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WEALTH, BUSINESS & LIFE

Xero, MYOB, Quickbooks & Sage The Future is Real Time Cloud Accounting!

Don’t Fall Behind: Page 4 Access Your Super Before you Retire

Are you Financially Healthy?

Why Opt For a Self Managed Super Fund

How to Prepare a Business for Sale

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CONTENTS

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12 Using Cloud Accounting to Cut Costs Access Your Super Before You Retire Are you Financially Healthy?

Why Set Up Self Managed Super How to Prepare a Buiness for Sale How to Value Your Business

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Is Property Still a Good Investment Tax-Wise, Can You Afford That Car? Using Your SMSF to Buy Property Focus: Tax & Technical Update Key People at Cassells Charity: Springs of Hope Orphanage

ABOUT Cassells is a professional firm providing clients with specialist services designed to provide them with unique business solutions tailored to suit their requirements. We have built a successful practice on client development & recommendation. A major strength is our Partners’ commercial experiences in guiding small to medium businesses through stages of expansion & maturity. Our focus is on presenting you with exceptional service & advice, building relationships, experience, exclusivity & value which we deliver in a personal, professional way.

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SERVICES

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7 Real-time, cloud-based Accounting New Insights Business Advisory Taxation Service Corporate Advisory Service

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Financial Planning Strategic Planning Self Managed Super Funds Litigation Support Services

CONTACT 34 Gloucester Road, Buderim QLD 4556 PO Box 1558, Buderim QLD 4556 Ph (07) 5477 1100 Fax (07) 5477 1105 email: info@cassells.com.au Frank Cassells Principal Cassells Pty Ltd ATF Cassells Accounting Trust ABN 90 498 323 726 Liability Limited by a scheme provided under Professional Standards Legislation

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The Small Business Accounting Revolution has Arrived!

by Frank Cassells. A study of high income professionals found they all had one trait in common: speed of implementation. Up-to-date feedback is a pre-requisite to speed of implementation. You want to have your finger on the pulse. That’s where the cloud comes in ...

We have found it so frustrating over the years trying to get up-to-date information to assist clients to make business decisions.

There has always with a serious time lag between when you need the information to make the decision that can make a major impact on your business or wealth and actually getting it.

Until now. With the new accounting software available in the cloud all that has changed. We have been using things like “Team Viewer” for a number of years to be able to access clients’ computers and help with their bookkeeping. But this is even better.

Once you put your datafile in the cloud a whole range of possibilities open up for you. If you are doing your own book keeping, you get flexibility of being able to work from whereever you have access to the internet — anywhere in the world!

If you have staff doing your book keeping you can always access the datafile and make sure it is reconciled and access reports. We

can also do that for you - give you reports , interpret how your business is going and report to you, access data to prepare and lodge you bas, help you or your staff with recording non standard transactions.

“Once you put your datafile in the cloud a whole range of possibilities open up for you” Some of the benefits we are now providing clients who have gone to cloud accounting with include:

date. Remember if not paid on time Super Guarantee for employees is not a tax deduction.

Cloud Accounting gives you new ways of interacting with your customers as well.

You can create quotes and invoices tailored to your business and email those to your customers with ease.

Your customers can even download the invoices you have created without you even having to be involved.

✓ Tracking business performance

There are some significant practical benefits to operating your accounting in the cloud:

✓ Tracking cashflow budgets to

✓ It has the potential to save you time and effort and certainly costs in us assisting you with the process or even us doing your entire book keeping process for you.

and assisting with decision making. actuals.

✓ Keeping tabs on PAYG

requirements - making sure that you are not paying tax before you have to and at the same time not creating nasty big tax bills at year end that clients are not aware that are looming.

✓ Making sure that their

superannuation requirements for employees is correct and up to

✓ You can now online connect and download banking data which enters directly to your datafile.

All you have to do is match the data to the corresponding transaction instead of manually entering the bank information.

Early adopters have certainly had benefits but now is the best time ever to make the move to the clouds.

✓ You can automatically upload your suppliers invoices to your datafile.

Cost of accessing the software has been an issue for some but this is no longer an impediment.

✓ It makes that tedious and time consuming reconciliation process much easier.

Early adopters have certainly had benefits but now is the best time ever to make the move to the clouds.

✓ Automatic backup and storage of your data in a secure environment. ✓ No more multiple copies of your datafile and therefore everyone is using the one file. ✓ Makes job costing and project performance tracking so much easier. ✓ Stock control/inventory tracking ✓ As you can access the file from any device via the internet you can even take mobile payments from customers and automatically update your accounting at the same time.

Cost is no longer a barrier.

First year Free. Then $15/ month * *Conditions Apply

Some cloud software suppliers are charging around $80 a month — we can access the latest software with all the latest features — easy to use — for as little as $15 a month with the first year at no cost at all!

There are now many suppliers of Cloud Accounting software suppliers and we work with them all.

MYOB, Account Right Plus, Quickbooks, Reckon, Xero and Sage One are the most popular.

With this range it does not matter which software you are familiar with.

There is an online option that will make the transition reasonably painless for you and certainly worthwhile.

Most Accountants Slow on the Uptake Did you know that nearly 60 % of accountants currently have no plans for taking their clients into the cloud and only a few percentage of accountants are currently actively implementing it.

CASSELLS SERVICES Cloud Accounting Cassells uses real-time, cloud-based accounting systems.

That’s so you can make decisions based on up-to-date reporting.

By using cloud accounting programs like Sage, Xero, Account Right Plus (MYOB Online) and Reckon (Quickbooks Online), we’ll help monitor your business and financial progress.

That means you’ll be able to make decision based on live data to hand, rather than having to wait for a meeting, or for intermittent reports.

We’ll help you interpret information and streamline your bookkeeping and accounting processes and set up a virtual financial dashboard.

Our in-house expertise covers a broad spectrum and we can help you keep up with legislative change, prepare annual accounts, manage periodic accounts for tax, conduct business appraisals and develop planning objectives.

Our expertise coupled with our real-time, cloud-based

accounting will help to improve your business management, internal systems and most importantly increase profitability.

We provide practical advisory services with the objective of improving business management, internal systems and increased profitability.

Business Advisory Perspective is a rare commodity when you are immersed in the day to day running of your business. But it’s crucial to get an expert perspective especially when it comes to core accounting and financial aspects.

A professional opinion will give you new insights, quick wins and profit bumps. Our business advisory services cover a broad spectrum, based on the experience of our principals and staff. They include: • • • • • • • •

Business Management Advice Preparation and Analysis of Management Accounts Cashflow Analysis and Budgeting Development and Reporting of Key Performance Indicators Debt Restructuring and Advice Business Development Managing Loan Applications Superannuation Strategies

• Business Valuations • Purchases of Businesses Due Diligence • Readying your business for Sale

Taxation Cassells provides a full suite of taxation services to ensure you’re not paying any more tax than you have to. There are almost always legitimate ways we can help you save money.

By keeping up with legislative change we can help manage your affairs in real time. Services include preparation of financial statements and income tax returns for partnerships, trusts, private and public companies, corporate, limited partnerships, not for profits and SMSFs. You’ll get practical solutions to improve your bottom line.

With real-time cloud-based accounting we can manage ongoing issues so there are no unexpected surprises post year-end.

Our taxation services: • Corporate Tax Planning and Advice • Business Structures for Tax • Tax issues for High Net Worth Individuals • Capital Gains Tax • Goods and Services Tax

Corporate Advisory Cassells offers an exclusive range of corporate advisory services to clients who require expert advice and service value.

Our principals are experienced transactors and advisors who have worked with top-flight organisations internationally.

They bring a combination of strategic, operational and corporate finance skills.

These services include: • • • • • •

Business Investigations for Corporate Restructuring Assistance with Negotiations Share Buy-Backs Share and Business Valuations Corporate Governance Forensic Reports

• Fringe Benefits Tax • Stamp Duty & Land Tax • Tax across International borders, including tax residence issues • Estate Planning • Trusts: Discretionary, Unit and Hybrid

CASSELLS SERVICES Financial Planning When you reach a point in which you're constantly afraid that you're going to make a mistake with your investments, then you need professional advice.

"Most people need a planner. The ones who don't need one are usually smart enough to use one," wrote Dunton in "Financial Planning Can Make You Rich" (1987).

We help individuals and businesses with a full suite of personal financial planning services.

Our advisers are all qualified and experienced professionals able to offer expert financial planning to make your money work for you now, so you can enjoy a secure future.

We can tailor our services to meet your specific objectives, and resources. We can help you: • Identify your financial needs • Establish your investor risk profile • Access potential investment opportunities

• Develop a personalised investment strategy • Ensure insurances are appropriate & adequateand

Strategic Planning It’s hard to accomplish anything without a plan. Whether you’re coaching a football team, preparing a holiday, or running a small business, you can use a strategic plan.

And then you need to implement it. Our approach is “Strategy into Action”. A strategic plan looks at all the things you could be doing and narrows it down to the things you are actually good at doing and should be doing.

In today’s competitive environment it’s more important than ever to have a plan. It helps business leaders determine where to spend time, human capital, and money.

We can help you create a plan that clearly defines your objectives. We’ll assess your situation, make a plan & help you implement the strategy.

Then we can help evaluate your progress, and advise you on adjustments that may be necessary to stay on track.

Strategic planning services are provided in the following

areas: • Internal and External Analysis • Strategy Formulation and Prioritisation • Strategy Implementation and Action Development • Evaluation and Control

Self Managed Super Funds If you think you need some help with your SMSF, you'll want to find a provider who specialises in the field.

Cassells superannuation specialists can help you negotiate the complexities of superannuation legislation to ensure you are structured to maximize your future income. Our service is comprehensive enough that it can be tailored to your specific financial retirement goals.

A self managed superannuation fund is one of the best methods of saving for retirement, but the complexities can be overwhelming.

We can help with: • Establishment of Self Managed Superannuation Funds • Completion of Information for the Insurance and Superannuation Commissions • Control of Investment Strategy • Superannuation Audits • Advice concerning Compliance Matters

Litigation Support The litigation process is demanding, often divisive and stressful. This is exacerbated even further when it concerns your business.

We’ll work with you and your legal team to achieve the right financial outcome.

We’re in your corner to support your the case with a depth of practical knowledge, expertise and experience.

Cassells provides litigation support services in the following areas: • • • • • •

Litigation and Investigative Services Profit Analysis Intellectual Property Asset Analysis for Family Law Business Interruption Insurance Claims Disputes in Respect of Valuations of Shares and Businesses • Divorce Settlements

• Advice concerning Taxation Benefits • Controlling costs of Administration • Centre for Self Managed Super

Access Your Super Before You Retire If you’re 55 or over, you may be able to reduce your working hours and use your super to supplement your income.

You may even be able to keep contributing to your super while you’re still working.

Who does this suit?

You must be at least age 55 to use this strategy. In addition, this strategy generally works best if you: • Want to cut down your working hours • Have accumulated reasonable super savings to provide an income.

regular income but does not allow you to withdraw a lump sum.

The income is taxed the same way your salary or other earnings are taxed, at your marginal tax rate with certain tax concessions. If you’re over 60, it’s tax-free.

This strategy may be further enhanced if you salary sacrifice some of your income from your job.

The Benefit

It works like this

You can maintain your lifestyle while reducing the hours you work.

The ‘Transition to Retirement’ superannuation rules allow you to start taking a super pension even if you keep working. The intention is to allow more Australians to ‘Transition to Retirement’ gradually.

If you’re thinking of following this strategy and you don’t plan to salary sacrifice, you need to be aware that drawing down on your super will mean you have less when you fully retire.

To follow this strategy, you need to invest in a ‘non- commutable’ income stream, which pays you a

You should speak to your financial adviser before deciding if this strategy is right for you.

The ‘Transition to Retirement’ superannuation rules allow you to start taking a super pension even if you keep working.

Contact Cassells Financial Planning for further information on 5477 1100.

Securitor Financial Group Limited ABN 48 009 189 495 AFSL 240687 Australian Credit Licence 240687. This publication is current as at August 2014. This publication provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The information in this publication does not take into account your objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it and obtaining financial advice. Any taxation position described in this publication is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.

The rules associated with the super and tax regimes are complex and subject to change and the opportunities and effects will differ depending on your personal circumstances. SECCB13727C-0914lc

uper re Case Study: John How John netted $34,973 pa for a 2.5 day week John will celebrate his 55th birthday in November and would like to reduce his hours to part-time. He’s happy to take the pay cut as he has just paid off his home loan, but is concerned about what effect his reduced income may have on his lifestyle. He needs $30,000 pa after tax to live on.

John decides to take advantage of the government’s ‘Transition to Retirement’ rules. He will reduce his full-time job to 2.5 days per week, reducing his annual employment income from $60,000 to $30,000. He will then purchase a ‘noncommutable’ Account Based Pension (ABP) with $200,000 of his superannuation savings to help supplement his lost income.

Note: the pension is 100% taxable component therefore the 15% rebate is on the full $8,000.

An Account Based Pension is an income stream where the account balance is attributable to the individual and satisfies the transition to retirement pension payment rules.1

Salary

$30,000

Salary Income from ‘non-commutable’ ABP

$30,000

Total income

$38,000

$2,397

Tax

$3,027

$27,603

Net annual income

Total income $30,000 Tax

2

Net annual income

2

$8,000

$34,973

1_The minimum pension payment for a ‘transition to retirement’ income stream is currently 4% p.a. of the balance at 1 July or, if commenced in a financial year the balance at commencement.

2_ Resident individual tax rates for 2014/15 inclusive of Medicare levy and Low Income Tax Offset.

ASK US ABOUT GETTING ON THE CLOUD TO REDUCE PAPERWORK Ask Cassells about accessing cloud software, including payroll function for as little as $15 a month with the first 12 months cost free. There is an online option that will make the transition painless for you.

Are You Financially Healthy?

Aussies are getting better at planning and growing their finances.

But there’s still room for improvement. Find out how you stack up …

Australians are taking better care of their financial health, as revealed by BT’s Australian Financial Health Index.

The study involved over 9,000 Australians, delving deep into the attitudes and behaviors of the population towards money, including subjects such as managing finances; saving and spending; retirement and super and insurance and Investments.

Getting more advice Many Australians have identified financial advice as an essential service to help them prepare for their retirement and help them with how and what it means to leave the workforce.

Australians also want advisers to help them with insurance coverage so they can plan for the unexpected, and to help them explore and understand wider investment options and diversification of portfolios.

Measuring financial health

professionals help brings to the table.

The research reveals a number of key indicators of improved financial wellbeing amongst Australians, including:

Often people don’t really understand or know about products and packages that can make a real difference to their short and long-term financial wellbeing.

• saving more regularly and saving a larger sum • feeling more financially aware • being more likely to create financial plans and goals • fewer losing money through investments • using credit more responsibly • thinking more clearly about their retirement options and choices • being more motivated to seek adequate insurance

Super When it comes to super, the research highlights that there still remains a strong disconnect from what is often Australian’s biggest personal investment. Less than a third of the population have nominated their fund themselves, less than half of those with an account check performance more than once a year and only half report knowing their investment profile.

Room for improvement

Insurance

While the financial health of the nation is on the up, the research shows there remain some significant gaps in consumer knowledge. These gaps often fueled by lack of knowledge, fear, or people simply not having the skill-set that specialist

The positive news is that around half of the population enjoys some form of life and or income insurance. More Australians are claiming that they always adequately insure their personal property and regularly review the adequacy of their

Disclaimer: Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

insurance coverage.

However the overall levels of insurance ownership remains low and there are many who don’t care – 16% state that they are underinsured but happy that way!

While many Australian claim that personal insurance is high on their priority list (home insurance being viewed as most important) the reality is just 44% claim to have some form of personal insurance such as Life, TPD, Income or Trauma insurance. Around half claim they do not completely understand the benefits of life insurance.

The research also demonstrated that the internet has become increasingly a first port of call for insurance information.

Improving your financial health So is your financial health great or just okay? Are there areas you know need taken care of a bit better or actually need some intensive care? If you think it’s time to get yourself more financially fit, speak to your financial adviser.

Source: BT ‘Australian Financial Health Index’ (2012 and 2013). Nationally representative sample of 4,966 Australians in 2012 and 4,365 Australians in 2013.

COULD YOUR MID-SIZED BUSINESS BENEFIT FROM A VIRTUAL CFO? Ask Cassells about the benefits of becoming your Virtual CFO. Many business would greatly benefit from having an inhouse CFO. What cloud accounting enables us to do is to fulfil this role economically.

Why Would You Set Up A Self Managed Super Fund?

There are a number of reasons why you would consider setting up a Self Managed Super Fund. The main ones are control, availability to invest directly (particularly in property) and investing for tax savings.

What is a Self Managed Super Fund (Made Easy!)

It is an entity, not unlike a Unit Trust, which you control. The fund is governed by a trust deed, which sets out the rules that must be followed.

Superannuation in Australia, since 1994 is ruled by the the provisions of the SIS Act 1993 and it is this Act with which the trust must comply.

An SMSF can have up to 4 members and each member must be a trustee of the fund. You don’t have to have a company trustee, but there are many reasons why you would.

There are very stringent rules as to how to invest your super with the SMSF rules.

It can be: • Held in cash on deposit • Used to purchase shares either directly or through managed funds • Invested in derivatives and instalment warrants • Investing in precious metals like gold, silver, etc • Invested in property. This can be done via property trusts or directly • Used to buy arts and collectibles.

Whilst it is permissible they cannot be used or personally enjoyed. We tend to recommend that our clients not get involved in these types of investments.

The fundamental of control is there because it’s your super and you are responsible. You are the trustee and/ or director of the trustee company and you are the signatory to the bank account. There are rules and you have to stick to them otherwise there are very significant consequences – but it really doesn’t need to be all that hard to take control.

Superannuation gets tax relief. The reason for this is to encourage the population to save for their retirement and take the pressure off the aged pension system. Once you reach 60 years of age your SMSF can pay you a totally tax free pension. If set up correctly then your SMSF can ensure that you don’t even pay capital gains tax. SMSFs normally pay 15% tax on income and after discount 10% on capital gains. Once you turn 55 your fund can start paying you a transition to retirement pension and in this case your fund doesn’t pay tax on the income it makes to pay you the pension. It is taxable in your hands, but these tax rates are concessional and can effectively be very low depending on how you got the money into the fund in the first place.

The golden egg really is getting your wealth into super by the time you are 60 so that the gains are tax free and so is the income if both these sources are contributing to your pension.

The major thing that your SMSF can do which industry and retails funds can’t do for you is allow you to invest directly in property.

Accessing both the balance of your super now and those funds which are contributed in the future to help get you into the investment property market and pay the property off over the coming years. Before you get too excited though this only relates to property for investment purposes – you can’t live in the property. If it’s commercial you can rent it at market rates to a related party (even you).

But if it is residential, it must be arms length – not even used for holidays.

Your SMSF can borrow to purchase a property, using the funds in your super as the deposit. The fund can borrow from a bank or even borrow from you or a related party so long as it is all at market and commercial rates. The law sounds complex but really it’s not that difficult with some decent advice.

If you are thinking about buying an investment property you can borrow funds outside super and lend it in or contribute it into super, then buy the property in super using both the property inside and outside as security. There is no real difference in the fundamental investment, but properly executed you can create your wealth in a lower tax environment.

There are rules of course and one is that the property in super cannot be used as security for loans outside super that were not used to buy the ‘in super’ property. This needs to be managed on an on-going basis.

(Or 0% if the members are over 60).

This is a great way for Mum and Dad to pass the farm or commercial property on to the next generation and still have a tax free income for the rest of their life.

There are lots of strategies that work when you buy property in super:

I find that each case is always slightly different and using SMSF you can effect a strategy that can give clients great benefits they can’t achieve elsewhere.

You can renovate to add value (but not with borrowed money – just get the cash structure correct up front) You can sell for a profit, leave the profit in super and only pay 10% CGT paying back any loans, even to you or a related party.

You can sell the family farm (or business premises) into super and then rent it back. Subject to limits, pay no CGT on the way in, and get a tax deduction for the rent at company rates (30%) and only pay 15% on the rent going into the fund.

It’s a case of applying the facts, thinking outside the box whilst at the same time making sure it complies with all the rules and regulations.

It doesn’t matter what age you are so long as you don’t need all the income from the investment to live on now, you can control your own wealth creation and utilize the tax benefits of super and an SMSF to get ahead.

How To Get Your Business Ready For Sale

by Frank Cassells. If you have decided to sell your business you are

going to want to maximize its realizable value. Here’s how ...

Here we are talking about getting sale-ready and achieving the best price you can. Timeframe to sale required will often dictate as to how far you can go. But this is a good start.

Industry You’re in the industry that you are in. The first thing to do it to take a step back and have a good look at the wider industry to see how you rate against your competition. Where are you placed? What is the direction of the industry and how is your business placed to meet the challenges? Are you in a dying industry? What’s happening in the external environment within which your business operates? Look at ways you can position your business within the industry to best position you in the mind of a potential purchaser.

Can we make your Intangible Assets more Tangible?

If we can achieve this then the underlying risks in your business are lessened and its value increased justifiably. When we are talking intangibles we are talking goodwill, exclusive products or regions, customer loyalty, processes or products that can’t be replicated by your competitors. In order to make these assets more tangible:

• Make sure business name registrations are up to date • Register trademarks and patents • Put documented systems in place • Contract with your key employees for longevity • Utilize your Assets to Their Best Available Use A tow truck owned and used in your business once a week and being held in the yard the rest of the time is not earning its keep. Options could be sell it and contract from someone else on a use basis or find new income streams to put its use to. Unutilized assets increase unnecessarily the capital required to be employed in the business and therefore reduce the effective return on investment that you are getting. You may be able to sell the asset separately and not affect the price you get for the business at all.

Can you Streamline Costs?

Look at your expenses to see if you are spending needlessly. Remember, don’t skimp on those costs that are drivers of income — be realistic. Start with the small things as they all add up. Over the years I have found that the level of expenditure on stationary in business is always a good indicator of the level of control management has over the entire process of business operation. If the small cost centres are out of control then generally the larger ones are

too. Don’t control for controls sake though.

New Income Streams Check out the opportunities to develop new income streams in the business. Remember you don’t necessarily have to develop them as often surprisingly people will pay for ‘blue sky’.

Get your Numbers Correct and Justifiable The old story, you can’t have your cake and eat it too. If there is a cash component to your business and you are not declaring it, not only do you run the risk of the tax man catching up with you, how do you substantiate quantity to an arms length potential purchaser?

The better order your books and records are in, the more comfortable a potential purchaser (or their accountant on due diligence) will be.

Check your Contracts Make sure all your contractual obligations and assets are in place. Is your lease renewed and have time to run? Have you negotiated the next level of rises (or drops!) in rent? If you have designated customer zones, are these contractually protected?

Have a Clean Up Remember first impressions last. If the workshop is a mess then there is

Make sure it’s not only the books & records that are tidy, accurate & up to date. Make sure the office is organized & efficient. a good chance people will think your services/product delivery also is lacking. Make sure not only the books and records are tidy, accurate and up to date, make sure the office is organized and efficient.

How Happy are your customers?

If necessary, partake in some formal customer loyalty research with your customer base. If it is not appropriate to do this expenditure, look at: • Customer turnover rates • Spread of customers. It is good to be getting smaller customers from

larger numbers than the majority from just a few.

• How often does the same customer transact?

• Look at the potential of getting some customer testimonials.

that in a lot of instances, if employees were always as good as you would like them to be then they would be working for themselves. Take the focus off of you and focus it on systems and ‘teams’ is the way to go.

Are YOU the Business?

The Bottom Line!

All too often small business success is directly linked to the owner. This happens because it is generally the working owner who has the motivation to go the extra mile. This is only natural. Start setting up systems to bring other key players into contact with customers but at the same time don’t just reposition the you with someone else. Be aware

The bottom line is if you want to maximize the value of your business for a pending sale then:

Get your house in order and tidy • Create opportunity for growth • Minimize the risks where ever possible.

How To Place A Value On Your Small Business

by Frank Cassells. There are a number of reasons why you would consider setting up a Self Managed Super Fund. The main ones are control, availability to invest directly (particularly in property) and investing for tax savings.

In reality a business is worth that price which a willing and informed purchaser and a willing and informed seller can agree on. To predetermine what this price may be, and if it is good value, depends on many factors and motivations at the time by each of the parties.

These factors and motivations will change from time to time and person to person. If something is so subject to change then where is the science?

Sounds more like art! But the quest for a conclusive answer should be scientific. The conclusion is that determining the value of a business becomes a combination of science and art, with the only constant being that the science and art are continually pliable.

The static science component is justifiable theory and understandable. Underpinned by the long established correlation between risk and return it can be understood as follows: as risk increases then so does the required expected return in order to compensate that risk.

Remember risk is really the chance that the outcome will come to prevail.

The certainties in life of death (and taxes!) means that the risk of outcome is zero and the expectation of outcome is certain. Somewhere along the scale is the flip of an unbiased coin at 50 % (one of two outcomes independent of the last event). So if you were to ‘invest’ in

the outcome of the flip of a coin you will have a 50 % chance of a return.

For a $ 1 invested how much would you want to be paid on a win in order to be compensated for the 50 % risk that you will lose all? Potentially at the other end of the scale may be the placing of a bet on the rank outsider in the 4th race at Eagle Farm this coming Saturday.

The on-course bookie may offer you 300:1. This means that should your perceived sturdy steed romp home first and you have invested $1, you will pick up $301 or a 300 % return on investment. The bookie is only offering you these odds as he is very confident that you will not see your money again.

This concept explains why, when you place your hard earned money in a term deposit with one of the major Australian banks you get a current interest rate of around 6 %.

The potential for you to lose your capital is extremely low due to the stability of the Australian banking system and the government guarantee that comes with it and the chance of you getting your interest is extremely high for the same reasons.

Determining what the level of risk is and quantifying this constitutes the Art of the process. The process of applying risk and return concepts is the science.

Whilst we attempt to predict the risk and reduce its potential variation through indicators and applying strategies there will always be an element of subjectivity influenced by opinion.

The punter at the races takes into account form guides for the horses in the race (well at least some of them do) and there are fancy punting guides out there to be had.

There is a lot more concrete evidence available to assess the underlying risks in any business, but there will still be an element of unknown and subjectivity. How do we apply the concept of Risk and Return to the value of a small business?

There are two basis of valuation to which I subscribe, both fairly similar.

The concept based on Expected return on Future Maintainable Earnings and that based on Expected Return on Future Maintainable Cashflow.

The expected return is that percentage return on investment considered to compensate the underlying risk inherent in the business under consideration, taking into account the return you can get when the risk is nil.

If there is little risk then the expected return should be lower, if the risks are high then the expected return should be higher. The return is not going to be lower than what we

consider to be the risk free rate (a good indicator of this is the return you can get from a bank term deposit). Being lower than this would be in a rare circumstance but does occur for example in the situation of a micro business where the investment is only being made to buy the owner a job and even then the perceived benefit of the return is obviously better than the alternative of putting the money in the bank.

The expected return is generally looked at as the risk free rate plus the margin over the risk free rate to compensate the increased level of risk.

Risks will be driven by many aspects of the business

Future Maintainable Earnings Based on profit expectations over a period of 3 to 5 years take out the non cash items of depreciation and amortisation and any one off fluctuations. Then also take into account growth expectations or permanent declines expected.

Important to include fair remuneration for any working owners in the expenses. This expected future maintainable earning is then often on an accruals basis. The objective is to pre-empt what level of ongoing profit can be expected from operating the business.

Future Maintainable Cashflow Akin to Future Maintainable Earnings, but on a cash basis. So take out all those none cash items. Include income when receipted, not necessarily earned and expenses when paid, not necessarily incurred.

In my opinion the cash basis is a far more appropriate basis for valuation because other than cash required for

operational purposes, cash can potentially be taken out of the business and therefore this method provides a real indicator of investor returns. Profit may end up being left in the business to fund such things as debtors. The reality is the same but the resulting valuations which inevitably influences purchase prices do differ.

be applied to, and a high incidence of tangible assets. A high risk business would be one which has low barriers to entry (easy for someone else to start up and attract customers), highly specialised tangible assets or skill sets which are hard to replicate, market demand for products or services driven by fads or factors unable to be controlled.

What impacts on the risk factor to be applied?

What do we anticipate the range of expected returns to be?

As we have established, the starting point should normally be what we expect the risk free rate to be and then apply positive and negative influences taking into account the following: • The level of reliability of the financial information being presented • Current economic circumstances and the impact that changes in this may have on the future of the business • Industry type and the barriers to entry in the industry • Potential for future growth • Tangible vs Intangible assets • Alternative use of tangible assets • Expectation of replacement of assets required and timing thereof • Known and perceived competitors • Availability to workers and skill bases.

• The level of technology used in the business • Current and potential changes in technology • Trends and Fads for the products or services • The ability to run the business under management A low risk business may be one which has high barriers to future entry (maybe high cost of assets), expected continued demand for product or services being sold, versatility in the use that assets can

If the bank term deposit rate is 6 % then unless you are buying a job you would expect this to be at the lowest end of the range. My experience indicates for a relatively low risk business, investors are not motivated unless they can achieve a 15 % return on investment and the ability to grow the business. When the risks are higher and there is a high incidence of goodwill component, this expected return on investment can be as high as 25 to 30 %.

If you are selling the business then you want to downplay the risks (or have a genuinely low risk business) and reduce the expected return on investment as this will increase the perceived capital value given the actual returns able to be proven. If you are buying the business you want to play up the risks, increasing the expected return on investment and putting downward pressure on the purchase price. There are many ways of implementing these strategies in the negotiation process and this is all part of the art.

So how do you value a small business?

You apply the science outlined herein and then you apply the art. How to portray the art depends on your objectives and how well you can manipulate the perception of stability of income and the underlying risks.

Is Property Still A Good Investment?

Investment properties in Australia are being hit by falling rental yields. So is it possible to still make money from investment properties? We consider the challenges and opportunities & how to navigate both.

Investment properties in Australia are being hit by falling rental yields.

So is it possible to still make money from investment properties? We consider the challenges and opportunities of the current Australian property market and how to navigate both.

Jumping on the investment property bandwagon Currently, Australian investors are entering the market in large numbers, especially in Sydney and Melbourne; driven in part, by low borrowing costs and rising prices, which are both very attractive. Home loans to landlords now account for more than half of all mortgages, the highest share on record.

Increasing property prices House prices in major Australian cities rose 8.2% in the year through December 2014, according to CoreLogic Inc – the largest property data provider in the world. They have climbed 12.4% in Sydney (the most of all Australian cities) and 7.6% in Melbourne. So in terms of capital gains – in the major cities at least – property is still performing well as an investment.

Falling yields The downside is that these higher prices coincide with an increase in the supply of homes for lease, which is causing rental yields to fall.

A quick snapshot across eight states and territory capitals in October 2014 shows rental yields dropped to 3.7% for houses and 4.5% for apartments.

That’s a drop from 4% and 4.7% a year earlier, CoreLogic figures showed. The result is that investment properties are getting more expensive to buy and returning less cash flow through rent.

2.

Take a long-term view. All types of investments go through cycles of growth and retraction – property is no different.

3.

Do your research – look for hot spots. Areas that you can still get a bargain but look to increase in value in a short period. These areas might not be fashionable but they make good investment sense. Also consider regional and commercial property, which can perform better as an investment.

4.

Don’t get in over your head by borrowing too much or overcapitalising. Do the math between what you need to spend on a property, the rental returns and the projected capital gains.

Make sure you have a plan about how to cover the shortfall if interest rates go up.

5.

Make sure you’re getting all the value you can through gearing and other tax strategies. Again speak to your financial adviser about how to maximise these.

6.

Diversify your investments. A balanced investment portfolio should include a range of asset classes, not just property. In fact property, depending on your stage of life and financial goals, may not be the best choice for you. Again, get good advice.

Warnings There’s been a lot of debate about the Australian ‘housing bubble’: The argument being that the current property market is overinflated and prices are due for a fall. Late last year, The Reserve Bank of Australia warned that the increase in investor lending might be, “a sign of speculative excess”. The implication is that investors may be paying too much and are at risk of a period of negative equity. This, timed with falling rental yields, makes investing in property look increasingly high risk in the short term.

So if you are an investor or looking to invest in property, here are six things you can do to mitigate some of this risk.

1.

Get some up-to-date advice.

Revisit or even rethink your investment strategy by speaking to your financial adviser. Your financial goals will determine whether property is good for you in the short and long term.

Disclaimer: Past performance is not a reliable indicator of future performance.

The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

Investment properties are getting more expensive to buy and returning less cash flow through rent.

Tax-wise, That Prestige Car May Be A Luxury Your Business Can’t Afford ...

by Frank Cassells. If you use your motor vehicle for earning your income then there is certainly some tax benefits to be had and we all should be maximising our claims.

The cost of the vehicle doesn’t drive whether or not you get a tax deduction per-se; but it sure has an impact on how much it is costing you and how much the tax man is helping.

is a taxable profit on sale. But when you sell a luxury vehicle there is this thing called a ‘balancing adjustment’ whereby the value you sell your car for is reduced pro-rata.

The thing is the ATO have decided that if you purchase a vehicle costing $57,466 or more (ex GST) you are officially driving a ‘Luxury’ car and you should be shouldering the cost of this luxury, both from a depreciation and a GST perspective.

This takes into account the luxury vehicle limit as a proportion of the original total cost of your vehicle.

So on the purchase of a new car (assuming 100% business use), you get to claim depreciation and GST input credits of the same amount irrespective of whether or not the car costs you $57,500 (ex GST) or $120,000 (ex GST).

In the first year this depreciation is around $17,250 and the GST input credit is $5224. The trouble is when you come to sell the vehicle, there is a potential sting in the tail.

For a non ‘Luxury’ vehicle, if the sell price (ex GST) is more than the written down value (cost less depreciation claimed) then there

Whilst that sounds good, the end result appears invariably to be a greater ‘taxable profit on sale’ than we normally see for non luxury cars.

This often comes as a shock to the unsuspecting taxpayer at tax return time after they have decided to update their motor vehicle.

Not necessarily.

There is the Luxury Car Tax, paid by the dealer and included in the price (ex GST) of your motor vehicle when the price exceeds $63,184 (2015/16) (note $75,375 for fuel efficient cars).

The tax rate is 33%!

So if you buy a new motor vehicle for $125,000, you are paying $18,545 in luxury car tax before you drive it away. A new car price tag of $200,000 means you have paid luxury car tax of over $40,000. Is it any wonder the value of new cars drop so much in the first couple of years?

But wait, there is more ...

The Luxury Car Tax In Australia we have been conditioned to believe that the price differential for the joy of driving that 5 Series BMW or other European equivalent is all due the extra opulence and safety.

A new car price tag of $200,000 means you have paid luxury car tax of over $40,000. Is it any wonder the value of new cars drops so quickly?

Considering Using Your SMSF To Buy Property? It Can Be A Valuable Option

by Frank Cassells. There is the potential to include property in the super as part of complex tax strategies to gain significant benefits, so don’t close the door on this valuable option.

When the rules changed in 2007 and we were again allowed to buy property in super with borrowed money (used to be able to before 1999) the process all seemed very complex and costly. In the past couple of years it has become a lot more common place. So much so that the banks have started to unofficially reduce the number of loans they are writing, (I believe this is an effort to slow down the pace and exposure a little.)

We have completed many “property in super” transactions over the past few years. What we have found is that every deal is different.

What is the attraction of buying property in super?

1. You like property as an investment – Australians love property investments, particularly residential property. Barbecues abound with stories of fortunes made and tips on the next hot suburb.

There is good reason for this.

Property has a place in a welldiversified portfolio and can offer good income and capital growth over the long term. Property is also attractive to people who like to be able to see and touch their

investment and get involved in the management.

2. Reduced or no Capital Gains Tax when you sell – Provided you keep your property investment in your SMSF until you are over 60 and retired, when you convert your SMSF into the pension phase, you will pay no Capital Gains Tax if you decide to sell.

3. Reduced or no income tax on rental income – You may also save tax on the rental income from the property. Provided you keep the property inside your SMSF, you will pay no tax on rental income in retirement and you will only pay 15% tax on the rental income while you are saving for retirement. That can be a big saving on your marginal tax rate.

4. You own your business premises – According to ATO statistics*, around $62 billion or 12% of SMSF assets are invested in what they call “ nonresidential real property”, most commonly business owners who own their business premises through their SMSF. The great thing about this strategy is that you get rid of the tenants/landlord problems that plague commercial property and you may generate significant tax savings.

5. You want to leverage your super investment – If you decide to borrow money to buy your property inside super, you increase your exposure to the investment, thereby magnifying the gains (and the losses) from the investment.

What you should think about 1. Are you better off buying the property outside super? While the tax savings on capital gains and rental income are significant, the negative gearing may mean your income tax is also be significantly less. Plus, once you have the money invested in super, it is locked away until you satisfy a condition of release, such as reaching age 60 and retiring. Mind you, there are legal strategies to manage this.

2. It can be complex and complicated.

When you start up a SMSF, you take on more responsibility. Investing in property adds another layer of complexity while you can add a further layer by borrowing money to buy the property. It’s important that you get the right advice and support.

3. There are legal restrictions. There can be severe penalties for failing to stick to the rules which include:

· You can’t transfer a residential property you own currently into your SMSF · You can’t live in the property and neither can any friends or family members 4. It can be costly - But with the right advice, it doesn’t need to be. Be cautious; watch out for property spruikers; take the time to make sure the

property is the right investment for your fund; make sure it fits with your existing investment strategy and if it doesn’t, take the time to revisit your investment strategy properly before deciding whether to buy the property. Don’t get caught up in the moment.

CONTENTS Estate Planning Around Cognitive Impairment

In Small Business?

How to Prepare for Superstream

ASIC Winds up More Companies Owing Entitlements

Overclaiming?

Careful. The ATO is watching you

Page 2

Page 3

Page 4

Page 6

Estate Planning & Strategy Estate planning Around Cognitive Impairmentfor Issues clients Planning and strategy around cognitive impairment.

This week I attended the 23rd Colloquium of Superannuation Researchers,

Understandably, people are often either in denial or simply reluctant to get help.

The challenges it seems are that early signs of dementia are often mistaken for normal aging processes and that people are often unwilling to seek Addressing the issues of ongoing capacity is a much easier discussion

This is where the role of accountants is so important. The compliance speaking to their clients at least annually which is the most opportune time

2

focus

Prepare your small employer clients SuperStream Preparing Your Small Business forfor SuperStream ASIC Money Smart has released July e-newsletter including the following money tips and tools:

fewer employees, it’s time for them to get ready.

It’s tax time - tips to make tax time a breeze. multiple super funds in one transaction, reducing the time it takes to pay super and payment processing costs.

ready to be used to invest

Small employers don’t need to prepare for SuperStream alone – we recommend they partner with their tax professional, default fund or payroll provider.

Borrowing to invest is high risk and you should

out how Australians said they spent their tax refund Mid-winter blues? – Holiday saving tips

ATO warns about phoney tax debt scam

reiterated that the ATO “would never

As reported in last week’s Tax Bulletin, the ATO has a

this

manner”.

In

our

CAs to convey to their clients this ATO

strategy is right for you. aware of an aggressive phone scam where fraudsters It allows you to have more money to invest, If you are on a high marginal tax rate there may

threatening

Smart Tip

ATO’s 3 Point Message

This week’s scam (and there are many to choose

deduction for interest payments on the loan the investment return (after tax) is greater than all the costs of the loan, such as interest and fees. If not, you are taking on a lot of risk for an overall low or negative return.

If you receive a call from the ATO and are

ATO Assistant Commissioner Thomas Ryan has

3

Treasury News: Draft Legislation Released Improving tax compliance through enhanced 3rd party reporting,

following transactions:

and Business transactions made through electronic payment systems such as credit and

How does the ATO risk assess privately owned groups and high wealth individuals?

“The ATO acknowledges that privately owned and wealthy groups play an important role in

ASIC winds up more companies owing employee entitlements ASIC has exercised its wind up powers to appoint liquidators

income tax, PAYG withholding and GST. Given their importance, the ATO monitors and risk every year to detect and assess risks. Groups are categorised as lower or higher risk taking

also facilitates an investigation into the reasons why the

used its wind up powers in 2014/15 to appoint liquidators

ATO’s assessment is further enhanced through intelligence from taxpayer interactions and

TPB caution to consumers:

“Using an unregistered agent is a big risk”

wealthy groups are considered lower risk. agents to prepare returns or provide tax advice.

4

focus

Introduction of further Small Business Legislation

package. The three measures are contained in Tax Laws Amendment (Small

and registration fees that previously was claimed over 5 years, and

for capital expenditure on water facilities and fencing assets, and to deduct capital expenditure on fodder storage assets over 3 years. The primary producer amendments apply to assets that an entity starts to hold, or to expenditure an

Spring sittings of Parliament.

The following Acts have received Royal Assent:

of superannuation fund to temporary resident employees, or when superannuation funds merge.

thresholds in line with CPI.

5

ATO warns:isOver claiming is Over claiming to detect than ever tecteasier than ever

and

and

claims across all industries and occupations, a much wider approach than in Help to get it right nd occupations, much wider approach than in previousayears.

Help to get it right

lodging their tax return to avoid a delay in getting a return. lodging their tax return to avoid a delay in getting a return.

Assistant Commissioner Adam Kendrick said there were three key points for Commissioner Adam Kendrick said there were three key points for rapid rate due to enhancements in technology and theAssistant use of data. ents in technology and the use of data.

“These enhancements mean that every return is scrutinised and it is becoming You must have spent the money yourself, hat every return is scrutinised and it is becoming You must have spent the money yourself,

people with similar occupations and employment income, ns and employment income,

s

Case Studies

You must have a record to prove it.

You must have a record to prove it.

You(you haveregularly shifting places employment (you regularly work at more You have shifting places of employment work atofmore than one place each day). than one place each day).

F i n a nc ial

P l a nn i ng

F inancial

Planning

cassells.com.au • centreforselfmanagedsuper.com.au cassells.com.au • centreforselfmanagedsuper.com.au • to another state to purchase caravan.

He also state to purchase a caravan. He also motor vehicle costs toatravel to another

prior written consent of The Institute of Chartered Accountants in Australia.

The contents of prior written consent of The Institute of Chartered Accountants in Australia. The contents of

moving to his new location. information contained herein travel costswork associated with moving to his new work location.

information contained herein

6

6

KEY PEOPLE

Worldy Experience, Down To Earth Expertise Frank Cassells Director, Cassells Chartered Accountants & Management Consultants Professional Qualifications: • Master of Business Administration Australian Graduate School of Management, University of New South Wales • Member, Institute of Chartered Accountants • Practicing Certificate, Institute of Chartered Accountants • Bachelor of Commerce, James Cook University, Queensland • Graduate Certificate in Applied Finance & Investment • Australian Institute of Company Directors Diploma • Qualified Financial Planner

Experience: • Taxation and Accounting, Tax Planning, Registered Tax Agent • Hands-On business management • Capital Raising and Prospectus Development • Compliance for Australian Financial Services Licensing

• Business Planning, Strategy Development and Implementation • Facilitator • Business and Strategic Planning • Marketing • Business Finance and Valuations • Corporate Investigations and Reviews • Project Feasibility and Analysis • Corporate Recovery and Insolvency

Professional Experience • 1985 – 1991 Employed in Chartered Accounting – Corporate Recovery and Insolvency – Last position held: Manager Ernst & Young, Brisbane.

• 1992 – 1994 Full Time MBA program, part time management consulting.

• 1995 – Current. Self Employed Management Consultant/ Chartered Accountant • To 2000, primarily management consulting to large Australian and International business focusing on strategy development and implementation. Since then, a

greater focus on consulting to Managed Investment Industry and Securities Licensing, Public Company Accounting and Taxation for SME’s and High Net Wealth Family Groups.

Current Directorships: • Managed Projects Australia Limited (Director – 23-08-2002) – AFS Licence No: 224805 • Northern Rivers Coffee Landholding Limited (Director – 29-08-2001)

• Tasmanian Truffle Enterprises Group (Director – 30-12-2000.

Clients are guaranteed direct access to people who can give real advice. Our integrated service reduces your costs and provides you with a more accessible information system that is quick to respond to your needs.

We maintain strong working and personal relationships that ensures the development of a level of knowledge of the client’s business that is invaluable. Giving clients the assurance that every business decision they make is reinforced by professional corroboration is our forte.

Over our many years of professional service experience we have developed an intensive network of key advisors.

Whenever necessary we draw on these contacts to assist with specialist advice.

Katherine Cassells Consultant, Cassells Chartered Accountants & Management Consultants Professional Qualifications: •Bachelor of Business/ Accounting: QUT •Member of Australian Society of CPAs

Professional Experience 2001 – Current: •Cassells Chartered Accountants/Self Employed.

•Self Managed Super Funds – Audit and Tax Returns.

•Incorporated Associations – Audit.

•Travel Agencies – Audit and TCF Reporting.

2006 • Course Co-ordinator/Lecturer – Audit and Professional Practice Sunshine Coast University.

1991-2000 •Owner/ Manager Traveland Franchise – Retail Travel.

• Corporate Travel Strategies – Corporate Travel (Combined $5 Million Turnover) Winner Australian Federation of Travel Agents “Travel Agency of the Year”.

1998 – 1999 • National President Franchise Council – Traveland.

• 1996 – 1998: Queensland Representative Franchise Council – Traveland.

1990 – 1992 • Regional Accountant – Pacific ITT Sheraton International • Responsible for consolidated accounting function for 13 hotels

1988-1990 • Accountant KPMG Peat Marwick

SPRINGS OF HOPE

100% CHARITY Our aim is very simple; we have created a charity where all funds raised go directly to keeping children happy and healthy. No administration costs. No travel or accommodation fees. 100% charity.

But we always need financial support to provide the monthly food, staff and medical funds to keep the orphanage ticking over and continue to give these children a better life. So please dig deep and give whatever you can. Use the details below.

Springs of Hope is located in Molo, Kenya. It provides a loving home for the district's growing number of orphaned and abandoned children.

Many of the babies are innocent victims of the HIV/AIDS pandemic. Cassells Principal Frank Cassells set up and runs the Australian incorporated association “Springs of Hope” which raises funds for the oprphanage.

Jennifer, pictured right, is an Australian woman who goes there a few months of the year. Frank met her through Rotary. You will see from the smiley photos that local fundraisers sent over a heap of much-appreciated soccer equipment that Katherine Cassells had left over from running Flinders Soccer club.

Donate Here: Here are the details to donate to the Australian Charity by direct debit …

Springs of Hope Children's Home Inc. ANZ Bank, Buderim. BSB: 014 512. Account Number: 9045 93136 Then please email jennifer@cassells.com.au with your phone number, letting her know you have donated.

We provide a loving home to the district's growing number of orphaned and abandoned children