Budget cracks whip on big business

Picture: Ray Strange Source: News Limited

Big business is the target of a crackdown on so-called tax loopholes that is expected to deliver $4 billion in budget savings.

Multinationals, banks and miners were named as culprits in Tuesday's budget for practices that were eroding the government's tax receipts.

The government's changes will prevent foreign multinationals artificially loading debt into their Australian operations and claiming tax deductions.

The government will also make it more difficult for miners to claim up-front tax deductions on exploration work that they never carried out, when the discovery was made by another miner that has sold them the rights.

Foreign miners and other investors are also being targeted for not paying foreign resident capital gains tax, by taking 10 per cent of the sale proceeds from the purchaser of Australian property.

Other targets included banks shifting income offshore to reduce tax and sophisticated investors carrying out 'dividend washing', or repeatedly claiming tax benefits on dividend payouts.

Mr Swan denied that big business was a soft target in his government's efforts to make budget savings, saying he supported an economy with strong demand, profitable businesses and Australians in work.

Those areas targeted were being abused, he said. Treasury said the crackdown would save just more than $4 billion over four year, and ensure stable revenue to fund vital investments in Australia.

"If some taxpayers do not pay their fair share of tax, a higher tax burden will fall on Australian families and small businesses,'' it said.

A $17 billion write down in expected tax receipts over the 2012/13 financial year has been a major hit to the budget's bottom line.

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Decline in number of business owners

BUSINESS owners are a dying species, victims of ten years of economic growth, a Productivity Commission report shows.

A staff working paper on "Forms of Work in Australia" concludes business owner numbers have been falling dramatically over the decade to 2011, attracted by the security of permanent employment.

The mining boom has been a big driver in the shift.

While the number of unincorporated business owners has shrunk by 3 per cent over those 10 years, permanent employee numbers have grown 3 per cent.

But the number of business owners in the mining states of Western Australia, Queensland and Northern Territory has shrunk 4.7 per cent compared to the non-mining fall of only 2.4 per cent, according to the paper.

"The fact that increases in the prevalence of permanent employees and declines for OMUEs (owners-managers of unincorporated entities) were much larger in the mining states suggests that changes at a national level (for example, in tax settings, business regulation and superannuation rules) were not the main driver of observed prevalence changes," the report by Anthony Shomos, Erin Turnerand Lou Will says.

More buoyant economic conditions and confidence in the mining states promoted growth in employee numbers, exacerbated by those states coming off a low base, it says.

"The results suggest that workers became less likely to establish unincorporated enterprises (at least as their main source of employment) and more likely to work for someone else, over the decade."

In an election year where both sides are courting small business, the analysis may let both off the hook in terms of blame, laying it squarely at the feet of a healthier economy.

But Independent Contractors Australia executive director Ken Phillips said the Productivity Commission analysis failed to account for a rise in public service numbers as a national influence.

"Also, businesses are still recovering from the global financial crisis and that's putting people out of business left, right and centre," he said.

"And while the Australian Taxation Office gave businesses a break during the GFC, they are now aggressively pursuing debt recovery and superannuation guarantee compliance.

"So there are a few factors they appear to have left out of their analysis."
 

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Why reading this could save your business

Many small and medium businesses regard insurance as a grudge buy, while others may not even realise their assests are correctly covered. Picture: ThinkStock Source: National Features

• Businesses face financial risk by being under-insured
• Three quarters of companies don't have adequate cover
• Many small business say insurance is a "grudge purchase"

THREE quarters of small and medium businesses are risking major financial losses by failing to take out adequate insurance cover, it has been revealed.

The nation’s insurance industry has warned Australia’s business owners they face being hundreds of thousands, and in some cases millions, of dollars out of pocket by not properly protecting themselves and their assets.

The warning follows research compiled by the insurance industry which showed between 70 and 80 per cent of Australian businesses have inadequate insurance cover, with small operators in particular regarding it as a "grudge purchase".

Many small business proprietors baulk at the cost of the policies available to them and either minimise the coverage - or neglect covers entirely, research showed.

Others also make the mistake of incorrectly valuing stock and assets when choosing a policy, or are unaware that the value may increase over time.

However Senior Leader in AAMI’s Commercial Portfolio team Mr Paul Sciberras said small and micro operators in particular could avoid stress and financial heartache later by just going online.

He said those businesses with five or less employees such as a hairdresser or corner shop owner, only needed a simple level of cover and could save hundreds of thousands in financial losses.

"There are also specialised options for those who run their businesses from home. Business policies can be bundled together with home and contents insurance, and car insurance, for instance," he said.

"For a minimum amount of hassle, business operators can protect their investments and all their hard work."

However Leigh Smith, Senior Leader, Commercial Portfolio at GIO, admitted this became more complicated as a business grows but that it was vital owners got the right advice from a commercial specialist.

"As your business grows, so do the risks. More importantly, the risks also grow more complex - it’s not simply a matter of insuring your premises and business contents," he said.

According to Mr Smith, the top five ways businesses are failing to under-insure themselves include:

1. Undervaluing stock, business equipment or buildings
"This is one of the most common ways a business owner can find themselves in trouble after an event such as a fire, storm or earthquake," he said. "Business owners should insure their business contents, stock and buildings with Fire cover (sometimes called Property Damage).
"However, problems can arise when the level of cover nominated by the owner is too low. Many owners decide to insure below the total replacement cost, reasoning that it is unlikely they will lose all of their assets in one event."

2. Neglecting business interruption
"Business Interruption can be taken with Fire cover and insures you for loss of revenue after an insured event," Mr Smith said. "While your income may stop after a loss, many expenses will continue and it can be months, or even years, before you’re back to your old level of turnover. Even a small amount of property damage can cause significant disruption to a businesses cashflow."

3. Neglecting specific covers
Mr Smith said many small businesses will typically take out an insurance package that combines several different covers in a single policy but that that they were failing to take out specific cover.
"For instance, you might take out Burglary/Theft cover, which insures the loss of stock and business contents from theft and armed hold ups, but does not cover stolen cash," he said.

4. Leasing commercial properties
Business owners are often required to insure some elements of the building themselves, such as glass cover as part of their lease, but may not be aware this is the case meaning if there is a burglary or accidental breakage they may not be covered for any potential losses.

5. Cancelling liability insurance
Mr Smith said this was the biggest risk facing tradies who may cancel their cover while on leave or after a contract is finished but failed to reactive the policy once they returned to a job site, potentially leaving themselves open to a liability claim.
"By doing this they are making the dangerous mistake of assuming they are only exposed to claims for compensation when they are actually working, so they try to save money during the downtime," he said.
 

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Scrap the carbon tax: small business

Small businesses want an end to red tape and also want the carbon tax to be scrapped. Source: Supplied

Overworked: Australians work some of the longest hours in the developed world. Source: Supplied

SMALL business firms are demanding urgent relief from bureaucratic red tape and the scrapping of the "deeply unpopular" carbon tax, a national survey of 1,005 companies has found.

As the Gillard Government appointed its fifth Small Business Minister in less than two years, more than 50 per cent of firms expressed disappointment with the level of government support for the "engine room" of the economy.

Cutting the amount of GST paperwork - and scrapping the carbon tax - remain high priorities for small business, according to the annual MYOB survey.

They are also demanding greater investment in transport infrastructure around the cities and a reduction in payroll tax.

While the carbon tax is more popular with voters than it was before its July 2012 introduction, 63 per cent of those surveyed see its abolition as a high priority.

Tim Reed, the CEO of MYOB, said the high level of unrest reflected business concerns over the direction of the Labor Government.

"It's more a signal of overall confidence in this Government to make good macro policies," Mr Reed said.

"The Government has lost the political battle on carbon tax in the minds of business."

The percentage of small businesses who want the carbon tax scrapped - 63 per cent - is higher than it has ever been, according to MYOB.

This follows a News Limited article last week that reported insolvency professionals and business executives claim the carbon tax is contributing to a record number of businesses going into administration. This is based on Australian Securities and Investments Commission data - comparing voluntary administrations for the 12 months to December 31 2012, compared to 2011.

"Small businesses know they are paying the price of the Government's carbon tax," the Opposition's climate change spokesman, Greg Hunt, said.

"It is no surprise this issue is near the top of the list of concerns for small businesses as their increase in power bills has been proportionally much higher, and they have limited ability to pass on the cost."

A spokesman for Climate Change Minister, Greg Combet, said: "The Gillard Government has provided small business with tax relief and assistance in making improvements to energy efficiency."

"We increased the small business instant asset write off to $6,500, funded by carbon price revenue.

"The Government has also established the Energy Efficiency Information Grants program which provides grants to industry associations to deliver practical, tailored energy efficiency information to small and medium enterprises so they can make savings on their energy costs."

 

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Business confidence down in February

AUSTRALIAN business confidence pulled back in February but sentiment remains more upbeat compared to late 2012.

National Australia Bank's monthly business survey, released today, showed business confidence fell two points in February to an index reading of one.

A reading above zero indicates optimists outnumber pessimists among those businesses surveyed, so the latest result shows business confidence is in mildly positive territory.

NAB chief economist Alan Oster said confidence remained below its long-run average, but was still above the minus nine index level seen in December 2012.

He said the fall in sentiment was a slight pullback from the sharp increase seen in January.

"While the general mood of business is more upbeat than it was towards the end of 2012, the pullback in sentiment in February probably reflects a return to focus on what is actually happening on the ground," he said.

Confidence fell in all sectors apart from the finance sector, which benefited from improved funding costs and market stability, Mr Oster said.

The NAB survey also found business conditions weakened slightly during February, down one point to minus three index points.

Mr Oster said conditions remained difficult in many industries, especially construction, which is suffering due to weak investment in sectors not linked to mining.

He said there was little indication conditions would improve over the next few months, despite a recent improvement in consumer confidence.

"Combined with still low capacity utilisation, stocks, employment and capital expenditure readings, forward indicators imply little improvement in near-term demand," he said.

According to the NAB survey, confidence was weakest in the wholesale sector in February, with an index reading of minus nine points, and strongest in the finance sector (+12 points).

Conditions were most subdued in construction (-14 points) and strongest in recreation and personal services (plus eight points).

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CSR cuts 150 jobs from its glass business

BUILDING products company CSR is cutting 150 jobs from its glass business in response to the high Australian dollar and low construction activity.

CSR will close its glass manufacturing facility at Ingleburn, in Sydney's south west, in July.

It will also merge a processing plant at Wetherill Park, in Sydney's south west, with a nearby plant in Erskine Park by January 2014, CSR said today.

"It is estimated that headcount reductions will be in the order of 150," the company said in a statement.

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Business as usual for miners after WA poll

AUSTRALIA'S biggest resources companies will continue to enjoy the support of a conservative West Australian government, industry commentators say.

They say WA's strong economy and Premier Colin Barnett's opposition to the federal government's mining tax will ensure that the two groups work closely together over the next four years.

The Liberals, who will once again form a coalition with the Nationals in WA, have kept all of the 24 seats they won at the 2008 election and secured at least a further seven seats at Saturday's election.

CommSec chief economist Craig James said there would be no change for business in terms of the new regime.

"I would presume it's going to be business as usual for the mining sector and business as usual for the West Australian community as a whole," Mr James said.

"No doubt it wasn't just state issues that determined the result."

AMP Capital economist Shane Oliver said the new government would most likely continue down the same path.

"It's really more of the same," Mr Oliver said.

"I don't think the WA government is a negative for business, it's probably a positive."

He said WA's economy had been performing well and voters were happy with the government.

"It's relatively business friendly."

Western Australia's Chamber of Minerals and Energy (CME) said it looked forward to working with the Barnett Government to implement commitments such as the replacement of the Department of Environment and Conservation with a parks authority and the expansion of the Department of Mines and Petroleum's approvals tracking scheme.

"The resource sector welcomed the premier strongly ruling out additional levies and taxes on the resource sector," CME said.

Mr Barnett has not indicated who will take on the portfolio of WA mines minister following the recent retirement of Norman Moore.

Resources companies BHP Billiton, Rio Tinto, Woodside Petroleum and Fortescue Metals Group declined to comment on the implication of the election result.

Meanwhile, accounting firm Pitcher Partners said while Mr Barnett had been passionate in his opposition to the mining tax, his concerns could either escalate sharply or diminish altogether as a result of the senate inquiry into the tax.

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Stake out a top business buy

Butcher Darren Ewert. Picture: Tim Carrafa Source: National Features

SACKING the boss and buying your own business is a dream for many, but if you don't ask the right questions it could easily be a nightmare.

Hayes Knight director Vito Interlandi warns potential buyers need to be clear what they are seeking to achieve before owning a business.

"They need to ask themselves whether they are buying a business to get a salary, a lifestyle or do they want to build up a business," he says.

While passion is a great starting point, it is just one part of the puzzle.

Interlandi says there are more failures than successes, largely because people don't do their homework.

He cites the man who bought a licensed liquor outlet without enough capital, the newsagency buyer who had no idea about the hours he needed to put in and the friends running a successful security outfit that was so thirsty and hungry for working capital they could not cope.

Some of these problems will show up in a first glance at the business's records.

Are sales falling because new competition has appeared? Is the business consistently showing a cash shortage because the owner is drawing too much, too much is being paid to suppliers or receipts from customers falling behind?

These will also show up on the business's balance sheet - look for growing accounts payable and ask how much of those debts can be collected and get expert accounting advice.

CPA Australia business policy adviser Gavan Ord says it is easy to get carried away with the romance of running your own business but prospective buyers need to take immediate action and walk away from the deal if the current owner is not forthcoming with information on the business.

"The current owner might say 'Look, I know the financials say this, but here is the real figure'," he says.

"Choosing a business is like investing. Only buy businesses you understand."

Other warning signs to watch out for include if there is a "significant legal action pending against the business's".

"If the current owner cannot or will not answer your questions, such as why are sales down 20 per cent in the last 6 months, you should be worried," he says.

Interlandi says all the figures need to be crunched and every cost - from buying in to refurbishing, to salaries and leases - needs to be covered.

Almost as important to making a decision about buying is knowing exactly what your exit strategy is.

Interlandi says if you fork out $200,000 for a cafe and then have to spruce it up, you need to have an idea of how long you plan to be in it to get a return before you sell it.

Interlandi says as part of a business plan prospective buyers need to be clear about who their customers are.

If the entity is a bricks and mortar business, then location and convenience are going to be key considerations.

Understanding the myriad of legislation requirements relating to health, food handling, leasing, licensing, employment and taxation are essential.

He says anyone buying into a business, especially a food outlet such as a hotel, needs to understand they will have to re-invent it every 18 months.

HAVE A BUTCHER'S HOOK AT ALL THE POSSIBILITIES

WHEN they started their search for a business to buy, entrepreneurs Jason Gabriel and Darren Moncrieff were keen on a hotel.

"We looked around and then we started to think about going two rungs back and buying a butcher's shop," Moncrieff says.Finally, they settled on an old-fashioned butcher's shop in an inner-city suburb that had been around since 1870 - and they kept the vendor's son, Darren Ewart, as head butcher.

Moncrieff believes his experience running sports stores and growing up on a hereford cattle farm, and Gabriel's family background running hotels, will help them turn the shop into a dynamic business.

But the decision to go free range and organic meant prices rose and some customers left.

Among the checklist was a good lease, reasonable rent and a big shop.

Moncrieff says the customer is changing, and inspired by the foodie reality shows, comes armed with lists of meat cuts they want.

A chef is due to start at the shop and take-home meals will soon be on sale.

"We got people in at Christmas and many are now coming back," he says.

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