Stage 3 Tax Cuts
The Federal government has reaffirmed its commitment to the so-called Stage 3 Tax Cuts. By way of background, the previous government legislated these tax cuts. They will abolish the current 37 per cent tax bracket, lower the existing 32.5 per cent bracket to 30 per cent, and raise the threshold for the top tax bracket from $180,001 to $200,001. You can see what that means by looking at the table below.
It shows how the personal income tax rates and thresholds will change in the 2024-25 financial year.
|Current 2023/24 Thresholds
|New thresholds from 1 July 2024
|Up to $18,200
|Up to $18,200
|$18,201 – $45,000
|$45,000 to $200,000
|$180,001 and over
|$200,001 and over
The result will be that the first $18,200 you earn will be tax-free (as it is currently), and every dollar you earn between that and $45,000 will be taxed at 19% (as it is presently). But then things change.
From July 1, 2024, every taxable dollar you earn from $45,001 to $200,000 will be taxed at 30%, and every dollar you earn above $200,000 will be taxed at 45%. That’s very different from what currently happens.
On the face of it, lowering the 32.5% bracket to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper-middle-income earners. But it will be a much bigger win for higher-income earners in dollar terms.
Please reach out to us when these cuts begin in July next year to figure out your tax position.
Advantages of company structure
There are many advantages of operating your business via a company structure, including:
- Liability for shareholders is limited.
- It’s easy to transfer ownership by selling shares to another party.
- The company can employ shareholders (often family members).
- The company can trade anywhere in Australia.
- Taxation rates can be more favourable.
- You’ll have access to a broader capital and skills base.
- Reduced personal responsibility for any business debts incurred.
- Legal liability also becomes reduced since a company is a separate legal entity from you as an individual.
- Company tax rates are lower compared to higher marginal tax rates.
- It can be much easier to raise finance and capital to grow and expand your business.
Chief among the advantages of company structure benefit these is asset protection. Broadly speaking, company owners are protected from creditors if their company fails. However, there are two notable exceptions!
The first of these is where a director offers a personal guarantee. Companies often require financial support to secure loans, leases, or credit facilities to foster growth and development in the dynamic business world. To assure lenders or creditors, directors of companies in Australia may be asked to offer personal guarantees. These guarantees, known as “Directors’ Guarantees”, play a crucial role in ensuring that the obligations of a company are met.
Such guarantees are essential for three reasons:
- Access to Funding: By providing a personal guarantee, directors can help their companies access financing that might otherwise be difficult to obtain, especially for new businesses.
- Credibility: A director’s willingness to guarantee a company’s obligations can enhance the company’s credibility and trustworthiness in the eyes of creditors and prospective business partners.
- Risk Mitigation: For creditors, a Directors’ Guarantee serves as a safety net, ensuring that someone personally takes responsibility for the company’s obligations, reducing the risk of financial loss.
Directors should know that providing a Directors’ Guarantee carries significant personal risk. If the company defaults on its obligations and the director cannot cover the debt, its personal assets may be at risk. Along with director guarantees, owners of companies may also be personally liable under the director penalty notice regime.
As a company director, you become personally liable for your company’s unpaid amounts of:
- Pay as-you-go withholding (PAYGW)
- Gods and services tax (GST)
- Super guarantee charge (SGC).
These amounts that you are personally liable for are called director penalties. The ATO can recover the penalty amounts once they issue a director penalty notice. To be clear, a director is responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full by the due date.
If these obligations are not met, directors become personally liable for director penalties unless they take steps to ensure the company lodges and pays its:
- PAYGW by the due date,
- Net GST (as well as Luxury Car Tax and Wine Equalisation Tax amounts) by the due date and
- Superannuation guarantee (SG) to employees’ superannuation funds by the due date – if that doesn’t occur, the company must lodge a superannuation guarantee statement and pay the resulting SGC liability.
Talk to us if you are still determining your director’s liabilities.
The upcoming Christmas break is an opportune time to review a business plan.
A business plan can be used to:
- help you start a new business.
- help you improve the performance of an existing business.
- attract funding for an investment.
- communicate business progress to stakeholders.
- communicate business goals and objectives to internal staff members.
- attract potential buyers for the business.
A business plan is a ‘living’ document, so it should evolve and change—think of it an operating guide for your business throughout the start-up, operations and succession phases.
The elements of a business plan will vary depending on:
- phase of the business is in (starting, running, selling).
- the industry a business is in.
- the use of the plan (e.g. for internal development purposes).
Every business plan will be different but generally include the elements below.
- Executive summary
This section provides an overview of the business concept. It should be attention-grabbing and concise—the content will be covered in more detail in future sections. While this is the first section of the plan, it can often help to write it last after the other sections have been finalised. This helps to ensure that the executive summary covers all the key information within the plan. It should define:
- business vision
- legal structure
- products and services
- market and products or services
- financial projections
- evolution of the business and the industry
- structure of the business
- short-term and long-term goals
- Product, service and market analysis
In this section, you should highlight your business products and services and describe what makes them unique, such as their:
- cost and sale price.
You can also include details of any business plans to introduce new products and services. Your market analysis should describe your target market (e.g., local, international) and target customers. Add in the research you have done about your industry and the market trends. In this section, you will also complete a SWOT analysis (strengths, weaknesses, opportunities, threats).
Explain your sales forecasts and targets in this section and how you will manage customer records and payments—understanding what sales strategies will work for you and the best channels to market your products or services. You will also need to know your current sales, volume and market share and what you expect them to be for the coming year. You should also identify your break-even point – the sales volume required to keep the doors open.
- Operating plan
This section will cover all you know about how you do things in your business—for example, your standard operating procedures and how to ensure the quality of your products and services.
- Financial plan
Summarise your key financial details, including:
- costs for establishing or operating the business.
- sales needed to break even.
- projected cash flow.
- funding arrangements.
- payment plans.
- Action plan
The final section of the business plan should include a set of actions to take before you review your business plan and check your progress. This should be over 6–12 months, based on the business goals outlined in your plan.
Set a regular review date for the actions and the business plan. Assess which actions have been completed, which remain outstanding, and require updating to help your business plan remain relevant.
As noted, the Christmas break is an excellent time to review your business plan to ensure that it’s relevant, achievable and up to date with any changes in your business.
To help you review your plan, ask yourself the following questions:
- What will the review schedule be?
- Is the plan up to date?
- Have the business goals changed?
- Does the plan still match the business goals?
- Are market trends changing?
- Have significant political, environmental, social or technological changes affected your business?
- Have there been significant changes in your finances or need for capital?
Benchmarking your business
Have you benchmarked the performance of your business?
The ATO provides a high-level benchmark tool for business owners to compare their company’s performance to a broader range of similar businesses. There are essentially three purposes behind the ATO Small Business Benchmark Tool. These are:
- encourage business owners to perform annual health checks to see if their costs are above or below their peers.
- enable businesses to assess whether any discrepancies may be flagged for an audit by the ATO and
- to alert the ATO to investigate businesses outside the benchmarking norm.
Financial benchmarking has been a valuable tool for businesses across various industries for decades, as it is an effective way of identifying issues and facilitating sound business decisions.
The ATO says: “When we see a business significantly outside the key benchmark range for their industry, it doesn’t necessarily mean you have done anything wrong. But it indicates something unusual and may prompt us to contact you for further information”.
In conclusion, the ATO Benchmark Tool is a valuable resource for small businesses to see how you’re tracking against businesses of a similar type. Access the benchmarks on the ATO website and contact us if you have any questions.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.