GAINING MOMENTUM IN 2014

By Rowan Wallace

 

Another year has now begun with a bang, and it seems to me that all indications are that it will be a better year for businesses than the prior year.

However business owners need to take steps now to ensure they are ready to capitalise on opportunities.

Now is an ideal time to:

(i)                  Get an outside perspective of your business – the good, the bad and the ugly!

(ii)                Set SMART goals for 2014 – specific, measurable, achievable, relevant and time bound

(iii)               Analyse your sales and customers – seek to engage with your customers and ensure your business is meeting their needs. 

Now more than ever, it is time to capitalise on all the hard work you have put into your business. 

All the very best for 2014.

THE INS AND OUTS OF LOSS CARRY BACK RULES

At UHY Haines Norton, we’ve already lodged several returns for our clients utilising the ‘loss carry back’ concession.

This concession is beneficial, because a loss made in the 2013 year can be used to obtain a refund for tax paid in 2012. Take a look at the example below:

YEAR ENDED 30 JUNE 2012:

Taxable income:        $600,000
Tax paid at 30%:        $180,000

YEAR ENDED 30 JUNE 2013:

Taxable loss:            $(350,000)
Available refund        $105,000  

This is a great cashflow benefit, especially for clients whose profits fluctuate year to year.

Remember, the concession is only available for companies where there is a loss in the year ended 30 June 2013, and a profit in the year ended 30 June 2012.

The refund you can obtain on lodgement of the 2013 income tax return is subject to a limit.  The maximum refund is the lowest of:

• $300,000
• The franking account balance at 30 June 2013
• The tax paid in the 30 June 2012 financial year.  In the above example, if a loss of $700,000 was made in the year ended 30 June 2013, the maximum refund available would be $180,000.

Important note: The Coalition Government announced before the election they would abolish this concession.  The new Government is yet to specify the date of removal, and we expect it will only remain in place for the 2013 financial year.  Given this, we would recommend the amount of loss carried back in the 2013 tax return be the highest amount possible.

If you paid tax last year, and think you will have a loss this year, you should be lodging as soon as possible.  This will give you the cash flow benefit of receiving your refund entitlement now.

Taxation of income and loss of FBT & CGT concessions deferred until 1 July 2014

Measures that are designed to tax certain income of Not for profit (NFP) organisations, along with removing FBT and GST concessions, have been delayed until 1 July 2014.

What are the measures?

Charities often conduct commercial activities to make a profit, which is then used to further their philanthropic purpose.  The new measures are designed to tax profits from ‘unrelated commercial activities’.  Basically, profits are taxed from activities that the Government believe do not directly further NFP's altruistic purpose. 

This broad concept of what is or isn't an unrelated commercial activity can understandably cause significant confusion for your NFP and your advisors. So we’ll break it down for you.

What does this mean for your organisation? 

• No tax will be charged if all these profits are expended with philanthropic purpose.
• You will be required to keep records to prove the above, ie. show that all profits have been spent.
• Often NFPs conduct these activities in a separate entity.  If all of your organisation’s profits are not ‘directed back’ to the NFP, tax will still be payable.  
• The meaning of ‘directed back’ might be confusing.  It is to a lot of people.  It simply means ‘does a dividend need to be paid, or can a donation be made?

These areas of income tax and capital gains tax are most likely new territory for your organisation, as NFPs have never had to consider them in the past.

FBT and GST concessions

In addition to paying income tax, no FBT or GST concessions/exemptions will be available for unrelated commercial activities.  For example, the 48% FBT rebate available to NFPs will not be available for an entity that conducts unrelated commercial activities.

The measures will not apply to commercial activities that further a NFP entity's altruistic purposes. An exemption for small-scale and low risk activities is also proposed.

When will it apply?

The ‘unrelated commercial activity’ measures were announced in the 2012 Budget, and like most announcements on Budget night, limited details were released.  A Consultation paper provides some further guidance, and Treasury's website indicates Exposure draft legislation is due for release "early 2013".

Activities commenced prior to 10 May 2011 will be affected by the new legislation from 1 July 2015. Again, no amendment is required in relation to these activities prior to this date.

The next step

NFP's should plan ahead, to save headaches down the line.  Here’s what you need to do:

• Analyse each activity and identify the ones likely to be affected by the new measures
• Attempt to quantify the potential loss of funds from taxation (factoring in the loss of GST & FBT concessions)
• Determine the extent that planning will be required to limit the financial loss to the NFP

Like the rest of the economy, NFPs are doing it tough, even before you factor in the increased demand for their assistance. The charitable sector is facing considerable change with taxation measures, and new ACNC obligations. To assist with all your tax matters, contact our tax specialists Michael Garrone and Ryan Langley. For all your audit and ACNC needs, contact our Audit Partner Darren Laarhoven.

Darren Laarhoven | d.laarhoven@uhyhn.com.au