not actually receive the financial benefit. If such arrangements reduce the overall tax paid, they are likely to draw the ATO’s attention.
Increased Reporting Requirements
Recent changes mean more detailed information is now required on tax returns about trust income distributions. These include:
Trust Tax Return: Four new capital gains tax labels have been added, requiring information that matches what beneficiaries report in their returns.
Beneficiaries: All beneficiaries must now file a new trust income schedule that matches the trust’s distribution statement.
The Importance of Compliance
Trusts offer significant flexibility in income distribution, but this comes with stringent compliance and control requirements. The ATO is closely monitoring how trusts distribute income and the associated tax implications.
Trustees must take these warnings seriously and diligently review their trust deeds and distribution arrangements to align with regulatory expectations. Ensuring proper compliance not only safeguards against potential penalties but also maintains the integrity and intended benefits of the trust structure.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
The ongoing transfer of wealth from the baby boomer generation is underscored by the pivotal role of homeownership, particularly as property prices soar, with NSW leading at an average of $1,184,500. Amidst a steady target cash rate of 4.35%, parents are increasingly pressured to aid younger generations in homeownership, especially as overall home ownership has declined from 70% to 67% over 15 years, exacerbating wealth inequality. As a tax professional, it’s crucial to understand the implications of this trend and provide guidance to both parents and their offspring.
Wealth Transfer and Home Ownership
The transfer of wealth from one generation to the next is a crucial aspect of estate planning, and home ownership often plays a central role in this process. However, with soaring housing prices and stagnant wage growth, many young Australians find themselves priced out of the property market. This financial pressure on the younger generation underscores the importance of parental assistance in achieving homeownership.
For younger individuals striving to purchase a home, the hurdles can seem insurmountable. High housing prices coupled with a stable cash rate pose significant challenges. As a result, many turn to their parents or family for financial support. While this assistance can be invaluable, it’s essential for parents to carefully consider their own financial security before extending aid.
Considerations for Parents
Parents contemplating providing financial assistance to their children must weigh the potential benefits against the risks. Cash gifts, while well-intentioned, can have unintended consequences, particularly in the event of divorce settlements. It’s imperative for parents to assess their financial situation thoroughly and consider alternative forms of support, such as loans or co-ownership arrangements.
Loan Structures
When opting for a loan arrangement, clear documentation is paramount. Enlisting legal assistance to draft formal terms is advisable, taking into account factors such as interest rates, repayment terms, and contingencies for unforeseen circumstances like divorce or death.
Family Guarantees
Acting as a guarantor for a child’s mortgage comes with inherent risks, including the potential loss of parents’ property if the child defaults on payments. Parents must conduct a comprehensive assessment of their financial standing and consider equalizing assistance among siblings to mitigate any potential disparities.
Co-ownership
Joint tenancy and tenants-in-common are viable options for property ownership involving children, each with its own set of implications. Establishing written agreements detailing ownership arrangements and addressing potential disputes is imperative to safeguard all parties involved.
Utilizing a Family Trust
Purchasing property through a family trust, with you or a related company as trustee, offers asset protection. Control of the trust can be passed to your child later, possibly without triggering significant CGT or stamp duty liabilities. However, CGT will apply to any increase in property value, and state tax issues, such as land tax and foreign beneficiary implications, must be considered.
Rent-Free Property
While providing reduced or rent-free housing may seem like a generous gesture, it’s essential to recognize that it does not contribute to the child’s long-term wealth accumulation through property ownership. Moreover, such arrangements may have significant tax implications for both parents and children, affecting deductions and CGT liabilities.
Overall, while helping children buy a home can be beneficial, careful planning and consideration of various factors are essential to avoid financial risks and maximize benefits for both parties.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
We take insight here of the mainly tax changes in the Federal Budget 2024-25 announced in May 2024, in relates to the topics of Individual & Families, Superannuation & Investors, and Business & Employers.
Individuals & Families
Personal income tax cuts confirmed
From
1 July 2024
As announced before, the government has made permanent tax cuts for all Australian taxpayers starting 01 July 2024.
Compared to the earlier Stage 3 plan, these new cuts give more benefits to people with taxable incomes below $150,000.
Personal income tax rates from 1 July 2024
Resident individuals
Tax rate
2023-24
2024-25
0%
$0 – $18,200
$0 – $18,200
16%
$18,201 – $45,000
19%
$18,201 – $45,000
30%
$45,001 – $135,000
32.5%
$45,001 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Non-resident individuals
Tax rate
2023-24
2024-25
30%
$0 – $135,000
32.5%
$0 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Working holiday markers
Tax rate
2023-24
2024-25
15%
0 – $45,000
0 – $45,000
30%
$45,001 – $135,000
32.5%
$45,001 – $120,000
37%
$120,001 – $180,000
$135,001 – $190,000
45%
>$180,000
>$190,000
Medicare levy low-income thresholds increase
From
1 July 2023
Starting from 01 July 2023, the low-income thresholds for the Medicare levy will be raised for singles, families, and seniors and pensioners.
These adjustments reflect recent changes in the CPI, ensuring that low-income taxpayers typically remain exempt from paying the Medicare levy.
$300 energy relief for households
From
1 July 2024
Households will get a $300 credit on their energy bills, spread out in automatic payments every three months throughout 2024-25.
Eligible small businesses will also get energy relief with a $325 rebate.
This plan, costing $3.5 billion over three years starting from 2023-24, continues and grows the Energy Bill Relief Fund.
Capping indexation of HELP debts
From
Loan accounts that existed on 1 June 2023
Starting from 01 June 2023, the Government will set the HELP indexation rate to be either the Consumer Price Index (CPI) or the Wage Price Index (WPI), whichever is lower. This change affects all HELP, VET Student Loans, Australian Apprenticeship Support Loans, and other student loans that were active on 01 June 2023.
By adjusting the HELP indexation from 01 June 2023, the rate will drop from:
– 7.1% to 3.2% in 2023, and
– 4.7% to about 4% in 2024.
This change helps over 3 million Australians with HELP debt after the CPI rate jumped to 7.1% last year.
A person with an average HELP debt of $26,500 will save around $1,200 on their loans this year, depending on the approval of the new law.
Estimated indexation for HELP debts
HELP debt at 30 June 2023
Total estimated credit for 2023 and 2024*
$15,000
$670
$25,000
$1,120
$30,000
$1,345
$35,000
$1,570
$40,000
$1,795
$45,000
$2,020
$50,000
$2,245
$60,000
$2,690
$100,000
$4,485
$130,000
$5,835
Note: The actual credit amount will depend on personal situations, including payments made during the year. All HELP debts that were adjusted in 2023 and are set to be adjusted again on 01 June 2024, will get a credit for the indexation.
Superannuation on paid parental leave
From
1 July 2025
Starting from 01 July 2025, superannuation (retirement savings) will be included with Paid Parental Leave (PPL) payments. Eligible parents will get an extra amount equal to 12% of their PPL payments, which will be added to their superannuation fund. This is on top of the previous change that increased leave to 22 weeks. The leave will further increase to 24 weeks from July 2025 and to 26 weeks from July 2026.
Increasing commonwealth rent assistance
From
20 September 2024
Starting from 20 September 2024, the highest amount of Commonwealth rent assistance will go up by 10%.
People who get payments from Centrelink or the Department of Veterans Affairs, as well as those receiving the family tax benefit, might also get rent assistance if they pay rent or similar payments that are above a set amount every two weeks.
Right now, the highest amount they can get every two weeks is $188.20 for a single person and $177.20 for a couple together.
This change will cost $1.9 billion over five years starting from 2023-24, and $0.5 billion per year from 2028-29. It follows a 15% increase in September 2023, making the maximum rates more than 40% higher than in May 2022.
Improving aged care support
The government will spend $2.2 billion over the next five years to improve aged care and follow the recommendations from the Royal Commission into Aged Care Quality and Safety. This funding includes 24,100 new home care packages in 2024-25. They have also decided to start the new Aged Care Act on 01 July 2025. The government is currently making and considering changes to how aged care is funded based on the 2021 Royal Commission report. This might affect the costs of home care and residential care in the future. Usually, past reforms have allowed current residents and home care recipients to keep their existing benefits.
Increased flexibility for carer payment
Date
20 March 2025
Currently, to get the Centrelink Carer Payment, the caregiver must not be working, studying, or training for more than 25 hours per week. This is because they need to give constant care to the recipient.
From 20 March 2025, this 25-hour limit will change to 100 hours over four weeks. This limit will only apply to employment and won’t include time spent on study, volunteering, or travel.
Additionally:
– Carer Payment recipients who exceed this limit or take more than their allowed temporary break from care days will have their payments paused for up to six months, rather than stopped entirely.
– Recipients will also have the option to take single temporary breaks from care if they exceed the participation limit, instead of the current requirement of at least seven days.
Higher JobSeeker rate for partial capacity to work
Date
20 September 2024
Starting 20 September 2024, the Government will expand the JobSeeker payment to include single recipients who can work a bit (up to 14 hours per week).
Right now, JobSeeker payments give higher rate to people aged 55 or older who’ve been on it for nine months in a row.
Relationship status
Maximum payment per fortnight
Single with no children
$762.70
Single with dependent children
$816.90
Single 55 or older after 9 continuous months of payments
$816.90
Partnered (Each)
$698.30
Freezing social security deeming rates
Date
12 months until 30 June 2025
When Centrelink and the Department of Veterans Affairs calculate payments, instead of looking at the actual income from your investments like bank accounts, term deposits, shares, and managed funds, they assume a fixed rate of return based on the total value of these investments. The Government plans to keep these fixed rates (shown below) unchanged until 1 July 2025.
Deeming rate
Single
Pensioner Couple
0.25%
Up to $60,400
Up to $100,200
2.25%
Amounts over $60,400
Amounts over $100,200
Pharmaceutical Benefits Scheme co-payments
From
1 January 2024
The Government will keep medicine prices low by stopping some price increases:
– The cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2025. After that, it will start going up again on 01 January 2026.
– If you have a concession card, the cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2029. After that, it will start to increase on 1 January 2030.
Also, the $1 discount on patient co-payments will be reduced each year until it’s gone.
Starting 1 January 2024, you may pay up to $31.60 for most PBS medicines, or $7.70 if you have a concession card. The Australian Government pays the rest, except for brand premiums and certain other charges.
Federal, state and territory governments focus on housing
Housing initiatives focus on three main areas:
1. Private Housing Development: The government aims to build 1.2 million homes by the end of the decade. The 2023-24 Budget introduced new measures to encourage investment in housing projects, especially for affordable rental homes. However, legislation needed to enable these incentives has just been released, which is crucial for certainty and large-scale investment.
2. Support for First Home Buyers: The 2023-24 Budget prioritizes helping first home buyers with a $5.5 billion funding over ten years through the Help to Buy scheme. No new incentives have been announced since then.
3. Crisis and Social Housing Support: The government allocated $1 billion towards crisis and transitional housing for vulnerable groups like women, children fleeing domestic violence, and youth. Additionally, Commonwealth Rent Assistance was increased by 15% in the 2023-24 Budget.
New measures include:
– Providing $1 billion to states and territories for building infrastructure like roads, sewers, and energy for new housing.
– Introducing a new $9.3 billion National Agreement on Social Housing and Homelessness over five years. This includes doubling Commonwealth funding for homelessness to $400 million annually, with matching contributions from states and territories.
Domestic violence
Date
From mid-2025
As mentioned before, the Government has promised nearly $1 billion over 5 years to make the Leaving Violence Program permanent. This program helps people escaping violence by providing them with financial support, safety checks, and referrals to get help. Those who qualify can receive up to $5,000 in financial aid, along with referrals, risk assessments, and safety planning.
Superannuation & Investors
Expanding CGT regime for foreign residents
Date
CGT events commencing on or after 1 July 2025
Here’s a simpler version:
The rules for how foreign residents are taxed on capital gains will be changed to:
– Clearing up and expanding the kinds of assets that foreign residents must pay capital gains tax on.
– Changing the test for the main asset from a single point in time to a period of 365 days.
– Requiring foreign residents to tell the ATO before they sell shares or other ownership rights worth more than $20 million.
Currently, foreign residents must pay capital gains tax when they sell property in Australia that counts as ‘taxable Australian property’ (TAP). These rules make sure that people who don’t live in Australia pay Australian tax when they sell property that’s closely linked to Australian land and used in Australian business.
Shares in a company and parts of a trust can be TAP if the taxpayer and some family members own at least 10% of the business and more than 50% of the gross market value of the assets that the business owns are property in Australia and things like that.
The changes are to make sure Australia can tax foreign residents on their direct and indirect sales of property closely connected to Australian land. Similar to what Australia does with Australian residents.
The new ATO way of telling them what you’re doing will help make sure the rules about withholding tax for foreign residents are followed. You need to check that the thing you’re selling isn’t TAP.
The plan will also make sure Australia’s rules for foreign residents paying capital gains tax are more like what other countries do and what experts think is best.
The government will talk to people about how to make the changes, and they think it will make $600 million more over five years and cost $8 million more.
Business & Employers
$325 energy relief for small business
Date
1 July 2024
About one million small businesses will get a $325 discount on their energy bills from 2024 to 2025. This support will be given as a credit every three months.
Households will also get energy relief with a $300 rebate.
This measure will cost $3.5 billion over three years starting from 2023 to 2024. It expands the Energy Bill Relief Fund.
$20k Small business instant asset write-off extended
Date
1 July 2023 to 30 June 2025
Small businesses that earn less than $10 million can immediately deduct the full cost of certain assets that cost less than $20,000. This applies to assets used or ready to use between July 1, 2023, and June 30, 2025.
“Immediately deductible” means that the business can claim the entire cost of the asset as a tax deduction in the same year it was bought and used or installed.
For businesses registered for GST, the asset’s cost must be under $20,000 after subtracting any GST credits. For those not registered, it must be under $20,000 including GST.
Each asset can be written off individually, allowing a business to deduct the cost of multiple assets.
These rules apply only to assets covered by depreciation rules. Capital improvements to buildings aren’t eligible.
Assets valued at $20,000 or more can’t be immediately deducted. Instead, they can be put into a small business depreciation pool and depreciated at 15% in the first year and 30% each following year, if the business chooses simplified depreciation.
The rule preventing small businesses from re-entering simplified depreciation for 5 years if they opt-out will be suspended until June 30, 2025.
The proposed increase in the instant asset write-off from $20,000 to $30,000, extending it to medium-sized businesses, is not yet law.
The Future Made in Australia initiative
The Government has announced a big plan to make Australia a leader in renewable energy. They will spend $22.7 billion on several projects to encourage private companies to invest in industries that will help Australia move towards net zero emissions. This will secure Australia’s position in the global economy and make sure the country is ready for future challenges. The Future Made in Australia Act will set the rules for this plan, focusing on industries where Australia is strong economically, helps reduce emissions, and improves national security and economic strength in different parts of the country.
Making Australia a renewable energy ‘super power’
Date
From 2027–28 to 2040–41
As part of the Future Made in Australia initiative, the Government plans to invest about $19.7 billion over ten years starting from 2024–25. This money will be used to speed up investment in key Australian industries like renewable hydrogen, green metals, low-carbon fuels, and the processing of critical minerals.
These investments include two time‑limited tax incentives to encourage new industries:
– A tax incentive for Critical Minerals Production, starting from 2027–28 to 2040–41, to support refining and processing of Australia’s 31 critical minerals. It will be valued at 10% of processing and refining costs, applicable for up to 10 years per project that will reach final investment decisions by 2030.
– A Hydrogen Production Tax Incentive, also starting from 2027–28 to 2040–41, for producers of renewable hydrogen. This will be $2 per kilogram of renewable hydrogen produced, for up to 10 years per project that will also reach final investment decisions by 2030.
These tax incentives are planned to be active from the 2027–28 to the 2040–41 financial years.
Other funding measures include:
– $10.2 million in 2024–25 for pre-feasibility studies on common-user processing facilities for critical minerals.
– $1.3 billion over ten years from 2024–25 for the Hydrogen Headstart program to support early-mover renewable hydrogen projects.
– $17.1 million over four years from 2024–25 for the 2024 National Hydrogen Strategy, including planning, social license, and safety training.
– $1.5 billion over seven years from 2027–28 for renewable energy investments by the Australian Renewable Energy Agency.
– $1.7 billion over ten years from 2024–25 for the Future Made in Australia Innovation Fund, focusing on projects in priority sectors.
– $1.4 billion over 11 years from 2023–24 to support manufacturing of clean energy technologies.
– $20.9 million over four years from 2024–25 for further consultation on incentives for low carbon liquid fuels.
– $18.1 million over six years from 2024–25 for foundational initiatives in the green metals industry.
– $11.4 million over four years from 2024–25 to fast track the Guarantee of Origin Scheme for green hydrogen and accelerate work on green metals.
These measures aim to enhance Australia’s capability in processing critical minerals, support the growth of a competitive hydrogen industry, and advance clean energy technologies.
Film producer tax offset
Date
2025-26 income year
The Producer Tax Offset is a refund given for Australian spending on making Australian films, if certain conditions are met. The amount of the offset is:
40% of the company’s spending on a feature film made in Australia.
20% of the company’s spending on other films made in Australia.
The minimum time needed for the production depends on what type of production it is.
As part of the Government’s National Cultural Policy, changes will be made to the Producer Tax Offset from 2025–26. These changes will:
Remove the minimum length rules for content.
Remove the cap that restricts spending on certain production costs to 20% of the total.
Small business support services
Date
Over four years from 2024–25
The Government plans to provide $41.7 million over four years starting from 2024–25 for several initiatives to support small businesses:
Improve how quickly small businesses get paid, including publicly identifying slow-paying businesses.
Support the mental health and financial wellbeing of small business owners, including extending the Small Business Debt Helpline and NewAccess for Small Business Owners program, which offers tailored, free, and private mental health support.
Update the Franchising Code of Conduct based on the 2023 Schaper Review, with a $3 million investment to remake and improve the code. This includes promoting best practices between franchisors and franchisees and making it easier for small businesses to operate, including better access to dispute resolution.
Provide $2.6 million to the Australian Small Business and Family Enterprise Ombudsman to help small businesses, including resolving disputes.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Utilizing company resources for personal gain is a common practice among business owners, often blurring the line between their business and personal life. However, the Australian Taxation Office (ATO) is intensifying its efforts to curb such practices, citing violations of tax laws.
In response to the prevalent misuse of company assets, the ATO has initiated an educational campaign to highlight the grave tax implications associated with these actions. Under Division 7A of the tax law, regulations target scenarios where private companies extend benefits to shareholders or their associates through loans, payments, or debt forgiveness. This provision aims to prevent shareholders from accessing company profits or assets without paying the appropriate taxes.
According to Division 7A, if a benefit is conferred, the recipient is deemed to have received an unfranked dividend for tax purposes, subject to taxation at their marginal tax rate. However, this adverse tax consequence can be mitigated by either repaying the amount before the company tax return deadline or establishing a compliant loan agreement with prescribed annual repayments at the benchmark interest rate.
Despite Division 7A being in effect since 1997, common compliance issues persist, including inaccurate accounting for the use of company assets, non-compliant loans, refinancing to cover Division 7A liabilities, and incorrect interest rate application. Managing the tax implications of benefits provided to shareholders and associates can quickly become complex. However, adhering to a few fundamental practices can help prevent complications:
Avoid using company funds for personal expenses.
Maintain comprehensive records documenting all company transactions, including those involving associated trusts, shareholders, and their associates.
Ensure that any loans extended to shareholders or their associates are supported by written agreements with terms that meet compliance standards, thereby preventing the entire loan amount from being treated as an unfranked dividend.
It is crucial to adhere to strict deadlines when addressing Division 7A issues. For instance, repayment of loans or implementation of compliant loan agreements must be completed before the due or lodgment date of the company’s tax return for the relevant year whichever is earlier.
In conclusion, the ATO’s crackdown on the misuse of company funds underscores the importance of adhering to tax regulations and maintaining transparency in financial dealings. By following prescribed guidelines and adopting best practices, business owners can avoid potential tax liabilities and ensure compliance with Division 7A requirements.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
Transitioning a family business from one generation to the next is a complex process that demands careful planning and execution. While the idea of passing the torch to the next kin may seem straightforward, the reality is often far from it. Disputes, misunderstandings, and financial challenges can arise, jeopardizing both the business and familial relationships. In this article, we delve into the key considerations and strategies for successful generational succession.
1. Assessing Capability and Willingness:
The first step in generational succession is to determine whether the next generation is both capable of and willing to take on the business. This requires a realistic assessment of their skills, experience, and passion for the industry. While some successors may view it as their birthright, mere willingness is not enough; they must also possess the necessary competencies to lead the business forward. Conversely, the exiting generation must be open to the possibility that their children may have different career aspirations.
2. Managing Capital Transfer:
Determining the amount of capital to be extracted from the business during the transition to maintain its financial stability is another pivotal concern. Exiting generation may require a substantial sum, exerting pressure on both the business and its stakeholders. Often, the incoming generation lacks the necessary funds for a complete buyout, necessitating ongoing investment from the exiting generation or increased debt for the business. Clear documentation of the capital transition plan is vital to ensure transparency and alignment between all stakeholders.
3. Establishing Fair Compensation:
Remuneration should be based on commercial terms rather than meeting the personal needs of the owners. Formalizing compensation structures for directors and shareholders is essential to avoid disparities and conflicts of interest. Performance incentives should be clearly defined and tied to measurable outcomes to align incentives and drive accountability.
4. Defining Operating and Management Control:
The transition of control is often a sensitive issue in generational succession. It’s crucial to establish clear guidelines for operating and management control and to ensure buy-in from all parties involved. This may involve gradual transitions over time or event-driven milestones, depending on the circumstances of the business and the preferences of the stakeholders.
5. Setting Realistic Timeframes:
Generational succession is not an overnight process; it requires careful planning and implementation over an extended period. Setting realistic timeframes and expectations is essential to manage the transition effectively. Ensuring that all stakeholders have a common understanding of it to avoid misunderstandings and delays is crucial. This realistic timeline must be defined and documented in the succession plan.
6. Embracing Formality and Structure:
Finally, generational succession often necessitates a greater level of formality and structure within the business. This includes defining roles and responsibilities, establishing clear decision-making processes, and implementing key performance indicators (KPIs) for management. By fostering a culture of accountability and transparency, family businesses can navigate the complexities of succession more smoothly.
In conclusion, generational succession is a multifaceted process that requires careful consideration of financial, operational, and interpersonal dynamics. By addressing key issues such as capability assessment, capital transfer, compensation, control transition, timeframe management, and organizational structure, family businesses can increase the likelihood of a successful transition and ensure the continuity of their legacy for future generations.
Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.
Pitt Martin Groupqualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.
This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.
