Blog Page 317

When to get a business partner

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Starting and running a business can be a lot more fun when you’re working with someone you like and respect. With a partner, you have someone to share the excitement and risks of running a company; someone to bounce ideas off of; to help shoulder the financial and work-load burden.

But partnerships have perils. Over time, partners are likely to have disagreements, resentments, changing goals and lifestyle choices. Partners may also have conflicts about how to spend money, who to hire, which direction to take the company. When partners don’t get along, the business inevitably suffers.

Before you get into a partnership, be sure to:

Have an in-depth conversation with your partner
Some issues you should thoroughly discuss include:

  • What is the ownership division and who owns what percent?
  • What jobs/responsibilities does each partner have?
  • How will serious disputes be resolved?

Draw up written partnership agreement
Once you’ve discussed all the key issues, approach an attorney to draw up a legally binding contract, spelling out the terms of your partnership. If you’re already working with a partner, you still need to do this! If one partner doesn’t want to do this, that’s a big red flag.

Consider a buy/sell agreement.
A “Buy/Sell” agreement spells out the terms by which one partner can buy the other out. In the event of a dispute or differing goals, a buy/sell agreement can enable the company to survive. Discuss ways, such as purchasing life insurance, to buy out a partner’s heirs in the event of death or disability. You may not want to run the business with your partner’s spouse or children.

Partnerships can be terrific, but when things go wrong between the partners, it can often mean the demise of the whole company.

How negative gearing works

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Negative gearing is a popular tax strategy that gives investment property owners the ability to offset the cost of owning a property against their assessable income.

Negative gearing involves generating short to medium term tax losses, which arise from tax-deductible costs that are higher than investment income, and leveraging this to increase exposure to potential gains and losses.

It is a popular strategy due to its ability to reduce an investor’s taxable income through their tax losses, resulting in a lower annual income tax bill.

For example, if the rent of a property was $350 per week, and the property was fully tenanted for a full financial year, the rental income would be $18,200. If the deductible expenses for that year were $30,000, the net rental loss would be $11,800. The $11,800 loss can then be applied to reduce the property owner’s taxable income.

Under Australian income tax law, property owners can claim a tax deduction for any cost they incur if it is sufficiently connected to their investment property. Non-cash expenses, such as depreciation, can also be deducted. General tax deductions relating to rental income include:

  • Borrowing costs
  • Council rates and water fees
  • Depreciation on assets
  • Property inspections
  • Repairs and maintenance

While negative gearing carries many benefits to property owners, the strategy isn’t without pitfalls. Negatively geared property results in a loss, so before committing to the strategy, it is worth considering aspects like what will happen if you cannot fill your rental property at any one time, or if there is a dramatic turn down in property values and your investment fails to increase in value.

Five ways to pay less FBT

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Small businesses can achieve real dollar savings by efficiently managing and calculating the Fringe Benefits Tax on meals and entertainment. However, the challenge is often finding the best calculation. Many organisations struggle to identify which calculation method is best for them and, as a result, have to pay more FBT than necessary.

Here are five FBT strategies that may help small businesses get ahead:

1. Automate the expense management process
Automating the process allows a business to determine the lowest FBT liability automatically. It saves time, provides full visibility into expenses and enforces policies to optimise the expense management process.

2. Use clear, descriptive definitions for the expenses
Over-complicated definitions can confuse employees and impact on the quality of data (from a calculation and compliance perspective).

3. Train employees
Make sure employees understand the difference between the travelling and non-travelling employee status, as this impacts the FBT liability.

4. Use an employee master list
An employee master list simplifies the search for employee data and prevents the creation of multiple versions of the same attendees.

5. Review the RBT reporting annually
Don’t assume a specific calculation method will always equate to the lowest FBT liability. Make sure you are using the right method to avoid overpayments occurring.

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