How To Know If Your Product Will Sell

It is totally okay for you to go out there with a product that you’re learning how to do – and the way to do it is really, really simple: it’s signal. Don’t put any more work into it. Don’t say: “I need to get the web page right” or, “I need to have the flyer and the brochure ready” or any of that. It’s a waste of time right now, and It’s the wrong strategy or the wrong step at the wrong time. What you want to do first is signalling/beta.

Think of the people that you think are going to be the ideal clients for your product. Whatever the messaging system you use in your business, for instance social media, the more public the forum is the better it is, wherever that pool of people, you need to put out a message – and it’s something really simple as:

“Who would be interested in…”

Or another way to say it,

“I’ve been asked how to do” whatever the financial product outcome is, and I’m going to assume that people have asked you this. “I’ve been asked, a lot of people ask me, how do they supersize their super, and we’ve got an amazing strategy that we’ve been using that gets a 120% return over 3 years. Would anyone else be interested in learning how to do this?” So you put it out.

Now, the reason I say a public forum is it’s a thing called social proof. If you have social proof, then there’s a whole stack of people who are looking at this and go, “Wow, this is cool. We love what Meg’s doing on this sucker here.”

And we go, “I want in.”

Then you go, “Great. What I’m doing is I’m going to be running a beta group.”

If they’re interested, then you go, “The second step is…” And then you would do more of a presentation: this is what it’s about, and this is what it looks like.

Start with a small number – let’s say somewhere around 10 is usually a good number to start with. Say, “I’m looking for 10, only 10 people. Now, part of the caveat on that is that we’re going to be building this together, so you’re going to help me to co-create this along the way.”

And that is how a whole stack of our members last year created a whole heap of spinoff products and made a heap of cash. And now are having businesses that they love a lot more than they ever did before.

Watch the full webinar replay at https://learning.benwalker.com/courses/how-to-navigate-2021

The Wrong Business Structure Will Eat Into Your Profits (Sharon Cliffe Podcast)

Sharon: When setting up your business, it’s so important to ensure that you’ve got the right business structure to set you up legally, so that you don’t come into any pitfalls and leave yourself open to any kind of legal issues. It’s also important to make sure that this is set up correctly from a tax and profit perspective. That’s probably something to really look at and speak to someone about (like yourself or one of your team) and make sure they’ve got that structure right.

Ben: That’s a good point, actually – tax is often a huge component. You’ve got to pay tax on profit, so the profit is not all yours. However the amount of tax you need to pay, varies depending on how your business is set up:

Sole trader: You might pay up to 47% in tax in Australia, which is almost half of your profit,

Company: Company tax rate as a business is sitting around 26% as a flat rate of tax,

Trust: If you’re structured as a trust, you get to choose who you give that profit to. It could be you, it could be to other family members who are on a lower tax bracket than you – so you might pay even less than the 26% company tax, so it does make a huge difference.

Over the years, we’ve saved our clients close to $12 million in tax, which is huge. But the biggest impact on that number has to do with the client’s business structure. So, yeah, getting your business structure right is extremely important.

Listen to the full episode of this interview at The @SharonCliffe Podcast at https://podcasts.apple.com/au/podcast/ben-walker-the-3-keys-to-wealth-creation/id1555815785?i=1000512309094

The 2 Ways To Treat Business Purchases

When we look at purchasing things in our business, there’s kind of two ways to treat them:

The first, is if you’re buying consumables, where you might use them in the work that you do -for Accountants, it’s a little bit tough. We might be consuming pens and stuff as we work – but let’s say in the context of building a house there’s all that equipment, all the timber, all that goes into building a property. So, for a builder, they can instantly claim that stuff as the cost of the goods sold, or in the case of paper and pens at Inspire, we claim that as expenses. So, they’re not assets. Once they’re used, they’re gone. So that’s one lens to look through.

The other one is if you buy a piece of equipment (and we often call that an asset that you’re going to be using over a long time to sort of make money off in your business) generally, we can’t write that off in a single year. In accounting land and tax land, we usually have to write that off over a number of years.

When COVID hit, they announced an interesting measure where it said that there’s a temporary full expensing of any asset that you’ve purchased, which I’ve never heard of in my working career. It basically says if your turnover is under $5 billion, then you can claim the full cost of an asset up to 100% of its cost. Now that includes things like (and I’ll do an asterisk on cars) but cars, equipment, machinery, printers, laptops – not necessarily the timber and steel I mentioned before that builds the house, but the equipment that you use to build the house. So there’s no limit now on the amount you can spend, and that was eligible from the 6th of October 2020, through to 30th of June, 2022. So we’ve got just over one full financial year to use this, almost like a concession, or temporary full expensing. So it’s pretty cool.

What Should You Track In A Logbook After Buying A Car?

My recommendation is you use some sort of app to track your logbook for ATO reporting purposes. Inspire’s app – which can be found on the app store (link in the bio) actually has a log book feature that can also track GPS and do kilometre tracking for you.

What you need to do is set up a start date for your 12 weeks, and just make sure you log your business trips and the kilometres associated with them, versus your personal. Then, what we look at is your business kilometres for the whole 12 weeks, and divide that by your total kilometres in that 12 weeks. That’s how we calculate your log book percentage so that we can claim all your depreciation, GST, and expenses to run it.

Need a second opinion? Book a zero-cost strategy call with an Inspire Accountant.

Tax Tip: Work Your Family Trust

This tax tip I want to share here is: Work your family trust.. Now, what we mean by that is if you’re trading through a family trust, or maybe your family trust owns shares in the company that runs your business, we want to make sure you’re using that to your absolute potential.

A couple of things to remember with discretionary trusts (aka family trusts) is that they can distribute their profit to people in the family group – you can change who that gets allocated to each year, which is a pretty cool feature. So we want to make sure we’re distributing it to the people that make the most sense from a tax perspective, or any other perspective that we want to consider.

Most family trusts or discretionary trusts can distribute to the business owners themselves, the spouse, the kids (but there’s limitations to that) – basically any of the more immediate family members like parents, sometimes grandparents, or brothers and sisters of the business owners, and in-laws. There are certain limitations and you do have to read your trust deed to make sure who you can distribute your money to, so make sure you double check that.

You also need to document who is getting this profit before 30 June of every single financial year. So you actually have to have a trust distribution minute – that’s something that we do as part of our client’s tax planning process. Once we’ve had that discussion with them of who’s the most appropriate beneficiary, we actually document that for them and get them to sign that off.

The other thing about family trusts and making sure you get the most out of them, is with the more recent trust deed, we can actually distribute different streams of income. That’s a bit of an accounting term, but what that means is, if your trust earns multiple different types of income (maybe it gets business income along with interest on term deposits or bank accounts, and that might get dividends) we can actually send those different forms of income to different beneficiaries – that also might make sense or have a better outcome on our tax position.

So, again, we want to make sure your trust deed is up-to-date, and we can update that if needed to bring it into some of the more recent rules around trust distribution streaming. But also we need to have a look at that for who can actually receive the money, and that’s called the “beneficiaries”. So this is just an encouragement – If you’ve got a family trust in your business structure, make sure you’re using it to its absolute potential in your family situation.

Federal Budget: Key Details About Downsizer Contribution

One of the announcements in the most recent federal budget was the downsizer contribution. For context, let’s say you’ve got parents whose kids have left the nest, they don’t need the five-bedroom house anymore – they want to get into maybe a two or three-bedroom house or apartment. In the process of selling the big one, let’s say the price is 2 million for that, and then they buy an apartment for $1.5 million – the difference is $500,000. So the idea of the downsizer contribution is now that couple has $500,000 of cash sitting there, what are they going to do with it? So this is a way where the downsizer contribution says, now you can have $300,000 per person – so $600,000 for a couple – that you can pop into super, and it doesn’t count towards any other contribution cap.

The other interesting thing they’ve changed is, you used to only be able to do this when you’re 65 or older. They’ve dropped the age limit to, if you downsize, from the age 60 or older – so that’s pretty cool. You must have held your big house for 10 years or more, and you also must forward the net payment within 90 days of settlement of the big house. Remember, this one applies from 1 July 2022 so don’t go and sell your property right now if you want to use this one.

Remember, this contribution doesn’t count towards other caps – It’s underselling a little bit with that sentence. It’s massive because you’re moving one of your biggest assets or wealth portions into super without affecting your other caps, which is your non-concessional and your concessional contribution caps, which means you still can move more of your wealth into super as well as you reach retirement age. So, again, they’re wanting you to use more of your own funds to support your retirement and then using the tax tools that they have to ensure that you don’t get burdened by that when you do transition to retirement. It’s amazing outcome here.

For more information watch the 2021 Federal Budget Debrief webinar FREE on my e-learning page at https://learning.benwalker.com/courses/2021-fbd

Tax Tip: Pay Employee Super Early

If you hire employees and pay super for them, or even yourself – you might even have yourself paying wages to yourself, and therefore superannuation on that – then you’ve got to pay super.

Superannuation is accrued every three months, so let’s take the March quarter (January, February, March) and you’ve got to pay that superannuation bill by the 28th of the following month – so in this example, that’s the 28th of April, and the June quarter payment is payable on the 28th of July. Superannuation is deductible from a tax perspective when it’s paid, not when it’s accrued, so you’ve got the decision to make for the June quarter. Do you;

Wait until you have to pay it? We usually encourage a few days before the due date, so the 28th of July – is that going to be your payment date, and you claim it next financial year?

OR,

Do you pay it 29 or 30 days beforehand, late June in this current financial year, therefore you get a deduction this financial year?

So that’s the choice you’ve got to make.

Now, if it’s a substantial amount of superannuation, it might be $10,000 or $20,000 or $30,000, then times that by your equivalent tax rate (or your effective tax rate) to work out how much tax you’re actually going to defer until the next financial year. So let’s say tax rate is 39% and you’re paying $10,000 in super early, then that’s $3,900, almost 4 grand in tax that you won’t have to pay this current financial year. So thats pretty cool!

And because you have to pay that expense already, it’s just a matter of cash flow and timing that correctly. So, yeah, we just encourage you to consider paying employees super early.

Federal Budget: Low To Middle Income Tax Offset Extended

LMITO stands for Low to Middle Income Tax Offset. You might’ve heard of this last year – It was supposed to end on 30th of June 2021. So essentially, if you’re a low to middle income earner, you can get a maximum of $1,080 off that tax offset. Tax offsets are super powerful – unlike the depreciation, immediate depreciation rules and all these other stuff, a tax offset is literally a discount on the tax bill that you get.

If you usually pay $1,000 in tax, you wouldn’t pay tax at all in this situation – It really takes it off the bill straight away. So it is quite powerful, and they’ve extended that beyond this financial year, which is great. It also applies to a couple, it’s just the double amount of the singles which is $1,080 x 2. And yeah, the income that you earn is between $48,000 and $90,000.

This is great news for everyone because that’s literally cash back in your pocket when you do your tax returns. It applies to everyone who earns income and pays tax in that threshold obviously in the year that full amount of tax offset, straight away.

Here is one of the ones that actually applies to investors indirectly, where if you’re invested in property or shares or investments in your own name, or you receive income from a trust that runs investments, then this is one of the ways that might flow on to you.

In terms of the cash refund offset, I believe it’s a non-refundable tax offset. So what happens is it offsets whatever tax you do pay, so you’re not going to get extra cash into it. There was a bit of confusion when they released this, last time – everyone knocked on the ATO’s door asking, “Where’s my $1,000 I was supposed to get.” If you didn’t pay tax last year, you wouldn’t get this as a cash refund – It’s just an offset on the tax that you paid already. But if you’ve pre-paid tax, you will get that as a refund.

Tax Tip: Salaries Paid To Business Owners

Salaries paid to business owners is actually a really common thing we see done, which is totally fine. When you run a company or a trust, one of the ways to get money out of either of those structures is to actually pay a salary to the business owners. Some of the pitfalls, or things that might cost you tax there, is actually paying not enough salary or too much salary – and I’ll explain why this is.

Too much salary: When we pay a salary to a business owner, that’s a tax deduction in the company or trust paying the salary, and then the person is taxed on that in their own name. So let’s say we pay a $300,000 salary – that means that the individual is actually going to be in the top marginal tax rate, so 47% tax, which is about half the money that they’re getting there paid in tax. So we would actually consider that in most cases to be too much salary.

Now, there are circumstances where you do need to actually pay most of the profit an entity makes to the person – but let’s say in most cases, we don’t, so $300k might be too much. So what’s our magic number? The magic number is actually sitting at around $120,000 in taxable income to the individual. And so if the salary is the only thing that that business owner is earning, and then we might aim for about $120k. Now, why that number? That’s the income level where the individual tax rate goes from 34.5% tax to 39% tax, and then that’s including the Medicare levy. And there might be better places for the profit of the business to go after that point. So that’s our magic number.

Too low a salary: Too low is not necessarily a problem with tax to the individual, but what it might do is create tax problems for later on, which we call Division 7A. So not allocating enough money for the business owners to take out means that they might need to loan money from the company, and then we start to get into these complex rules that are called Division 7A. Not the time to go into that one right now, but that is the result of not enough salary.

Federal Budget: Can A Couple Sell Their 10+ Year Home Into Their SMSF?

“Can a couple sell their 10-year-plus home into their SMSF?”

So the answer to that is: I wish we could, but you can only transfer assets that you own outside of super into an SMSF if they’re market-listed shares or commercial real property. So unfortunately we cannot sell a residential property into your SMSF.

“Does the loss carry back apply to small businesses structures, such as a sole trader or partnership, or trust?”. The answer to that is also no. I feel like a bit of a spoilsport with both those questions, but the loss carry back only applies to businesses structured as a company – so it has to be a company. And you’ve got to make profit in the previous years to be able to go and claim it, anyway.

The mechanics for that is really quite simple because what they’re doing is, when you do apply that loss carry back, you get an offset of tax in the current year. That offset comes from prior tax that’s been paid by that company, or what we call “franking credits”. And a sole trader and all of that, don’t have that mechanic to do that so that’s why it’s only applied to companies.