Every business is different, from the activity is does to earn income to the number of people who work within in it but whilst there are a number differences between every business, the one thing that remains constant is the need for good bookkeeping. The process of recording & reconciling every financial transaction that comes through the business once meant that owners and managers would spend hours going through receipts and ledgers but thanks to the advances in cloud computing, this is no longer the case. Cloud Accounting systems such as Xero not only allow for easy bookkeeping & reconciliation but also ensure that data and invoices are secured safely in the cloud, meaning that your financial records are kept safe in case of a system outage. Not only are the advances in Cloud Accounting making the management of businesses easier, it also is a great tool when it comes to preparing and lodging your tax returns. As a part of being ready for tax time, business owners would normally dread having to prepare income reports, reconcile statements and sift through receipts & invoice papers however, by having all of your records stored securely online, this is now a thing of the past. Even if you are not the best at reconciling your accounts every month or quarter, having all of your business transactions stored in the cloud makes this much more time efficient then the traditional way of preparing accounts. This is because for the majority of cloud accounting systems currently available on the market, their software can directly link to your business bank account, meaning that there is no chance of loosing receipts or double counting invoices. In addition to this, because everything is stored in the cloud, there is no chance of you loosing the files due to software corrupting or issues with your computers. As we have an ever advancing digital the world, The Australian Tax Office has worked alongside some of these cloud accounting providers to allow for complete integration for lodgement of documents including Tax Return, Activity Statement & Payment Summaries. This integration completes a full circle on accounting and bookkeeping requirements for small business, with transactions allowed to be traced and reconciled with ease, a simple report generation process stored securely in the cloud which can be directly lodged with the tax office. Something that hasn’t been touched on is the fact that cloud accounting is designed for small business owners, not accounting professionals. The user friendly interface and functionally across multiple devices allows business owners to seamlessly integrate this into their operations and thanks the app add-ons such as invoicing and payroll, it can become a very strong asset to the business. It should also be said that with all great features cloud accounting offers, these usually come as part of a membership packages with varying fees depending on the level of sophistication required for you reporting.
What is bookkeeping and how does it help small businesses? Bookkeeping is the day-to-day recording of a business’ transactions. The process involves recording, analysing and interpreting of financial transactions. Bookkeeping primarily records the financial effects of transactions and is part of a broader aspect of the accounting process.
In the normal course of business, a document is produced each time a transaction happens. Sales and purchases come with invoices and receipts. Deposit slips are produced when depositing money into a bank account. Cheques are written up when paying money out of a bank account. Pay slips are produced when paying salaries of staff. Bookkeeping first involves recording the details of all these source documents into multi-column journals. For example, all credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal.
After a certain period, usually at the end of each month, each column in the journals are summed up and these totals are then posted to their respective ledgers. For example, the total sum of in the sales journal will be leave a credit entry in the Sales account, and a corresponding debit entry will be made in each individual debtors’ account (showing the business who owes them what amount).
Bookkeepers follow a strict double entry principle in which for every transaction, there is a debit entry affecting one account and a corresponding credit entry of the same amount that affects another account. For example, purchasing a $200 printer from Officeworks with a credit card will create a $200 debit entry in the Office Equipment account and a corresponding credit entry of $200 in the Bank account. This shows the business that they have increased the value of their office equipment by $200 and their bank total has reduced by $200.
As a partial check that the posting process was done correctly, a 3-column working document called an unadjusted trial balance is created. It shows the names of every non-zero account in the first column, a debit column in the second and a credit column in the third column. All the accounts with a debit balance has its balance posted in the second column whereas accounts with a credit balance is posted in the third column. The debit and credit columns are added up and if they do not tally, it shows there is a mistake somewhere in the journal recording or posting to accounts. The mistake is then discovered and rectified.
A bookkeeper does all of the above to set up financial statements so that an accountant can easily perform legal and tax management in a timely manner.
A skilled and compliant bookkeeper should be able to produce financial records that give the business accurate information about its financial activities. These records are critical to the future success of any business. Not only are these records necessary for the business, they are also required by law. Australian legislation states that businesses must have up to date financial records to ensure that they pay all necessary taxes.
Records that are accurate and true must be kept for a period of at least 5 years from the date that the documents were prepared, obtained or the transaction completed, whichever occurs the latest. Some records, such as payroll, must be kept for a minimum of 7 years.
Australia, being a close neighbour to Malaysia, has always been on the radar for Malaysians. Whether it is to live, study, work or have a holiday, many Malaysians have found their way to Australia at some point in their lives. As an entrepreneur, you may have considered expanding into the Australian market. Here’s why now is the best time to do so.
Safe Haven Economy
Australia has traditionally been a safe haven economy for global investors. In the wake of great uncertainties within the global economy, Australia has been a destination of choice for asset and wealth protection. Australia’s economic resilience and potential provide a safe, low-risk environment in which to do business. The country’s economy is rated AAA by all three global rating agencies and is forecast to realise average annual real GDP growth of 2.9 per cent between 2016 and 2020.
New Industry Required
Over the past decade, huge inflows of capital have been pushed towards the Australian property market in search of a secure asset class to preserve wealth and hold value. While this has proven successful for a number of years, it has gotten to a point where the property market is now overheated. With new stricter regulations being introduced and banks tightening lending to property investors, a need has arisen for capital to be put to more productive use elsewhere.
At the same time, Australia has experienced a slowdown in the more traditional industries – mining, manufacturing, agriculture and retail, thus creating a need for newer industries to take the lead. Tech and start-up businesses have been a somewhat neglected field within the Australian economy. However in recent years, Australian start-ups have been gaining greater momentum and are thriving both within Australia and internationally. The big success stories of Atlassian and Kogan are indication that tech and start-up businesses will be the new drivers of the Australian economy.
Increased Support from the Australian Government
The Australian Government has recently shown their support for tech and start-up businesses by introducing new tax measures designed to promote investment in high-growth potential start-up companies and improve businesses’ access to venture capital. On top of that, the Australian Government has pledged AU$1.1 billion towards building the tech and start-up industry. These incentives are available from 1 July 2016 which makes now the perfect time to tap into the Australian market.
Some of the incentives for Start-ups and Entrepreneurs include the following:
1. Opportunity to raise money through crowd-sourced equity funding
2. Improved insolvency laws to encourage entrepreneurship
3. Better access to company losses
4. Greater support through incubators and accelerators
5. Greater benefit extracted from intangible assets
6. Potential for international business expansion
Startup investors stand to benefit greatly from the new rules that have been introduced. Under the new rules, startup investors are eligible for a non-refundable carry forward tax offset equal to 20% of the amount paid for their investments. On top of that, investors also get a 10 year capital gains tax exemption for qualifying investments held for at least twelve months.
A practical guide is provided by the government’s website:
“Jessica is the founder of a startup business called PaySmart Pty Ltd that is developing a software application to automate bill payments. She is looking to raise $200,000 in equity finance to continue developing of the software.
Alex is an experienced early stage (angel) investor and believes that PaySmart has excellent growth potential. He invests $200,000 and claims a 20% non-refundable tax offset, reducing his income tax payable by $40,000.
In addition to contributing capital, Alex uses his business skills to help PaySmart grow. He sells his shares for $400,000 four years later. As Alex has held the investment in PaySmart for the minimum three year period and less than 10 years, the full capital gain of $200,000 is exempt from capital gains tax.” – Source: http://www.innovation.gov.au/page/tax-incentives-investors
A program that is particularly relevant to startup investors is the Early Stage Venture Capital Limited Partnerships (ESVCLP). ESVCLP is a venture capital fund structured as a limited partnership and registered with Innovation Australia. Income distributions and capital gains earned as a result of investment in an ESVCLP will be exempt from tax in Australia in the hands of both domestic and foreign partners. Investments in ESVCLPs also contribute towards qualifying for a Significant Investor Visa (SIV) which is a permanent resident visa in Australia. All these make the structure very attractive to international investors.
The Australian economy is at a turning point and is ready to embrace new innovative solutions. Should Australia pop up as a blip on your radar, now is a great time to steer your ship in that direction.
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As Australia’s property market continues to grow, especially in the capital cities of Sydney and Melbourne, more people are turning to property development as a means of investment. Due to the nature and scale of activities involved in property development, it’s important to choose the right legal structure to set up (check out how we can help you choose the right legal structure to maximise your return). However, there is no standard or perfect structure for development, as each project is different and is dependent upon individual circumstances.
- Risk When choosing the right structure for your development project, there are a number of factors to consider. Probably the most important factor to consider is the risk involved and asset protection. The nature of activities involved in property development involves a number of risks with workers on site, money invested and equipment used. While insurance may be able to cover some costs, it is important to limit the potential liability you may face in the event that something goes wrong.
- Taxation: As with most business activities in Australia, property development and the proceeds that arise from it are subject to taxes. Different types of structures are subject to different taxation and compliance, so before setting up your structure you should be aware of the obligations. This becomes particularly important when the project is completed and you decide upon what to do with the property. The type of structure you choose could have a major impact on how much tax you are obliged to pay.
- Parties Involved: One of the key determinants in choosing the right structure depends on who will be involved in the development project. As some structures are only appropriate when related parties are involved, having correct structures and agreements in place at the start of the development will prevent you from running into problems down the track. It is also important that each party is aware of their own obligations and responsibilities when setting out a development project.
Once you have taken all these factors into account as well as your own personal circumstances, you will be best placed to choose the right structure for your property development project. Here are some common structures:
Trusts – Family Trust & Unit Trust
Where the property development activities are being undertaken by a group of family members, a family trust can be an effective way of protecting assets and distributing the income. A trust is a legal mechanism where by the trustee looks after the trust’s assets for the benefit of the beneficiaries. This means that the assets of the trusts and beneficiaries are protected from being sued to a degree, as the trustee is generally the one liable. A great way to extend the protection under a trust is to have a corporate trustee through a proprietary limited company. Using a trust is also the most effective form of tax planning in property development, as the income received from the sale or renting of the property is able to be distributed to beneficiaries at the discretion of the trustee.
A unit trust functions in a similar way, however parties are not related and the amount of benefit that beneficiaries are entitled to is determined by the number of units held.
Proprietary Limited Company
In Australia, a company is considered to be a legal entity that can buy, sell and be sued in its own right so the main benefit of carrying out property development as a proprietary limited company is the limited liability for members to the value of their ownership. Whilst you don’t want to plan for things to go wrong, it’s important to limit yourself and business partners where you can. A company can be a good option where the individuals are not related or family members, as any profit received from the development can be paid out as a dividend to shareholders.
Partnerships are a straight forward option for a development structure, as this may not require any registration or formation other than a partnership agreement. However, as individuals in a partnership are not protected by anything other than insurance, their liability is unlimited in the case that something goes wrong or the development is sued for any reason. This also means that all the costs of the development are incurred by the partners and any profit made is considered taxable income and thus taxed at the marginal tax rate.
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DISCLAIMER: This information was produced as a general information and should not be taken as advice. Individuals should consider their own circumstances before choosing an appropriate business structure and it is best to seek professional advice before making any decisions.