Category: "Small Business Solutions"

Hobby or Business? How the Australian Taxation Office Treats Bloggers

November 2nd, 2013

 

Hobby or Business

HOBBY OR BUSINESS?  HOW THE AUSTRALIAN TAXATION OFFICE TREATS BLOGGERS

This is a very grey area of tax law, and the information available on the internet for this topic is limited.  If you’re a blogger, or run a small online business for fun, you may be having sleepless nights wondering whether the tax man is going to eventually catch up with you for not declaring income or expenses. 

The tax commissioners view on whether a person is carrying on a business is found in Taxation Ruling TR 97/11.  This ruling contains the following indicators that need to be considered when determining if your blog is classed as the carrying on of a business:

1. Whether the activity has a significant commercial purpose or character – A commercial business is one that is out there working hard trying to make a profit.  They are advertising, selling products, thinking of different ways they can make money, and basically operating on a much larger scale than a small blogger writing a few articles for fun.  If your blog has no commercial elements, then it is less likely to be viewed as a business by the ATO.

2. Whether the blogger has more than just an intention to engage in business – You can’t just be sitting around writing an article here or there, having this big vision in your head of how famous you are going to be, and how much money your website will make once the traffic starts coming.  If you want to be seen as a business by the ATO, you need to be out there DOING!  Taking steps to make things happen!

3. Whether the blogger has a purpose of profit, as well as the prospect of profit from the blog – In other words you need to be able to show that it is possible for a blogger to make a profit, and make a profit running the business exactly how you are NOW.  You must prove to the Tax Office from looking at other successful bloggers who are seen to be running a business, that bloggers can make some serious money once they get their name out there.  

4. Whether there is repetition and regularity in the blogging – You need to be publishing articles on a regular basis to be seen as a business by the ATO.

5. Whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business – Look at other  bloggers that are making money and probably classed as a business.  Look at their websites, their Facebook page, their newsletters and their marketing strategies.  Are you operating anywhere near this level?  If not, then you need to step up your game plan if you want to be considered a business by the Tax Office.

6. Whether you’re blogging is planned, organised and carried on in a businesslike manner such that it is directed at making a profit – Do you have a business plan, a cash flow forecast and clearly defined goals written on paper?  What is your volume of sales and who are your customers?  The Tax Office doesn’t like people who sell only to relatives and friends.  This is often a good indicator of a hobby type business.

7. The size, scale and permanency of the activity – Small isn’t a determinative test, and a person can certainly carry on a business in a small way.  However, the larger the scale of the blogging, the more likely it will be classed as the carrying on of a business by the ATO

8.  Whether the activity is better described as a hobby or a form of recreation – This last point speaks for itself.  If it feels like a hobby it probably is!

When coming to a decision about whether your blog is a hobby or a business, all of the indicators above need to be considered together, and unfortunately the weighting given to each indicator may vary with each bloggers individual circumstances.

Note, that just because you have an ABN number, registered business name and domain name. It doesn’t necessarily mean you will be considered a business.

My Final Word 

It really isn’t easy to form an opinion on this type of tax law by yourself.  Unfortunately, many bloggers don’t have the funds to go running off to an accountant for specialised advice.  If this is the case, then I suggest lodging a private ruling with the Australian Taxation Office to determine if your blog is classed as a business.  This is a free service.  Its quick, easy, and painless, and you won’t have to pay an accountant.

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

 In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

 

Contractor vs Employee

August 24th, 2013

Employee contractor

 

 Contractor vs employee

Is your worker classed as an employee or contractor by the ATO?

This year the ATO will be investigating 950 employers to make sure they are not avoiding their tax and super obligations by incorrectly treating workers as contractors rather than employees.

So how do you make sure you’re getting it right?  Lets look at the contractor vs employee:

Contractors

A worker will have the characteristics of a contractor if:

  • The worker is free to sub-contract or delegate the work they perform to someone else.
  • All tools and equipment required to do the job is provided by the worker.
  • The worker is legally responsible for their work and liable for the cost of rectifying any defect in their work.
  • The worker has freedom in the way the work is done.
  • The worker is operating their own business independently from your business and performs work for other businesses besides yours.
  • The worker is paid for a result achieved based on a quote they provided rather than an hourly amount.

Employee

A worker will have the characteristics of an employee if:

  • The worker cannot pay or subcontract someone else to do the work that they are supposed to perform.
  • The worker is paid by the hour for work performed.
  • Your business provides all or most of the tools and equipment required to perform the work.
  • Your business is legally responsible for all of the work performed by your worker.
  • Your business has the right to direct the way in which the worker performs the work.
  • The worker only works for your business and no one else.

My Final Word

Still thinking about turning a blind eye to your contractor that could potentially be classed as an employee by the ATO?  Getting this wrong can be costly enough to close down your business.  By treating your worker as a contractor you avoid sick leave, annual leave, long service leave, superannuation and workcover.  These expenses can add up to hundreds and thousands of dollars, not to mention the fines and penalties that will be applied should you be found guilty of getting it wrong.  A recent court case (ACE Insurance Limited V Trifunovski [2013] FCAFC 3) found 5 insurance sales representatives to be employees rather than contractors.  The employer was order to pay in the range of around $500,000 in annual leave, long service leave and sick leave that would have been payable had the company treated the workers as employees rather than contractors. 

Make sure that if you’re thinking about hiring a full time contractor under an ABN arrangement, you get some advice not only from your accountant, but also your lawyer.

My recommendations

I can’t rave enough about the employee/contractor calculator on the Tax Office website.  Of the many downloadable tools on their website this would have to be one of the best.  It is clear, concise and easy to understand.  It certainly is a great free starting point to give you an idea of whether or not you may have a problem.

For some heavier reading on the difference between an employee and a contractor I suggest TR 2005/16

Did you like this article?  Why not download our free book!

 

tax tips 3

10 Tax Tips and Strategies for Running a Business and working at the same time     

This tax book includes information on:

                • contributing to super
                • Motor Vehicle Travel
                • Putting money aside to pay taxes
                • Splitting home office expenses
                • are you a hobby or a business?
                • asset protection
                • GST
                • Income Protection
                • Which software should you use?

   Online Tax 2 

 

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.
 

Valid Tax Invoice – Are you issuing incorrect invoices?

August 3rd, 2013

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Valid Tax Invoice

Issuing incorrect invoices can cause all sorts of problems for small business owners including the most obvious – incorrect GST claims.  Many owners are also oblivious to the serious cash flow issues it can cause while your customers sit at the other end trying to work out if you’re registered for GST, and worse still, hold up your payment while they demand a correct invoice be reissued.

 The good news is, that issuing correct invoices is really easy.

 1.   If your business is registered for GST a valid tax invoice should include the following:

  • enough information to show that the document is intended as a tax invoice, such as the words ‘Tax Invoice’ at the top 
  • the sellers identity and ABN
  • a brief description of what is sold, including the quantity and the price of what is sold
  • the extent to which each sale is a taxable sale – this can be shown separately or, if the GST to be paid is exactly one-eleventh of the total price, as a statement such as ‘total price includes GST’
  • the date the document is issued
  • the amount of GST payable for each sale
  • if the total price of the sale is at least $1,000 the purchasers identity or ABN must also be able to be clearly identified

2.    If your business is NOT registered for GST a valid invoice should include the following:

  • the business name of the seller at the top
  • the ABN of the seller at the top, near the sellers name
  • the date of issue of the invoice
  • an invoice number
  • the statement ‘No GST has been charged’ should be included at the bottom
  • the invoice cannot include words that indicate that the price of what is supplied is inclusive of GST.  Note that it is not necessarily wrong to leave the words ‘Tax Invoice’ on the top of your invoice if you are not registered for GST, as long as your invoice clearly shows that the price of the supply does not include GST.  Alternatively the seller could cross out the words ‘Tax Invoice’ or the word ‘Tax’.  To minimise any confusion I would be inclined to leave the words ‘Tax Invoice’ off the invoice all together and just use the word ‘Invoice’.  The clearer you can make your invoice, the less chance it will be held up when it gets to the purchaser

 

 Other interesting facts about invoices:

 1.     Tax invoices that are missing information

If you receive an invoice from a seller that is missing certain information and is not a valid tax invoice, you may still be able to treat that document as a tax invoice if the missing information can be obtained from other documents issued by the seller.  Other documents can include a seller’s product list, a business card, an email from the seller, or an earlier tax invoice.

At the end of the day, it is still up to the purchaser if they are willing to treat an incorrect document as a tax invoice regardless of what other information they have available to them.  The purchaser may instead request that the seller reissue another document that complies with the requirements of a proper tax invoice.  When asked, the seller is required to reissue the invoice within 28 days or penalties may apply.

 2.    You don’t always need to issue a tax invoice

 You don’t need a tax invoice to claim GST credits for purchases costing $82.50 or less (including GST)

 

A final word

 For further advice regarding invoicing I recommend this handout by the Australian Taxation Office How to set out tax invoices and invoices (NAT 11675).  I really love this handout.  It is only 4 pages long and it sets it out in very simple terms the difference between an invoice layout for someone that is registered for GST, and an invoice layout for someone that is not.  If you follow this handout you should never get it wrong.

Refer also to ATO Goods and Services Tax Ruling GSTR 2013/1This ruling goes right into the finer nitty gritty details of invoicing requirements.

Did you like this article?  Why not download our free book!

 

tax tips 3

10 Tax Tips and Strategies for Running a Business and working at the same time     

This tax book includes information on:

                • contributing to super
                • Motor Vehicle Travel
                • Putting money aside to pay taxes
                • Splitting home office expenses
                • are you a hobby or a business?
                • asset protection
                • GST
                • Income Protection
                • Which software should you use?

   Online Tax 2 

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.  In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

Online business – 10 Questions to ask your accountant

July 25th, 2013

 

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1.  What home office expenses can I claim and will my home be subject to Capital Gains Tax?

2.  Which is the best method to use when claiming motor vehicle expenses?  Is keeping a log book really necessary?

3.  Is it necessary for me to spend money on complex accounting software while my business is still young and not making large profits?

4.  Do I need to pay for a set of financial statements, or is it easier just to do a simple business schedule in my tax return?

5.  Is my online business classed as a hobby or a business by the ATO?

6.  Which tax structure is best for me?

7.  What are the government requirements in my state for setting up an online business from home?

8.  How long do I need to keep my business records for my online business?

9.  How can I save money on my accounting fees?

10.  Should I register my online business for GST, and what are the benefits of registering?  If I decide to register can you help set me up with an Auskey so I can lodge my own BAS online at home?

 

 

ATO small business benchmarks – are you at risk of an audit

May 6th, 2013

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ATO small business benchmarks

The Australian Taxation Office is constantly finding ways to clean up the cash economy and make sure that small business owners report all their income.  One way they do this is through ATO small business benchmarks.  If you own a small business and you have never heard of ATO small business benchmarks then this article could help you avoid an ATO audit.  

The Tax Office uses benchmarking to compare the performance of your business against other similar businesses in your industry.  If your business does not stack up, then there is a big chance you may be audited.

A good accountant will study your Profit and Loss statement each year, comparing it to ATO small business benchmarks, and alerting you if your figures are outside the benchmarks.  If you don’t hear from your accountant, then don’t just assume everything is ok.  It is absolutely imperative that business owners embrace the monitoring of their own benchmarks as part of their quarterly business health check. 

Download your benchmarks from the ATO website today.  If you are unsure what industry you fall under, phone your accountant for help or alternatively phone the tax office.

 

Did you like this article?  Why not download our free book!

 

tax tips 3

10 Tax Tips and Strategies for Running a Business and working at the same time     

This tax book includes information on:

                • contributing to super
                • Motor Vehicle Travel
                • Putting money aside to pay taxes
                • Splitting home office expenses
                • are you a hobby or a business?
                • asset protection
                • GST
                • Income Protection
                • Which software should you use?

   Online Tax 2 

 
 
This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

Is your accounting software doing its job?

April 27th, 2013

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Is your accounting software really doing its job?

Is it freeing up time to concentrate on what matters most…..building your business?

Is it reducing the bill from your accountant?

Small business owners need to take a more proactive role in making sure that their accounting software is the cheapest and most appropriate for their business rather than just relying on the opinion of their accountant or business associates.

So what should you be considering when choosing your accounting software?

1.  Are you tech savvy?  Then making use of the cloud could be a very smart move.  There are a number of organisations that offer cloud accounting solutions.  These online accounting packages allow your bank transactions to be fed straight into your software.  You can set up the system to memorise transactions so that they are automatically pre-coded under the income or expense they relate to.  There are so many amazing benefits to utilising the cloud, and best of all, the cost can be much cheaper for larger organisations that needed multiple licenses under the traditional accounting software.   

 2.  If you are not tech savvy then traditional desktop accounting software may be more practical.  There are so many options to choose from when deciding on desktop software that the task can become somewhat daunting.  Probably the most important factor to consider is the size of your organisation and the extent of your bookkeeping knowledge. 

If your business is more of a home based business such as an online shop or website and you are not making a lot of profit, then consider a more basic software package.  For example Cash Flow Manager is an electronic version of your old fashioned cash book.  It is simple to use, prints GST reports and costs around $200.  

For a larger organisation, monthly or quarterly health checks of your business are crucial.  You will probably need a software package that is a little more advanced so you can print some more complex reports to analyse your profit. Accounting systems such as MYOB or Quicken will allow you to perform these checks and keep your business on track. 

3.  Beware that if you are using a software program that you are finding too complex then you are probably costing yourself more money in accounting fees than what you need to pay.  Come tax time, unbalanced and messy reports will lead to accountants spending more time on your job.  Likewise, using a software program that is too basic will lead to phone calls back and forth between you and your accountant for extra information.  Phone calls such as these can quickly send you’re accounting fees sky rocketing.  If your accountant is tech savvy and up with the latest developments then they are probably making the most of the cloud within their accounting practice.  In which case you could potentially decrease your accounting fees by jumping on board and embracing the cloud too.

To sum up, you really need to shop around and see what is out there before you make a decision on your accounting software.  

Make sure you have an accountant that you trust who is prepared to sit down and discuss different options rather than just recommending the software system that works best for their firm.  Some accounting firms tend to lean toward one particular software package that they are familiar with.  The staff within their office are usually well trained and up to date with the software.  Hence this is the only software they will recommend to their clients regardless of the client’s size or the client’s needs.  

By taking more ownership of your accounting software decisions you can sleep easy knowing you are making the best choices for your business and freeing up time to do what matters most – build a profitable enterprise.

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

 In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.