The Pros & Cons Of A Partnership As A Business Structure

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If you’re looking to go into business with someone, the chances are that you might be looking at using a business structure known as a partnership. A partnership is a type of business structure that is made up of two or more people who distribute income or losses between themselves and is a fairly popular form of structure amongst those looking to develop a business.

It offers ease and flexibility to run your business as individuals, eliminates the need to create a company structure and avoid reporting obligations. You’re also not going into creating a business by yourself, which can be an added bonus for some and reduces some of the initial financial burden and uncertainty of the setup.

Just as there are advantages to choosing to set up a partnership, one must also examine the disadvantages.

A partnership generally exists between two or more parties, so disagreements in management may occur, and decision-making may never be truly equal. It can be difficult to add or remove partners into and out of the partnership, and adding more partners can make the partnership more complex to manage.

Partnerships also generally do not receive access to many government grants (barring special exemptions).

A partnership business structure may be the structure for you to employ as they possess the following key elements:

  • Partnerships are relatively easy and inexpensive to set up
  • Have minimal reporting requirements
  • Require separate tax file numbers
  • Must apply for an ABN and use it for all business dealings
  • Share control and management of the business
  • Don’t pay tax on the income earned, as each partner pays tax on the share of the net partnership income that each receives
  • Do require a partnership tax return to be lodged with the Australian Taxation Office (ATO) each year
  • Require each partner to be responsible for their own superannuation arrangements.

There are three main types of partnerships that you may have come across in your own research. Each one has advantages and disadvantages that you may want to take into account when considering what would be the best suited to your situation.

A general partnership is where all partners are equally responsible for the management of the business. For any debts and obligations that may be incurred by the business, each partner has unlimited liability for them.

A limited partnership is made up of general partners whose liability is limited to the amount of money that they have contributed to the partnership. Those involved in this style of partnership are known as limited partners who are usually passive investors without a role to play in the day-to-day management and running of the business.

An incorporated limited partnership is where the partners involved in this type of partnership can have limited liability, but at least one general partner must have unlimited liability. If the business cannot meet its obligations, that general partner (or partners) become personally liable for the shortfall and debts.

Each state and territory has different legislation and regulations that must be abided by when setting up a partnership. Learn what is legally required from you prior to setting up your partnership, or discuss with us what you may be obligated to do.

Using A Corporate Trustee Instead Of Individuals For A Family Trust

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A family trust is a great structure.  It provides tax flexibility whilst giving you asset separation in two directions.  But what does asset separation in two directions mean? And why might we suggest it to you as a recommendation?

First of all, why do you want asset separation? If there are multiple assets, you want to make sure that if someone makes a claim against the owner of a particular asset that your other assets can be quarantined from that claim. This isolation will mean that they can’t gain access to the assets that are yours and separate from the claim.

If you own a business and have a successful financial claim made against your business where the claim is for an amount that is more than the assets of the business, you will first need to use the business to cover the claim, and then find something additional to supplement the shortfall. In this case, if you also own your own home, and its worth is enough to cover that shortfall, it may be used to meet the claim by combining the business assets’ worth and the family home’s value. You could lose your family home!

However, if we structure your business in a particular way then the person making that claim will only have access to the assets in the business and you will be able to keep your family home.

This is what is called asset separation. Generally, it’s a good thing to employ, but it does have one flaw – it usually only goes one way.

If someone claims on your business, they won’t get the house but if they successfully make a financial claim against you, they will successfully get all of the assets that you own, including those of your business.  This is a risk that you must be willing to take if you own a business.

When you operate a business through a family trust instead of owning that business, you will merely “control” it, and have but a “mere expectancy” of being considered in the distribution of any profits or capital from that business.

The good part here is that although you only have a mere expectancy to be considered, we would set it up so it is YOU that “considers” who gets the money.  This means that if someone makes a claim against you then they can’t get access to assets in the family trust. What this does is give you two-way asset protection.

There is a bit of an issue with family trusts though – although you will see the debts of the trust as debts of the trust at law, they are in actual fact the debts of the trustee. If you are the trustee, all of the debts of the trust are your personal debts. You can use the trust assets to pay down those debts, but if the trust assets are insufficient to pay the debts, it will be up to you to pay off the rest.

When you’re an individual trustee of a trust, you lose the perk of asset separation, which is why a company may be used as a trustee, as the company does nothing other than act as the trustee of the trust. If there are insufficient funds in the trust to cover the debts of the trust, then those debts fall on the trustee and the creditors have no access to your personal assets because you have no individual debts owing.

Want to know more about asset separation? Interested in trusts? We’re here to help.

Receive A Relief Or Support Payment? Here’s What You Need To Watch Out For This Tax Season

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Have you, over the course of the past financial year, received a government assistance payment, support payment or disaster relief supplement?

There have been a number of cases where people who received financial assistance from the government were hit with additional owed tax to the ATO, due to their payments increasing their income threshold.

When lodging your individual income tax return this year, you will need to declare certain Australian Government payments, pensions and allowances in your tax return. If you did not elect to pay tax on those payments, this could affect the payment received from your return (or mean that you actually owe money to the ATO).

Some of the taxable payments that you may need to include in your tax return include:

  • the age pension
  • carer payment
  • Austudy payment
  • JobSeeker payment
  • Youth allowance
  • Defence Force income support allowance (DFISA) where the pension, payment or allowance to which it relates is taxable
  • veteran payment
  • invalidity service pension, if you have reached age-pension age
  • disability support pension, if you have reached age-pension age
  • income support supplement
  • sickness allowance
  • parenting payment (partnered)
  • disaster recovery allowance (but not in relation to 201920 bushfires)

Most of these pensions, payments and allowances will pre-fill in your tax return if you lodge online. You will need to make sure that all information submitted is correct though. Verify the pre-filled information with your own records to ensure that you are lodging the right information, and not missing anything.

Do you have concerns about your tax return this year? Uncertain about deductions, or if certain taxes will apply to you? Want a little more help or information about your government payments?

Be prepared for your individual income tax return with a consult with us. We can advise you on your tax returns, and potentially help you minimise the tax you will end up paying.

Choosing A Structure For Your Business: The Co-Operative Explained.

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Sometimes you might want to set up a structure where you will share in the spoils with everyone that deals with that structure.  There is a specific type of structure for this and it is known as a Co-Operative.

A co-operative business structure (or co-op) is a legally incorporated business entity that is designed to serve the interests of its members. Co-operatives may be profit-sharing enterprises or not-for-profit organisations.

A cooperative business serves members by providing goods and services that may be unavailable or too costly to access as individuals. There are two types of cooperatives that businesses can be set up as.

Distributing cooperatives are able to distribute any annual profits to members of the cooperative. They are required to share the capital that they make, and members of this type of cooperative must own the minimum number of shares specified in the co-op’s rules.

Non-distributing cooperatives cannot share their profits with members of the cooperative. All profits must further the cooperative’s purpose, and the cooperative may or may not issue shares to the members. Members may be charged a subscription fee if there is no share capital

Some popular cooperatives business structures include:

  • Consumer co-operatives, which buy and sell goods to members at competitive prices in a variety of sectors.
  • Producer co-operatives, which may process, brand, market and distribute members’ goods and services, or supply goods and services needed by their members, or operate businesses that provide employment to members.
  • Service co-operatives, which provide a variety of essential services to their members and communities.
  • Financial co-operatives, including co-operative banks, credit unions, building societies and friendly societies, which then provide investment, loan and insurance services to their members.

Intellectual Property And Parody – What Does Fair Use Say?

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Parody and satire are considered to be a “fair dealing” exception to copyright law, which means that the relationship between parody and copyright law has changed.

Creative expression is protected and encouraged by copyright law, but the inherent risk of this type of law is that it may stifle creativity (unless some exceptions are included). Parody and satire are two such exceptions to copyright infringement but are still in ambiguously grey areas of the law.

Specifically, copyright protects the original expression of an idea and is automatically applied in Australia. The fact that it protects the expression of an idea, rather than the idea itself means that copyright protections arise for:

  • the expression of artistic, literary, dramatic or musical works; and
  • works like films, broadcasts, sound recordings and published editions.

Copyright, essentially, give the author exclusive rights to use and commercialise the work.

Fortunately, to promote artistic creativity and freedom, there are some exceptions to copyright infringement. These are collectively known as ‘fair dealing’ exceptions. These include circumstances such as:

  • research or study;
  • criticism or review;
  • reporting news;
  • a legal practitioner giving legal advice; and
  • parody and satire.

To be exempt from copyright infringement, the way in which you deal with the work must fall within one of the exceptions listed, which must then be considered to be ‘fair dealing’. This can vary depending on circumstances for each particular case, but fairness will usually consider:

  • how much of the work you have used;
  • what you have changed or added; and
  • whether you have used the new work for a commercial purpose.

These exceptions do not apply to all works of copyright. Instead, they are limited to:

  • literary, dramatic, musical or artistic works;
  • adaptations of literary, dramatic or musical works; and
  • audio-visual works, such as sound recordings, films and broadcasts.

What Makes A Contract Term Unfair?

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Whether it’s to provide a service, gain employment or even just downloading software, it is not unlikely that you would have selected “I agree” to terms of agreement without thinking too hard about it. However, sometimes the terms of a contract may be deemed to be unfair to the signer and could cause greater issues. 

Only a court can determine whether or not a contract’s term is unfair. For example, a term in a standard form  small business contract is “unfair” if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the contract
  • is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
  • would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on.

The court must also determine the transparency of a term when determining the unfairness of a term. A term is considered to be transparent if it is:

  • Legible
  • Expressed in reasonably plain language
  • Presented clearly
  • Readily available to any party that may be affected by the term. 

The term may not be transparent if it is hidden in the fine print or written in complex or legal language. A transparent term may still be considered an unfair term, regardless of the level of transparency in play. 

The court must also determine and assess the fairness of the term in the context of the contract as a whole. 

To ensure that your business contracts are compliant and are not at risk of having terms that are deemed unfair, ensure that you speak with a trusted legal professional today. 

Connecting With Customers To Boost Your Business

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More and more Australians bought local products during the past year and rallied behind smaller businesses, which buoyed many shops that may have otherwise struggled to stay afloat. 

To create this kind of loyalty and support it’s crucial to develop and maintain a strong connection with your customers. 

If you are a small business, this is a vital aspect of business management that you will want to have occurred to strengthen customer relationships. 

Make The Customer Feel Special

Customers want to feel special – you can achieve this by approaching each customer as an individual rather than as a customer per se. Making the user interactions tailored to suit each customer’s specific needs/usage of your products will enhance the relevance and improve the authenticity of the interaction. Your customers will feel heard by your business and seen.

Let Your Customer Feel Heard

Always ensure that the customer feels heard – if the customer has a complaint, treat it the same way that you treat a good review, and respond accordingly. This builds trust with the customer and future customers that you will hear them out, and act the best you can to assist. 

Reward Customer Loyalty & Strengthen Connections

Go above and beyond for your customers – if you’re a small business, you can use the closer connection you may have with your customers to your advantage and offer additional loyalty discounts, recommendations, and phenomenal customer support. 

Follow Up With Your Customers

Follow up with customers (new and current) to ascertain reception of products and services, spearhead a proactive approach to appraisals and determine if a poor customer experience has been had. Following up allows customers to feel acknowledged while also granting you access to potential data that you may not have received otherwise. 

Connect Via Social Media 

Ensuring that you remain actively involved on your social media for your business with your customers should increase interaction. With many looking to online platforms to browse products, leave reviews and share favourite products via social media, it makes sense to turn your social media platform into a way to make your brand shine. Actively engaging with customers, responding to comments and questions, and directing your brand’s narrative are great ways to use social media to strengthen your connection.

Your Existing Customers Should Come First

Prioritise the customers you already have over the accrual of potential customers. If you’ve already got an established customer base, one of the best ways to maintain it is to keep them happy. You don’t want to risk losing them during the growth of your business due to less attention and more subpar customer service. The best way to maintain customer loyalty is to ensure that you can meet their needs, follow up with their requests (to the best of your ability) and satisfy their customer service needs. 

Ethical Investing: Is It For You?

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Ethical investing is gaining traction, with more and more investors selecting where their money will go based on their personal principles. This style of socially conscious investment holds companies accountable for their negative impacts and is driving many investors to select their investments dependent on their mutual shared values.

Ethical investing can align with moral, social, political, religious and environmental values, and takes them into account prior to making investment decisions. The primary objective of ethical investments is to create a positive impact by investing in companies that take environmental, social governance (ESG) and ethical issues into consideration and make an effort to address or prevent the business from contributing to the issues.

Rather than only receive a financial return on their investment, investors also receive a social conscious return that has an overall impact on them and the planet. 

There are two ways that ethical investing can be done. 

Personal Screening

An investor chooses to invest in industries/sectors/companies whose values align with their own values. As an example, they may look towards companies who are environmentally and socially conscious, who treat their workers fairly, have high governance standards and carry out environmentally sustainable practices.

Negative Screening

This is when an investor avoids industries whose values directly differ from their value – those involved in fossil fuels, gambling, military ammunition and tobacco are automatically crossed out from ethical investors’ choices. Treatment of workers can also determine to an ethical investor whether or not a company is worth investing in.

Ethical investing, while praiseworthy, needs to consider the soundness of their investments as well as their values. To examine whether the investment is sound and has the potential to reap significant returns, a review of a company’s history and finances is necessary. It is also important to confirm the firm’s commitment to its declared ethical practices and measures.

Super Guarantee Rate To Rise On 1 July

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Many years ago Julia Gillard’s government announced increases in the Superannuation Guarantee rate from 9% at the time, up to 12%.  The impact of the Global Financial Crisis has led subsequent governments to continually postpone these increases. So far, Australia has only received two increases, back in 2013 and 2014, when the superannuation rate went up to 9.5% over two years.  It has remained at 9.5% since 2014.

 

Now it is time for the next increase. This will happen on 1 July 2021 when the rate of superannuation that you have to pay for most of your employees will be 10% of their salary or wage instead of the current 9.5%.

 

For most employers that are using payroll software, this change will happen automatically. You should however confirm with your software provider (either directly or through someone like us) that this will happen to ensure that you remain compliant without needing further action.

 

For most employees, this will mean an extra 0.5% added to their current salary plus super.  But where an employee is on a contract where their salary is superannuation inclusive it could be that they will receive a corresponding reduction in their salary to offset the extra superannuation.  Employers and employees will need to have a discussion about this so that everyone knows the situation they will be in for the new financial year.

 

The proposed increase to 12% is still scheduled to happen in 0.5% increments each financial year until the 2025-26 year when the Superannuation Guarantee rate will peak at 12%.  The rates applicable to each financial year are proposed to be:

 

           1 July 2021 to 30 June 2022                 10%

           1 July 2022 to 30 June 2023                 10.5%

           1 July 2023 to 30 June 2024                 11%

           1 July 2024 to 30 June 2025                 11.5%

           1 July 2025 onwards                             12%

 

It is also possible that the government will delay the increases as it has done in the past, but you will be kept informed regarding that information. 

Gig Economy Workers Are Warned That The ATO Is Watching

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The inexpensive and profitable side hustle is under the ATO’s watchful eye when it comes to declaring income this tax season. With many gig economy workers often earning their income as independent contractors, the ATO warns that a failure to report all income from all of the work that they carry out could land them with severe penalties. 

 

The ATO is expected to employ advanced data-matching from platforms that play host to large proportions of Australia’s gig economy to ensure that tax is declared and paid on the income from workers of the gig economy. Those workers may include Uber workers, Doordash, Lyft, Airbnb and many more similar side hustle income earners.

 

There is a silver lining for gig workers this tax time. Many gig economy workers may find themselves more eligible for tax deductions – but are warned against claiming more than they are allowed to.

 

Gig workers are eligible to claim deductions for most costs incurred while earning their income (such as travel or vehicle expenses, financing and marketing). These deductions, however, can only be claimed for the work-related proportion of the claim. You won’t be able to claim the whole amount for the deduction if the claim is made because you picked up an Uber fare on the way back from your Grandma’s for example, it will only be deductible from when you picked up your passenger. 

 

Those who prepare their deductions based on a representative period are also warned to prepare an additional record for this period, as the pandemic has induced numerous tax challenges for many gig economy workers involved in declining and rising fields of the economy. 

 

Workers who fail to declare cash income from the gig economy may incur penalties in the form of interest on their tax bills or potential criminal charges. It is vital that you ensure your tax return is correctly lodged and all income is declared if you are a gig economy worker of any kind. If you need assistance regarding your tax return lodgment process, you can always contact us for advice.