As the new year begins, property developers have the chance to save money on GST payable, while employers of people on working holiday visas need to register as new tax changes come into law. We also offer clear guidance on how to review and refine business operations in preparation for the year ahead. If your business developing and manages complex issues, this guidance should best be taken in consideration with hiring a Virtual CFO. Sydney, Melbourne, Seoul, or beyond – virtual CFO services give buinesses complete financial and strategic analysis without the price tag involved in hiring a Chief Financial Officer.
GST Margin Scheme for Property Developers
The Margin Scheme increases the final profit of a project for property developers. It does this by reducing the amount of GST payable to the ATO. A concessional treatment is provided on the calculation of real estate sales (generally on new residential sales). The base amount of this concession is 1/11th of the margin, with the margin being defined as the difference between the original purchase price of the property and the sale price.
For example, under the margin scheme, if the original purchase of a house was $600,000 and the sale price is $800,000, then the developer receives a base GST concession on the sale of $18,181 (1/11th of $200,000), adding to the final profit on the sale.
It cannot be understated that developing property involves a considerable investment. It is a significant financial decision. The ability to access the margin scheme can have a material impact on the financial feasibility for a proposed property development as it has an immediate impact on the profit and return from the development.
In order to benefit under the Margin Scheme, property developers need to consider their eligibility and the documentation required.
Eligibility
The following are broad considerations for eligibility:
- What is the financial cost of hiring foreign workers, both in the short term and in the long term (in light of the annual levy)?
- Will my business struggle to find local workers with comparable skills?
Documentation
The Margin Scheme must be agreed upon in writing by both parties and documentation must be carefully prepared and presented.
Developers should make sure they agree to accessing the Margin Scheme at the time of supply, most commonly by including an election provision within the contract of sale, and should double check the draft of the contract with a lawyer or accountant before signing.
It can be significantly difficult if a developer needs to contact the purchaser to sign a separate agreement should the sale contract fail to correctly include provisions for the Margin Scheme. The ATO requires specific documentation from developers who are eligible for Margin Scheme savings at the time of an agreement, documentation which demonstrates eligibility and, in some cases, valuation of the property. So it is again vital that developers consult carefully with an accountant or lawyer when preparing the requisite documentation. When this evaluation of your business could involve broader issues, hiring a Virtual CFO in Sydney should also be considered.
Changes to the Employment of Backpackers
In October, we covered the government’s proposals to soften the so-called backpacker tax – the taxation of people on working holiday visas, or visa classes 417 and 462. These changes were not only aimed at decreasing the tax burden of people who were unable to benefit from the tax free threshold available to Australian residents. They were also directed at boosting industries such as hospitality and agriculture that typically rely on backpackers by making it more attractive for those on working holiday visas to work in these industries.
The legislation has now been passed, making the proposed changes law. However, the proposed rate of 19% has been lowered to 15% under this legislation. Moreover, employers of Working Holiday Makers are required to keep to the following:
Registration
Employers need to have registered their employment of persons on 417 and 462 visas with ATO by 31 January 2017. Before registration, employers must be registered for pay as you go (PAYG) withholding or a withholder payer number. Employers are required by law to register; penalties may apply for those who fail to register. There is an online registration tool through the ATO website that needs to be completed.
Visa Check
Employers need to keep Visa Entitlement Verification Online (VEVO) check for each of their employees on visas 417 and 462. This is needed for substantiation purposes to demonstrate that an employee is on these visas.
Tax Withholding
From 1 January 2017. employers are required to withhold PAYG tax from employees on visa classes 417 and 462 at a rate of 15%. There are tax tables available to assist with the calculation.
Once registered, a withholding rate of 15% applies to the first $37,000 of a working holiday maker’s income. Normal foreign resident withholding rates apply to income over $37,000. If an employer fails to register a withholding tax rate 32.5% applies to income earned up to $87,000. Normal foreign resident withholding rates apply to income over $87,000. Penalties may apply for failing to register.
Preparing Your Business for the New Year
A new year can herald both new aspirations and new concerns for a business. It also provides an ideal time re-visit business strategies and perform general housekeeping. Preparing a business for the new year, and for both the challenges and opportunities the year affords, is a catalyst for success.
Here are some effective ways a business and its management team can review, reflect, and prepare for 2017.
Plan Vision and Goals
A business’ vision, strategy, goals, and direction are integral to its capacity to achieve superior performance. Putting in effort to outline or clarify vision and strategy, and taking the time to set clear and realistic goals and direction for 2017, can make all the difference in terms of positive performance for the year. In order for this planning to translate into success, processes for establishing and managing visioning and goal setting must be put into place. Concrete plans, projects, and actions must result across the entire business and its operations.
Revisit Budgeting
Accurate and effective budgeting is part of the backbone of a sturdy enterprise. Explore any budgets implemented for the current financial year. Measure business targets against actual business performance. If a business’ targets are not being reached, it is perhaps time to consider external factors and reforecast both the cash flow and budgeting numbers. This will set up a business with an accurate and viable budget for the year.
If a business has not been operating with a recent budget, it is advisable to review the previous 6 months of financials with a financial advisor so an accurate forecast can be made for 2017.
Evaluate Staffing Review Entity Structures
Once a budget has been reviewed, a business can confidently measure the state of its resources. This is particularly vital in the area of staffing and human resources. Motivated staff are proactive and take initiative toward fulfilling your business objectives. A business should evaluate whether it has the right staffing resources to meet its targets and objectives. This is a pertinent time to look at staff skills, staff training, and to undertake formal or informal appraisals of your key staff. It can save time and money by helping avoid a scenario where a business lacks competent or sufficient staff to reach targets over the duration of the year.
Review Entity Structures Undertake Financial Housekeeping
It is useful to consider whether the entity structure currently used by a business is still the most effective choice. By taking a step back and considering the risks and financials inherent to using an entity structure, a business can review whether or not the current structure is fulfilling its intended purpose. A careful examination of financials such as the profit and loss balance sheet is critical in this regard.
Undertake Financial Housekeeping
Every business needs to engage in a degree of financial housekeeping from time to time. The following questions help ‘clean up’ business operations and ensure that a business can perform at its optimum level during the course of the year.
- Have debtors and creditors ledgers been reviewed? Are there any old outstanding items that need to be resolved?
- Have the cash positions of each entity been revaluated recently? Has management checked the loan account balances between related entities?
- What significant operational events are likely to come up during the year that demand preparation and planning? For example, an expiry of a premises lease, the repayment of an external loan, or any major capital purchases or renovations? Is your cash flow able to meet these upcoming or likely events?
As you head into the new year, its best to consider if your business is on its best footing. The above issues are diverse, potential complex, yet many businesses need to consider each of them and do so in the context of an overall strategy. Virtual CFOs in Sydney can help local and international businesses manage a variety of issues such as these with strategic and financial nuance, without adding a strain to your budget.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.