Bookkeeping

Bookkeeping: Born out of Magic

Glenn-squared

Glenn Harris

Director

Glenn-squared

Glenn Harris

Director

Bookkeeping, what’s the fuss?

Luca Pacioli was an Italian Franciscan monk, mathematician, collaborator with da Vinci and reportedly a Magician. He is said to be the father of double-entry bookkeeping. During his travels through Venice, he discovered this new method of accounting being adopted by the merchants to record their daily transactions. The merchants of Venice would record every transaction during the day in their financial records twice.

In 1494, he wrote a comprehensive mathematics encyclopedia that contained an instructional section on how to use double-entry bookkeeping. As a result of the recently invented Gothenburg printing press, this book was widely distributed and became a best seller!

It is rumoured Pacioli and da Vinci were lovers, and Pacioli was present when da Vinci painted The Last Supper. With a pedigree such as this, no wonder double-entry bookkeeping is now used by every business in every country in the world.

Why should I use a bookkeeper?

The research suggests one of the key reasons small to medium family businesses fail is the lack of good accounting records. Without timely and accurate accounting records, it is impossible to make informed decisions about your business.

Bookkeeping is the cornerstone of your accounting records and, therefore, a critical one. Poor bookkeeping will lead to poor accounting records, leading to poor decision-making for your business.

This is because all the following critical areas of business rely on timely and accurate bookkeeping. If your bookkeeping is poor, you will not obtain the following benefits of accurate bookkeeping.

Budgeting and Decision making

Having accurate accounting records to prepare a budget or forecast then comparing your business’s actual results to the budget provides critical information on how to steer your business and improve the bottom line. You wouldn’t drive your car down the highway with your eyes closed!

Furthermore, it provides you peace of mind as a small business owner when you see your business is tracking to budget. You cannot put a price on this, knowing you are making the right decisions and your business will have the adequate cash flow to meet the needs of the business plus your personal cash flow needs.

In volatile times as we are experiencing, accurate accounting records will allow you to make immediate decisions that suit the current market conditions. For example, cash flow challenges move to the foreground in volatile markets. In response, you may wish to offer your customers a discount for upfront or early payment to ensure your cash flow remains strong. However, it’s challenging to make such a decision without knowing your accounting numbers, as you will not know your current profit margins and how such a decision may impact your business in the long term.

Accurate financial reporting

Accurate reporting is critical for numerous reasons in business. One of the more important ones is in the application for finance. Following on from the Banking Royal Commission, we see lenders applying a conservative approach to a “suitable loan”. Without accurate and reliable accounting records, it will prove extremely difficult for your business to obtain finance, and most likely, at the time it needs it the most. Then once you have the finance, the bank will most likely require your accounts for an annual review or covenant compliance. If you cannot provide these to the bank, it’s most likely that the fine print will allow them to change the loan terms or, worse, require you to repay the loan.

Compliance

Your accounting records form the basis of your taxation-related reporting, including income tax, payroll tax, and GST. If your affairs are reviewed or audited, you must have complete and accurate books and records to support any declaration you have made to the Federal or State Governments. You may expose your business to significant interest and penalties without these records. Overall, the ATO’s audit approach is one of risk assessment. If the ATO can see your business has a well-implemented and maintained accounting “process, ” they will less likely undertake further investigation into your business affairs.

The ATO continues to focus on small business claims, particularly BAS lodgements, including GST claims and employer obligations for PAYG and superannuation guarantee. In addition to this, the ATO is now focusing on Job Keeper claims. Additionally, at a state level, payroll tax continues to be a significant focus for audit activity.

If you are trading as a company, the Corporations Law requires you to keep accurate books and records. Also, if you are an entity that requires an annual external audit, accurate accounting records are the key to receiving a “clean” report from your auditor.

Succession planning

We have supported many clients to ready their business for sale over the years. This may be an external trade sale or an internal sale to employees. One of the most significant risks to obtaining the best price for your business when selling is poor accounting records. When you are negotiating a sale with a potential buyer, and you cannot present a “strong set of number numbers”> for your business, you will lose credibility and thus the position of power in the negotiation. In addition, weak accounting records will be shown up in any due diligence and used against you at the negotiating table. This is not a position you want to be in when you are selling your life’s work just because you have not maintained appropriate records.

We understand that keeping up to date with your bookkeeping, accounts and payroll can be difficult to manage when you’re busy running a business. Our expert advisory team offer a range of services to streamline your accounting transactions this includes Computerised Accounting Assistance, Monthly Bookkeeping, Payroll, Business Activity Statement (BAS) Preparation, Cloud Accounting, Feasibility, & Implementation, as well as Financial Reporting. Get in touch with us below to find out how we can assist your business’ bookkeeping needs.

FAQ’s Taxation & Tax Tips

“Death Tax”, also known as Inheritance tax

“Where there is a Will, there is an inheritance tax” – Silvio Berlusconi.

Now that I have your attention let’s discuss the hot issue of an inheritance tax.

With the last 2+ years of Government support caused by the pandemic, there is a strong argument that it must be paid for somehow. Adding to this are the increasing demands of social welfare – age pension, family tax benefits, disability support pension, JobSeeker, sole parent payments and Aged care improvements. There is no doubt that these elements, especially the NDIS, have brought significant improvements to the quality of life of its recipients.

It appears something drastic must be done to;

  1. bring in more revenue AKA Taxes,
  2. cut costs as a share of GDP or
  3. improve efficiency,

and so the debate rages on before an election.

In the last election, one of the major parties was accused of bringing back a death tax that was killed off in 1979.

While this argument among both major parties has been strongly refuted, the issue still appears to be hotly contested by other institutions. In May 2021, the OECD released a report assessing Inheritance taxes globally, which brings an excellent opportunity for us to discuss the findings.

NOTE: A Gift tax always accompanies an Inheritance Tax as one is Inter Vivos (While Alive) the other after death.

Let’s start with the state of play worldwide. It’s not surprising from my opening statement that Italy has an Inheritance Tax and Gift Tax.

But did you know there is an unintended ‘Death Tax’ in Australia?

While we do not have an Inheritance or Gift Tax in Australia, we do have an unintended death tax!!

Super benefits paid on the death of a member are tax-free for a deceased member’s dependants. However, many members are not survived by dependants and are often survived by independent adult children who do not receive distributions tax-free. Therefore, the taxable component of the lump-sum super death payment is usually subject to 15% tax.

To minimise the chance of surviving adult children paying the ‘death tax’, members should consider using a re-contribution strategy, keeping a separate pension or even drawing down on their super before their death. This means having clear instructions in the will and for any Power of Attorney in the event of incapacity.

Now let’s look at the arguments for and against an Inheritance or Gift Tax.

Arguments For and Against

As per the OECD report of May 2021, on average, the top 10% of the population holds 52% of the total wealth of that nation and the top 1% hold 18% of the total wealth.

This wealth gap is one of the main arguments for the taxation of inheritance tax as it reduces wealth inequality by taxing and redistributing to those in need. Other arguments in favour of Inheritance and Gift Tax are:

  • Encourages the recipients to work harder and save more as they will not receive as much
  • Encourages charitable giving if the tax is associated with an exemption for charitable giving

The main argument against the taxation of inheritance is that it could lead to double taxation. However, this argument depends on each country’s taxation regime. In Australia, the broad-based tax regime would strengthen the view that an inheritance tax will result in double taxation. However, it must be noted that our GST, which is a consumption tax, currently leads to double taxation. Other arguments against double taxation are:

  • It may negatively affect family business succession.
  • It will result in significant inheritance and gift tax planning, ultimately limiting its effectiveness.
    • **According to a 2015 report from The Tax Foundation, the U.S. had the fourth-highest estate or inheritance tax rate in the OECD at 40 percent and a large exemption base. As a result, it raised very little revenue and applied to very few households. U.S. estate tax receipts declined from $38 billion (2015 dollars) in 2001 to an estimated $20 billion in 2015. As estate taxes become narrow-based revenue sources with high administrative costs, repeal is a strong option.

As of 2015, thirteen countries or jurisdictions had repealed their estate or inheritance taxes.

The Tax Foundation goes on to say that the US Inheritance and Gift Tax fails at effectively achieving its desired purpose, and eliminating it is the most serious option for reform.

On the flip side, the OECD conclusion is that there is a “good case for a well-designed inheritance and gift tax with an exemption for low-value inheritances.”

So we have some conflicting messages from 2 significant institutions. However, in the conclusion from the Tax Foundation, I wondered.

“The ultimate purpose of tax collection is revenue generation.”

I don’t think this is understood very well. I certainly had not considered it in this light, but it makes complete sense.

Taxes exist to ultimately distribute wealth to areas of use and for the common good. But that redistribution must result in an economic benefit greater than the taxes raised. Let’s look at an investment. For example, if we invest in a term deposit or shares, we expect the return to be greater than 0%, or we will not invest. Likewise, if we use Taxes for the greater good, the payback should be greater than the money we use. Let’s consider the spending from the government, and while I do not provide statistics to support my reflection, it is evident:

  • Infrastructure – The return is clear we get a significant increase in efficiency and earning potential from the nation
  • Education – Again, the payback is irrefutably high per $1 spent
  • Health – When we lose it, we will pay anything to get it back so we can remain productive
  • Security – When we are secure, we feel more productive.
  • Environment – An extension of our bodies and priceless to keep healthy and
  • Social welfare – A more difficult one to see clearly, other than if we as a society are supported, we are all healthy. Notwithstanding that the spending effect from social welfare provides a multiplier effect in revenue generation.

In all the above scenarios, the payback from the taxes used to support that spending creates revenue back into the community greater than the taxes raised.

So this brings me back to the debate around Inheritance or Gift Tax. The OECD concludes that a well-designed inheritance with an exemption for low-value inheritances would be beneficial. The key here is the words “well designed”. This depends on the complete tax environment. Ideally, all Taxes that are well designed are beneficial if they are revenue-generating (directly or indirectly). SO HERE COMES MY conclusion.

The issue around which tax to use to create the most “bang for your buck” centres around which one will create the least pain, disruption and conflict within the community. The Inheritance and Gift Tax does not appear to have that level of community support if both parties are at pains to distance themselves from it.

Back to the drawing board.

References:
**The Tax Foundation is a 501(c)(3) non-partisan, non-profit research institution founded in 1937 to educate the public on tax policy. Based in Washington, D.C., the economic and policy analysis is guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability.
https://www.oecd-ilibrary.org/sites/6315055c-en/index.html?itemId=/content/component/6315055c-en

Government News & Incentives

NSW Government COVID Business Support Package

COVID Business Support Packages

To support business recovery in NSW, the state Government has announced new programs, grants and rebates, including:

2022 Small Business Support Program

What is the support?

  • Eligible businesses will receive 20 percent of their weekly payroll for February.
  • The minimum payment is $750 per week
  • The maximum payment is $5,000 per week.
  • Non-employing businesses such as Sole Traders and non-employing Partnerships and trusts will receive $500 per week.
  • All Payments will be made as a lump sum

When can businesses apply?

This support program is for the month of February, and businesses will be able to apply through Service NSW from mid-February.

What is the Eligibility Criteria?

“Eligible businesses are ones that:

  • had an aggregated annual turnover of between $75,000 and $50 million (inclusive) for the year ended 30 June 2021; and
  • experienced a decline in turnover of a minimum of 40 percent due to the impacts of the Omicron COVID-19 strain or Public Health Orders during January 2022 (compared to January 2021 or January 2020) and
  • due to the effects of the Omicron COVID-19 strain from 1-14 February 2022 experienced a decline in turnover of 40 percent or more, compared to the same fortnight in February in the comparison year used for the above criterion; and
  • maintain their employee headcount from the date of the scheme’s announcement, 31 January 2022.

Small Business Fees and Charges rebate

The existing rebate has expanded from $2,000 to $3,000.

  • The added permitted use of funds has also been expanded to cover half the Rapid Antigen Tests (RATs) cost.
  • The funds can be used on Government fees and charges such as liquor licences, food authority licences, tradesperson licences, outdoor seating fees, event fees, council rates and road user tolls for business use.
  • Businesses who are already registered will receive an automatic top-up of $1,000, and newly registered businesses will receive a $3,000 rebate.

Commercial Landlord Hardship Grant

Grants of up to $3,000 per month per property are available to eligible landlords.

  • Landlords must have provided rental relief waivers to affected tenants and
  • Rent waived must comprise at least half of the rental reduction provided

The protections for small retail and commercial tenants will be extended for an additional two months until 13 March 2022. The Regulation prohibits certain actions by landlords (such as lockout or eviction) unless they have first renegotiated rent with eligible tenants and attempted mediation.

NSW Performing Arts Relaunch package

Funding is available to eligible performances staged between 19 September 2021 to 30 April 2022.
The funding amount will be calculated per performance, using a formula of the number of tickets available for sale (capped at 10,000) multiplied by the average ticket price and a specified percentage, up to a maximum of $12.5m.
The NSW Government roadmap to recovery has been extended to April 2022. It includes the NSW Performing Arts Relaunch package, which provides financial support to relaunch the performing arts sector.
To be eligible for funding, the applicant MUST be one of the following:

  • An eligible venue (list published by Create NSW)
  • A promoter of an eligible performance scheduled to perform at one of
  • the eligible venues
  • A producer of an eligible performance scheduled to perform at one of
  • the eligible venues.

Eligible venues and the percentage applied to their funding amount have been identified through sector-wide consultation, review of the online marketing material of venues, and thorough assessment of tickets on sale through major ticket selling agencies.
Eligible performances must have ticket sales managed through one of the eligible ticketing systems (list published by Create NSW) and be evidenced by marketing collateral (website, social media etc.).
Source: NSW Premier, Deputy Premier, Treasurer and Minister for Small Business, COVID Business Support Package Released, [media release], 30 January 2022.

Dominic Perrottet Paul Toole Matt Kean Eleni Petinos Med Rel – COVID BUSINESS SUPPORT PACKAGE RELEASED.pdf

Financial & Retirement Planning Wealth Management

What is the FIRE movement?

Phillip Keenan

Phil Keenan

Director

The FIRE movement is gathering more and more traction in Australia off the back of increased momentum in the United States. It’s likely that the concept has existed for many years but most credit the acronym to a book written by Vicki Robyn and Joe Dominguez in 1992 called Your Money or Your Life.

I suspect that many people have either not heard about it, or if they have, they’ve struggled to find time to prioritise learning more about it. If you fall into either of these groups, you should keep reading.

Let’s start with the simple question, what does FIRE stand for?

FIRE = Financial Independence Retire Early

I’m sure everyone understands what Retire Early means and is equally excited by the prospect of having the freedom to retire before their body or their mind (or both) give up. As for Financial Independence, a simple definition would be having enough money to pay for your basic needs and comforts without the need to work. Note that financial independence will mean different things to each of you as we all define basic needs and comforts differently.

Some can easily live a frugal life, and in contrast, others might enjoy the finer things in life. The meaning of a life of comfort is individual but Financial Independence is not. The key to Financial Independence is having a portfolio of income producing assets that generate enough money for you to live off for the rest of your life. In turn, this gives you the option to retire early. Sounds fantastic, doesn’t it!

Create Your FIRE Roadmap

In Your Money or Your Life, Robyn and Dominguez offer an alternative approach to achieving Financial Independence as soon as possible – part of the journey involves recording your actual expenses and challenging you to think about whether your expenditure is aligned with pursuing your values and purpose (the things that are important to you).

Challenging your spending habits opens the possibility of accumulating more savings and achieving Financial Independence sooner. The sooner you start, the sooner that you can build an investment portfolio and live off that in your 30s or 40s. Like me, many people reading this have possibly surpassed their 30s, but this shouldn’t stop you from wanting to set up your FIRE plan now and set your sights on achieving Financial Independence.

Proper planning for Financial Independence requires a large amount of research, planning and organization. It’s not about investing in the latest get rich quick scheme or anything that is likely to risk your hard-earned savings. Instead, FIREbugs (followers of the movement) are encouraged to invest in low-risk strong yield investments. This will provide you with the opportunity to live off the passive income for many years to come before you’re able to access your superannuation savings.

The idea is to make sure your money is always working for you, whether it’s investing in shares, property or using cash to offset your mortgage. However, it’s not all about the investments you make. It’s also about keeping your everyday expenses to those that add value to your life and looking for ways to make more cash (which could include working toward a promotion, retraining, extending your working hours or getting a second job). It can also include reducing costs to create more opportunities to save and invest, such as paying off credit card debt or other high interest-bearing loans.

What I love about this movement is that it’s not about budgets! The journey to true Financial Independence will certainly require you to spend time understanding your available income, spending habits and savings goals, however it does this with the objective of challenging how you think about money and what it can do for you.

If you’ve now started thinking about your FIRE roadmap, dedication and consistency for effective execution will be the key to success.

It Requires Commitment!

Napoleon Hill said, “Great achievement is usually born of great sacrifice”, and it couldn’t be more accurate for a FIREbug!

Being a FIREbug may mean that you miss out on the Sunday café brunch with friends, takeaway lunch and dinners, all the fantastic subscription services (who doesn’t love Netflix) and expensive holidays to name a few. However, if you can put them aside for the short-term and keep looking ahead, you’ll succeed in achieving Financial Independence and thus have the ability to Retire Early!

The Forbes Advisor has reported that several FIRE retirement variations dictate the lifestyle a FIREbug is willing and able to maintain – as this directly impacts your savings and therefore your ability to achieve Financial Independence. Some of these variations include:

Fat FIRE – Designed for the individual with a higher salary who aims to save substantially more than the average worker but doesn’t want to reduce their current standard of living. This option generally takes an aggressive saving and investment strategy for it to work.

Lean FIRE – Designed for those happy to adhere to minimalist living and concentrate on extreme savings. However, this option requires a far more restricted lifestyle, as many Lean FIREbugs live on less than $25,000 a year.

Barista FIRE – This option is for people who want to live between the two choices above. They quit their 9-to-5 jobs but use a combination of part-time work and savings to live in a less-than-minimalist lifestyle.

If Retiring Early is important to you, it’s likely that you’ll be required to challenge your current thinking. No doubt you’ll benefit from making sure that your expenditure is well considered and aligned with your values as this will maximise the amount of money which you have available to save and invest.

Irrespective of which FIREbug path you choose, as a FIREbug, you’re likely to be savings and investing a greater share of your income then the average person will want to. But the principle of setting aside a set percentage of your income every month for investment—and starting to do that as early as possible—will allow you to grow your retirement savings quicker.

Don`t Forget an Emergency Fund!

A vital part of any successful FIRE plan should be your emergency fund. An emergency fund refers to money stashed away for times of financial distress, kind of like a safety net for any unforeseen mishaps or unexpected expenses, such as losing your job, illness or major repairs to your car or home. Whilst you can insure against some of these events, it certainly doesn’t hurt to have an additional line of defense.

Assets in an emergency fund should be cash or highly liquid assets to reduce the need to draw from high-interest debt options such as credit cards or loans. Having an emergency fund will also save you from tapping into your FIRE funds and thus setting your goals back a few years. These emergency funds are typically three to six months’ worth of expenses.

If you want to be especially prepared, some FIREbugs suggest an emergency fund of up to one years’ worth of expenses. A great way to save for your emergency fund is to divert any extra money for discretionary spending, such as your tax refunds or stimulus money, to a dedicated high-interest savings account.

Get a Financial Advisor

Once you’ve decided you’re ready to start becoming a FIREbug, get some financial advice from a great advisor. They will help create a realistic FIRE roadmap which is right for you and point you in the correct direction to start investing and saving. Contact us on the form below and take your first steps toward Financial Independence. Then, with discipline, sacrifice and determination, you too can have the ability to Retire Early!

Government News & Incentives

SME Recovery Loan Scheme

From retailers to gyms, hairdressers to cafes, even construction and tradies, many Australian businesses had to cease trading for months while others felt the ripple effect as the economy slowed and the global pandemic raged on. 

The Australian Government’s SME Guarantee Schemes have helped many of them survive the closure and endure through an extremely challenging time. As of 1st Jan 2022, the expansion scheme, known as the Government SME Recovery Loan Scheme, has become available for SME’s impacted by the pandemic, and is designed to support businesses helping them to recover and grow.

The Government will be working to enhance lenders abilities so they can provide cheaper credit to eligible SME’s for the finances required to recover from the financial impact of the global pandemic, maintain their business and invest for future growth. 

Under the scheme expansion for 2022, loans will be available from 1st January 2022 until 30th June 2022, and will come with a Government guarantee of 50 percent.

Are you eligible?

The scheme is available to SME’s with up to $250 million turnover, including self-employed and not-for-profit organisations and SME’s that were adversely economically affected by COVID-19 from 1 October 2021. Eligible loan purposes include refinancing existing loans and a broad range of business purposes including to support investment. Loans can also be used to purchase non-residential real property (such a commercial property) or for the acquisition of another business.

Loans have no minimum amount but are capped at $5 million and include:

  • term loans, 
  • overdrafts, 
  • working capital and revolving facilities, 
  • leases and hire purchase agreements. 

The loan cannot be used to:

  • purchase residential property, 
  • financial products, 
  • lend to an associated entity or 
  • to lease, rent, hire, or hire purchase existing assets. 

Loans are 50 percent Government backed for a loan term of up to 10 years. Loan interest rates will be determined by the lender and capped at around 7.5 percent. Loans backed by the scheme will be available through approved participating lenders and decisions to extend credit and manage the loan, remain with the lender.

To see full information on the scheme, including a list of approved participating lenders, please visit SME Recovery Loan Scheme.

Business Coaching

Setting Up a Business or Side Hustle

side hustle

“Tomorrow is the first blank page of a 365-page book. Let’s write a good one.”

Brad Paisley

This quote seems to sum up what I have been experiencing from my clients at the moment. The current challenges we have faced these last few years have made many reflect on what is important and what we want to do about it. For some, it is changing how they do what they do, and for others, it is making a change in what they do.  

There has been an increase in people asking about setting up a new business or a side hustle and asking for advice on what to do. So my first bit of advice to a starting entrepreneur is to surround yourself with people that will inspire you and challenge you while supporting you with options, not just problems.

I am a Chartered Accountant and an Entrepreneur, so I like lists, and I also like to consider many aspects of a business. So let’s start in order of priority and timing.

What is your reason or purpose? 

Starting a business takes a great deal of effort, responsibility, and commitment. If it is not thought through carefully, there are not only financial losses that can occur but also personal losses in terms of time, reputation and sense of achievement.

Discussing the reason for starting a business sets the scene for all the elements and decisions that have to follow. If a clients reason for setting up a business is not strong, I would suggest that they do more research and consider a broader range of options such as improving what they do now. 

Making sure you have enough capital; enough energy, commitment, and demand for your offering are essential elements.

Is there demand?

It is essential to make sure you have researched the products or services your business provides and that there is proven demand in the market for your product or service. However, suppose there is no demand because it is a new product, service, or idea. In that case, there are some other critical issues to discuss, such as funding and Intellectual Property IP protection and those are not covered in this article.

Complete a business plan with your advisor

A business advisor can be a family member, a friend or a paid advisor or a combination of all these. Even our mate Google has some great resources to help you.

It is probably one of the most annoying things for an entrepreneur to be told when all they want is to just get on with it and start making money. I have placed it second as, in my view, it is critical.

It is not important to figure everything out, have an answer for every aspect of the Business plan and have it completed bound and looking fantastic on the bookshelf. Instead, it is essential to make sure many aspects of the business are considered before making decisions that will affect your business. A business plan is never completed and continually adapts and changes as your business evolves.

A good business plan is simple but effective and should cover the following:

  • The Business – 
    • Structure
    • Management and Personnel
    • Products and service
    • Insurance, Risk and Legal
    • Operations
    • Strengths Weaknesses Opportunities and Threats SWOT– Analysis
  • The Market
    • Market research – Demand for your product or service and your demand location, whether local, regional, national or international.
    • Competitor Analysis
    • Advertising and Marketing strategy – How will you let your customers know about your products and services
  • The Future
    • Goals and objective setting
    • Action plan – Who will do what and when
  • The Finances
    • Revenue projections and targets
    • Cost estimates
    • Cashflow – When will the business make a profit, and when will it start to have excess cash 
    • Funding – How much is needed, and how will you get it.

If you want an easy starting point for your business plan, you can download our business plan template here: Business Plan Template

Structure, Structure, Structure

The reason why the first thing I ask is, “what is the purpose of setting up a business” is not only to understand the clients’ goals and motives but also to understand which structure they should operate their new venture under.

Is it a Not for profit, a Company (Private, Public Listed or Public Limited by Guarantee) or a Trust, or as an Individual Sole Trader or a Partnership. This can be decided on after discussing the purpose and then centres around three areas: risk management, operation requirements and minimising any tax burden.

Let’s look at some examples.

Example 1 – John single has no children and wishes to run his own domestic Cleaning business without any employees. He is not expecting to make more than $70,000 in revenue in a year. This would generally lead me to suggest he should operate as a Sole Trader to keep set up and ongoing costs down. Risk is low and can be managed with insurance. 

Example 2 – John now wants to work with his brother, and the amount they will earn will not be more than $140,000 in revenue. No other employees. We would then recommend a partnership or a company depending on Johns brothers personal situation. 

Example 3 – Now consider John is married, has three children and has a full-time job that he will not be leaving as it makes him $250,000. He has researched the demand and wants to employ 5-8 people on a full-time basis doing domestic and commercial services. He expects to be making over $2Million in revenue in the first year and $250,000 in profit in the first year. He wants to do it with his daughter, who is 19 years old and his brother. The complexity and the level of risk have now just escalated, and the structure needs to adapt and evolve. We would then recommend that a company operate the business and that the company’s shareholders be Discretionary / Family trusts for John and his brother depending on the brothers personal family structure and goals.

The tax rate applied to taxable income amongst each entity must be considered in deciding on the structure. The individual and the partnership is from 0% to 47%; the company rate is between 26% and 30%. The Trust rate is from 0% to 47%. There would be wide variations on the possible tax effects and the potential Capital Gains Tax if the business were sold at a substantial profit. Getting the structure correct can result in significant savings.

This stage requires a professional advisor who can advise you and set up the correct entity with the proper legal documents such as the Company constitution or Trust Deed that will allow flexibility, risk management, and tax minimisation.

Registrations, Insurances and Banking

Registrations

You may need to register your business for a number of tax obligations. The above points will direct you to what you need to register for. The most common tax registrations businesses need a tax file number or TFN, an Australian business number or ABN, goods and services tax or GST, pay as you go withholding (PAYG), and fringe benefits tax or FBT. If you’re registered for GST, you can also register for fuel tax credits. Applications for most tax obligations can be completed and lodged online.

To highlight some of the business registrations you may need when starting your business, we have created a couple of examples for you to refer to.

Jason’s Landscaping Business

Jason started his own business as a landscape gardener. He does most of his work on-site and in his workshop.

Jason doesn’t need a separate TFN because, as a sole trader, he uses his individual TFN.

He needs an ABN as he will register for GST and needs to quote an ABN when dealing with other businesses.

He plans to work alone initially and hire employees later in the year.

To do his job, Jason sometimes uses machinery such as a whipper snipper, ride-on lawnmower, and a generator which requires fuel. As a result, Jason may be able to claim fuel tax credits and is required to be registered for both GST and fuel tax credits.

Mary’s Sunny Café

Mary started her own business, The Sunny Café.

At the same time, she created a company, Sunny Cafe Pty Ltd, through which she runs the business.

The company needs a separate TFN.

It also needs an Australian Company Number or ACN.

And the company needs to apply for an ABN as it must register for GST.

As Mary will be employing staff, Sunny Café Pty Ltd must register for PAYG withholding.

Mary plans to have private use of a company car, which is a fringe benefit. If FBT is payable on this benefit, the company must register for FBT.

There are a lot of things to consider when starting a new business. Business registrations are just one aspect to consider when setting up.

Insurances to consider

When considering insurance, the most common types of insurance to consider are the following:

  • Public Liability – Public Liability covers your legal liability to pay compensation for injury or damage to property caused to a third party in connection to your business. For example, if a customer slips and trips while on your business premises.
  • Indemnity Insurance – Indemnity, on the other hand, protects against the risks associated with providing advice or recommendations to clients or for any actions performed by your services. For example, a customer could sue you for damages if it’s alleged that your advice has caused a loss.
  • Products Liability – Product Liability insurance protects your businesses against claims by third parties relating to property damage or personal injury caused by your products.
  • Workers Compensation – A Workmen/Workers Compensation policy covers the statutory liability of an employer for the death, disability and bodily injuries of his employees caused by accidents. So if you’re business employs people in NSW, you need workers compensation insurance.
  • Other types of insurance to consider are Keyperson Insurance / Life Insurance in the event that a key person death or removal from the business due to ill health would cause considerable cost.

There are many other forms of insurance; however, it is best to speak to an insurance broker to understand all the areas of cover you can get and if they are necessary.

Banking

It may seem obvious, but once you have all your registration documents for the entity you will run your business through, you can open a bank account. Talk to your bank about which product you may need to help you manage your cash flow. Having a separate bank account to hold your Tax obligations such as GST, PAYG for employers, and superannuation is a wise step, so you don’t fall into the trap of accumulating a large Tax debt.

Choose a cloud-based accounting platform. 

This is one of the final and most important steps. An excellent Cloud-based accounting program allows you to manage and keep track of your cash and tax obligations. They can help control who owes you money and who and when people need to be paid. In addition, they can manage your payroll responsibilities and make sure you keep up to date with tax changes. 

As a cloud-based service, it also means that you can access your accounting program anywhere there is internet access. This is important in providing flexibility and functionality in today’s demanding and changing world.

Many of these programs connect with other management tools and apps, such as 

  • booking systems.  
  • timesheet management. 
  • Apps that help to provide on the spot quotes for jobs with costings of all materials and labour at your fingertips, allowing you to win work by providing quick quotes and 
  • Apps that allow you to go almost entirely paperless.

Make sure you speak with your Chartered Accountant to help you choose an accounting package that suits your needs. 

Have fun and get that revenue flowing!

Always remember and connect back with why you wanted to start a business. It is not an easy path to take, but it can and often is a very rewarding journey, even if it may not bring you the millions you hoped for.

Taxation & Tax Tips

Tax Tips for Social Media Influencers

Tax Tips for Social Media Influencers - blog image

The number of social media influencers in Australia is increasing, and so is the level of revenue generated by those “influencers”. As an influencer, there are several things you need to consider to comply with tax obligations required by the ATO.

Musicians, bloggers, vloggers and other social media “influencers” in Australia must pay tax on any income made through sponsorships and endorsements, including non-cash benefits. This information may be surprising to most Insta-famous celebs who started out thinking that their freebies or money made from spruiking products and brands weren’t counted as part of their income tax. However, under existing tax rules, influencers, bloggers, or any Social Media celebrities running a business and receiving cash and/or non-cash revenue/benefits must include this as assessable income.

Some Influencers and Celebrities have been creating licensing structures to effectively pass income over to another entity to access favourable tax treatment. In the 2018-19 budget, the Tax integrity – Taxation of income for an individual face or image was announced. It aims to ensure that from 1 July 2019, all remuneration, both cash and non-cash benefits provided for the commercial exploitation of a persons face or image, will be included in the assessable income of that individual, thereby removing these advantageous tax treatments created by licensing structures. This has been referred to as the Instax or Instagram Tax. Please note that at the date of this article, this is still under review and has not been passed into law. However, this does not mean that revenue or benefits from running a business as an Influencer, Blogger, Vlogger or Celebrity are not assessable, as they are.

Are you running a business?

No single factor will determine whether you’re running a business. However, it would be best if you considered the following questions:

  • Are the undertaken activities done for commercial reasons?
  • Do you intend to make a profit, or do you believe you will profit from the activities?
  • Do you regularly undertake the activities?
  •  Are your activities organised, planned, and carried out in a businesslike manner?

If you are running a business, you will need to report and pay taxes on your profits.

What are Non-Cash Benefits?

As mentioned previously, there are tax implications for non-cash benefits you receive. Non-cash benefits can include any goods or services you receive for your business activities such as free accommodation, free event entry, free products such as clothing, makeup or jewellery, use of a car or free travel.

In Australia, influencers must pay income tax on all non-cash benefits received in return for their services, including endorsements or physical appearances.

While small irregular gifts are not considered income, if you receive non-cash items of value, the Australian Taxation Office will expect you to declare and pay tax on the market value of the item or benefit received.

The lesson is to be careful what you get paid with and make sure you set aside the potential Tax on these benefits; otherwise, you may get a nasty surprise come tax time.

The Good news is you can claim tax deductions!

If you have expenses that are incurred for business purposes, you may claim tax deductions for those expenses. This will depend on the area you influence and could include:

Internet Costs – internet-related expenses, including hosting fees for your blogs, domain name registration fees and business software fees. You can claim a portion of your home internet costs if you work from home or your total internet costs if you work from a dedicated office away from home.

Equipment – Various tax concessions are available to claim an immediate tax deduction. Make sure you look for some of our previous articles on this as there are many factors to consider. Capital equipment includes a webcam, digital camera, monitor, wireless router, computer or laptop, keyboard, and mouse.

Advertising, Promotion and Design – A key to getting your brand out there is to invest in design and promotion. That’s why you can claim on branding-related costs, including design, advertising, brand logo design, and promotional giveaways.

Other Expenses – There’s an extensive array of additional costs you might be able to claim; this includes the cost of employing a professional photographer or the cost of hiring an accountant to prepare your tax return or give you business advice.

If you’re already an influencer or considering becoming one, make sure you speak with one of our team and get the appropriate advice needed to avoid any problems or surprises that may arise. Please fill out the form below, we will get back to you, and one of our professional accountants can assist you in ensuring you start out the right way.

Audit & Assurance

Business Process Analysis AKA Audit

business audit

If I told you I could visit your business and in one day I could look at your financials, oversee your management processes, highlight areas in your business you could do better in, offer solutions to running more efficiently and identify not only any threats that could cost your business big money in the future, but also uncover any employees that might be swindling you and your business, would you be excited? 

Sounds too good to be true, but I promise it’s a service I can deliver. Would you book me if I could help your business in this way? 

What if I told you I was an auditor and your company needs a business audit? 

Would you still book me?

I am guessing, like most people, you probably said yes to the first option and freaked out slightly at the second one. However, the reality is a business audit often has many positive outcomes that you can apply to improve your business.

To most business owners, just the thought of a business audit places them in a state of panic. Questions such as: “Are we paying the right amount of tax?”, “Did we declare any deductions we shouldn’t have?”, “How much super did we pay our employees?”, “Did we lodge our last tax return on time?” run wild in your head, and often we feel that the outcome will be more harmful than positive.

An audit is not only about making sure you have followed your legal obligations as a business owner correctly. It would help if you thought of an audit as a “Business Processes Analysis”. Effectively this is a process performed, by experts, to analyse the systems you have in place to run your business more EFFECTIVELY, EFFICIENTLY and SYSTEMATICALLY.

HOW DOES THE AUDIT PROCESS WORK?

There are most commonly 2 types of company audits: 

  • A Statutory/ External audit and 
  • An Internal audit

The External Audit: Generally, this audit applies to public and large proprietary companies. These companies are required by law to have their financial statements audited.

The purpose of this is to examine a company’s business records, policies and procedures to determine whether the company’s financial statements fairly state its financial position, in all material respects, in accordance with Generally Accepted Accounting Principles (GAAP). 

The Internal Audit: An internal audit is elective. Yes, that’s right, businesses choose to have this audit process on their company.

The purpose of the internal audit is to examine the business’s overall performance and address and identify any areas of risk, inefficient processes, the potential to run the business more effectively, and how to safeguard your business assets.

business audit process

The Hero and the Villain Analogy

Although it may sound menial and somewhat dull on paper, the benefits of a “business processes analysis” (formally known as a business audit) are HUGE! To make it more exciting, I compare our work to that of an undercover detective, where the auditor (me) is the hero and bankruptcy or insolvency is the villain. I look for the crucial evidence that saves your business from disaster.  

  1. A detective like analysis uncovering potential fraud and improving your fraud prevention methods:  Our expertise can find discrepancies caused by human involvement before it’s too late and work with you to create a solution to improve your fraud prevention methods.
  2. Staking out poor accounting protocols: You may not know it, but the methods your staff use to complete tasks may not be the most efficient process. Simple changes in delegations of duty and tasks through education and management from the auditor can save you time and, more importantly, money.
  3. Up to Date Accounting Systems: Do you know if the accounting system you use is the most effective for your business? Do you even use accounting software in your business? Are you maximising your performance by using the most up to date platforms? We know the answer. We can uncover what’s best for your business.
  4. Benchmarking of financial reporting information: We can determine the performance of the business and how well it has performed during the financial year by testing, questioning and evidence acquisition.
  5. Protect your business assets: protection from the evilest villain of all businesses, bankruptcy, is essential. We can make sure all your business assets are safeguarded in the event of misfortune.
  6. Uncovering and managing risks to your business: We will look for potential threats to the wellbeing and future success of your business growth. 

Finding the issues in your business or company that may be holding you back can assist you in growing your business more efficiently and keep you on track for greater success and compliance with the law.

If you think your business could benefit from a business audit, don’t hesitate to contact Bishop Collins Accountants. Our audit team is passionate about assisting you in identifying risks to your business and creating strategies to avoid these risks in the future. Through intelligent insights and innovative solutions, they aim to deliver even greater trust and confidence, helping you unlock opportunities in your business.

Investments

Cryptocurrency Part Two: Crypto Transactions & Environmental Impacts

cryptocurrency part two

I’ve explained the basics of Cryptocurrency in the last article and the tax implications for Australian residents and businesses. Now I will go in-depth about Crypto transactions and the types of taxes you may face when transacting with Crypto, crypto mining basics, and the impacts crypto mining has on the environment.

Transacting with Cryptocurrency

When a transaction is a Capital Gain

If you invest in Cryptocurrency simply hoping that it increases in value, any gain you make from the disposal is treated as a capital gain.

Capital Gains Tax (CGT) occurs when you dispose of your Cryptocurrency. The disposal can 

happen when:

  • you sell or gift Cryptocurrency
  • you trade or exchange Cryptocurrency (including the disposal of one Cryptocurrency for another Cryptocurrency)
  • you convert Cryptocurrency to traditional currency, such as Australian dollars, or
  • you obtain goods or services using Cryptocurrency.

Some or all the gain may be taxed if you make a capital gain on the disposal of Cryptocurrency. 

Some capital gains or losses may be disregarded if they come from the disposal of a Cryptocurrency that is a personal use asset.

Crypto is a personal use asset if you hold it or use it mainly to purchase items for personal use or consumption.

If Cryptocurrency is acquired and used within a short period to purchase items for personal use or consumption, the Crypto is more likely to be a personal use asset.

The appropriate time for working out if an asset is a personal use asset is at the time of its disposal.

Except in rare situations, the Crypto will not be a personal use asset.

When a transaction is an ordinary income 

There are situations where a Cryptocurrency transaction or series of transactions can give rise to ordinary income if:

  • you went into the transaction intending to make a profit, and
  • the transaction is part of a business operation or commercial in character.

Relevant considerations for working out whether a transaction has such a character include:

  • the nature of the entity undertaking the transaction
  • the nature and scale of any other activities conducted by the entity
  • the amount of money involved in the trade and the scale of the profit sought or obtained
  • the nature, scale and complexity of the transaction
  • the amount of time which the transaction occurs
  • whether the Cryptocurrency has had any other use, other than as an object of trade, for example, is it used to exchange or buy services only available on the blockchain?
  • whether there is the necessary profit-making intention and business or commercial character of the transaction will depend on each case’s particular facts and circumstances.

If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain. This includes if you carry on a business of Cryptocurrency Miner or Trader making multiple disposals frequently.

Using Cryptocurrency for business transactions

Suppose you are carrying on a business that is not a Cryptocurrency business but uses Cryptocurrency in your activities. In that case, you need to account for Cryptocurrency as you would for other assets or items used in your business.

Suppose you receive Cryptocurrency for goods or services you provide as part of your business. In that case, part of your ordinary income must include the value of the Cryptocurrency in Australian dollars. This is the same process if you receive other non-cash considerations under a barter transaction.

One way to determine the value in Australian dollars is to obtain the fair market value from a reputable Cryptocurrency exchange.

If you purchase business items using Cryptocurrency (including trading stock), you are entitled to a deduction based on the market value of the item acquired.

GST on Cryptocurrency transactions is a more complex topic, and we will discuss that in more detail in a future article.
Crypto Mining

What Is Crypto Mining?

Cryptocurrency mining is how new Cryptocurrency is entered into circulation and how the network confirms new transactions. It’s a critical aspect of the integrity of the blockchain ledger. Unfortunately, it is incredibly expensive and only sporadically rewarding. Nevertheless, mining has a magnetic appeal for many investors interested in Cryptocurrency because miners are rewarded for their work with crypto tokens. 

“Mining” is performed using sophisticated hardware to solve a complex computational math problem. The first computer to find the solution to the problem is awarded the next block of Bitcoins, and the process begins again.

After all that work spent mining, miners still may not get any Bitcoin for the time and energy.

Only the first miner to get the correct answer, or closest answer, to a numeric problem receives the prize. This process is also known as PoW or Proof of Work.

How Much a Miner Earns

The rewards for mining Bitcoin are reduced by half roughly every four years.

In 2009, when Bitcoin was first mined, one block would earn you 50 BTC. In 2012, this was halved to 25 BTC. By 2016, this was halved again to 12.5 BTC. Most recently, on May 11, 2020, the reward halved again to 6.25 BTC.

Today 8 December 2021, the price of Bitcoin was about $50,378USD per Bitcoin, which means you’d earn $314,862USD (6.25 x 50,378) for completing a block. 

That is the incentive to solve that complex computational problem and the costs of mining.

What about the Climate?

I find this part of the discussion the most interesting and the biggest surprise to most Cryptocurrency users. 

Crypto investors are younger than stock market investors — the average age of a crypto investor is 38 years, compared to 47 years for stock market investors. Generally, the younger generation is more concerned about climate change than the older generations. Here is the surprise…

Bitcoin has a massive climate dilemma

The Cryptocurrency uses enormous amounts of electricity. As a result, Bitcoin miners are now producing as much carbon pollution as a medium-sized nation uses in a year! That’s just amazing! Fossil fuels power most of the electricity consumed by Bitcoin, and there lies the dilemma.

Even if the electricity that powers Bitcoin and other Cryptocurrency uses Green electricity, it is still taking that Green electricity away from other electricity needs.

Bill Gates said, “Bitcoin uses more electricity per transaction than any other method known to mankind

” when he recently spoke on Clubhouse.

A new study in the journal Joule by data scientist Alex de Vries predicts that Bitcoin may soon be consuming over 200 terawatt-hours (TWh) of electricity.

A large majority of the energy used is in the “proof of work” process that creates new Bitcoins. Energy consumption is a key feature of the Bitcoin process, and without it, you lose what’s attractive about digital currency.

Bitcoin, currently @ over $50,000/BTC, is estimated to be using more energy than all of Australia used in 2020.

Feel free to read the full article here:

https://www.abc.net.au/news/2021-03-18/bitcoin-has-a-climate-problem/13210376

It’s important to note that not all Cryptocurrencies use as much energy as Bitcoin and have more energy-efficient features. Read this article if you want to know the most energy-efficient Cryptocurrencies around:

https://www.leafscore.com/blog/the-9-most-sustainable-cryptocurrencies-for-2021/

So regardless of your inclination to be a Cryptocurrency Miner or investor or just ignore it and hope it goes away, the future reality lies somewhere in the middle, with some countries like El Salvador making Bitcoin legal tender. 

I think change is good!

We would love to hear your thoughts on this article and what other topics you’d love to read about from us, so follow our social pages and let us know what you think.

If you’d like any further information on how you can start trading in Cryptocurrencies, the tax implications involved or investment opportunities available to you, feel free to contact us on the form below.

Investments

Cryptocurrency Part One: What is it & how does it affect my taxes?

cryptocurrency part one

“The future of money is digital currency” – Bill Gates.

“Probably Rat poison squared. The idea that it has some huge intrinsic value is just a joke in my view” – Warren Buffet.

Two brilliant minds and two very different views on Bitcoin and Cryptocurrency. How could they be so far apart, you say. Well, in my humble opinion, it shows that there is more to play out in the Cryptocurrency market and that anyone who says they are an expert in Crypto or say, “Crypto is how you can make lots of money”, are exaggerating. It’s like saying an economist can predict the future!

So let’s do what I love best; let’s get the basics covered and then elaborate on the detail for those that want to go further.

What is Cryptocurrency or Crypto?

Oxford defines Cryptocurrency as a digital currency in which transactions are verified and records are maintained by a decentralized system using cryptography (The art of writing or solving codes) rather than a centralized authority like a country’s Central Bank. In other words, the records and verification of who owns Crypto and how much they own are verified and determined by a system that does not involve a bank or Government or regulatory authority.

The first of this Cryptocurrency is Bitcoin. At its conception, bitcoins are mined by sophisticated hardware that solves extremely complex computational math problems. The first to find the solution to the problem is awarded the next block of bitcoins, and the process begins again. This computational system is called Blockchain technology. Bitcoins are created out of thin air or “Mined”, and anyone can do it. That’s it.

Ridiculous, you may say, but that is how all currency initially started. When we print notes, the paper itself has no value, but we determined it to have a set amount of value. 

Today quantitative easing does the same thing as Crypto-mining (which we will discuss further in part two of this article). A country’s Central Bank creates more of its currency electronically and circulates it into the economy via its banks. It’s also known as “printing money” even though it is not physically printing the money!

To understand Crypto better, we need to understand money. For money to have relevance, it must be valuable, and it must also have the following characteristics:

  • A critical mass of people must have it
  • Sellers of products and services must accept it as a form of payment
  • The community or economy must have TRUST in it and TRUST that it will remain valuable. 

IT’S ALL ABOUT TRUST!

In the past, products were bartered, such as food and tools, and the value of the goods was in the nature of the goods themselves and what benefits they could physically provide. If we consider something like Coins or Notes, we are talking about something physical, but you can’t gain much from the nature of the coin or the note. You cannot eat it or burn it to keep warm, so we must trust in its value and that it will remain valuable and hopefully stable. 

Something like Credit takes a step further into the realms of trust and is only valuable if we trust the rules, regulations and society’s wish to comply with the “rule of law”. Otherwise, Credit is useless. 

Now consider Cryptocurrency. It requires even more trust as a Central Bank, or the Government doesn’t back it to say that we will support it if the price goes down. So it’s used rarely to buy products or services, and not that many people own it compared to traditional money.

But all this is changing. 

What is so good about Cryptocurrency?

The following are some arguments that have some merit:

  • Sharing power and thereby reducing corruption – This is an interesting argument that has been stimulated by the increasing wealth gap we are finding in today’s societies. Instead of having one authority as the gatekeeper of money, there is a system where the network members hold the power. Cryptocurrencies aim to resolve the issue of absolute power by distributing power among many people. That’s the fundamental idea behind blockchain technology, which all Cryptocurrencies use.
  • Limiting the ability to print too much money – As discussed, Government Central Banks can simply create or “print money” when they face serious problems such as what US, EU and Japanese banks are doing now. The argument is that this doesn’t solve the root cause of the economic crisis and is just a band-aid solution. Most cryptocurrencies have a limited, set amount of coins available. When all those coins are in circulation, it is very difficult or impossible in the case of Bitcoin to create more. This ensures the problem that caused the Economic crisis is dealt with.
  • Giving owners complete control – Traditional money is controlled by Central Banks and the Government. If you trust your Government, that’s great, but at any point, the authority can freeze your bank account and deny your access to your funds. For example, look at Greece during its recent financial crisis. Some Governments can even simply abolish banknotes the way India did in 2016. With cryptocurrencies, you and only you can access your funds.
  • Cutting out the middle person – With traditional money, a middleman like your bank or a digital payment service takes a cut each time you make a transfer. With cryptocurrencies, every blockchain network member is the middleman; their compensation is minimal in comparison.
  • Serving the unbanked – Financial inequality is growing around the globe. Around 3 billion unbanked or underbanked people can’t access financial services. That’s approximately half the population on the planet! Cryptocurrencies aim to resolve this issue by spreading digital currencies and creating access to the most minute amount of a coin, depending on the Cryptocurrency you choose. For example, you can purchase 0.00001 of a Bitcoin or even buy an alt-coin valued at AU$0.000051. 

cryptocurrency bitcoin

Let’s go a little deeper.

Dispel some Myths

Cryptocurrencies are only suitable for criminals. Some cryptocurrencies have anonymity as one of their key features. In addition, most Cryptocurrencies are based on a decentralized blockchain, meaning a central government isn’t the sole power behind them. These aspects do make Cryptocurrencies attractive for criminals. However, citizens in corrupt countries can also benefit from them. For example, if a country’s Government or bank is untrustworthy because of corruption or political instability, the best way to store your money may be through Cryptocurrency.

You can make anonymous transactions using all Cryptocurrencies. Many people think Bitcoin is a secret, and nobody will know How much you have or what you have purchased with BitCoin. But Bitcoin, along with many other Cryptocurrencies, doesn’t incorporate anonymity at all. All transactions made using such Cryptocurrencies are made on the public blockchain. It’s actually the opposite and part of the TRUST element that makes Bitcoin more attractive. It is fully transparent, and anyone can view real-time Bitcoin transactions.

Risks of Cryptocurrency

There is no such thing as a sure thing. 

If it’s too good to be true, it often is!

We have all heard these sayings, and it does not stop with Cryptocurrency.  Whether you trade Crypto, invest in them, or simply hold on to them for the future (known as HODL in the Crypto space), you must assess and understand the risks beforehand. 

The most significant risk with most Crypto is their volatility and lack of regulation, which is ironically why they are also liked. However, this threatens the aspect we discussed above around Trust and may limit the ability of Cryptocurrency to replace our traditional money systems in the future.

On Saturday 4th December 2021, Bitcoin shed 20% before recovering a little, which had it losing about $10,000 an hour. Including that drop, its value has declined about 29% since its all-time high on 8 November 2021, around the same time that speculative stocks started to slide.

The AUSTRALIAN TAXATION OFFICE and Cryptocurrency

You can guarantee that if you profit from Cryptocurrency, there will be some Tax to consider. As discussed previously, transacting in Cryptocurrency is not a secret transaction that is undetectable.

The Australian Taxation Office (ATO) Cryptocurrency data-matching program has been around since April 2019. Under the program, the ATO has collected data on cryptocurrency transactions for the 2014-15 to 2019-20 financial years. This protocol will continue onto the 2022-23 financial year.

Cryptocurrencies can be bought or sold on a digital currency exchange platform using traditional currency. In addition, some popular digital currencies or “stable coins”, like Bitcoin, can be purchased or sold for cash through special ATMs.

Tax treatment of Cryptocurrencies

If you are involved in purchasing or trading Cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.

Everybody involved in buying, selling or trading Cryptocurrency needs to keep records of their cryptocurrency transactions.

If you’ve transacted with a foreign Cryptocurrency exchange, you may also have tax responsibilities in another country. This is an important thing to consider when you’re on the hunt for a reliable Crypto exchange. A few great ones are available in Australia, so you should research those over foreign exchanges.

Cryptocurrency Part Two: Crypto transactions & environmental impacts will expand on this topic further. This article talks about making transactions with Cryptocurrency and the types of taxes you may face when transacting with crypto, crypto mining basics, and the impacts crypto mining has on the environment. For example, do you know the amount of electricity Bitcoin miners use? The answer surprised me, and I’m sure it’ll be surprising for you too. 

If you’re interested in finding out more about how to invest in Cryptocurrency and ensure you’re paying the correct taxes, feel free to contact us below, and we’ll happily show you your options.

Posts navigation

Business Plan Template

Tax tips

Prevent Fraud