Understanding Business Expense Insurance

Understanding Business Expense Insurance

Understanding Business Expenses Insurance

When you have worked hard to build up your Small Business, you want to make sure it is as protected as possible. Unlike grand corporations, a small business relies on you – the owner’s contribution to keep the business ticking over. What would happen if you were so ill or injured you could no longer work? In this case, Business Expenses Insurance safe guards your business against ruin.

In a nutshell Business Expense Insurance covers a whole range of expenses your business must pay out regularly. It does not cover estimated profits. It covers the costs your business spends on a daily basis and can include:

  • Rent
  • Salaries and other related costs (e.g., payroll tax, super contributions)  for non-income generating employees of your  business
  • Equipment maintenance costs
  • Bills, including electricity, gas, cleaning, telephone and internet etc.
  • Loan repayments
  • Insurance premiums and security  expenses
  • Net costs associated with employing a locum (replacement worker to cover your duties)
  • Leases on cars, machinery and other  equipment
  • Accounting fees
  • Auditing fees
  • Membership fees and subscriptions to professional bodies.
  • Advertising, postage, printing and stationary.

Business Expenses Insurance doesn’t typically cover:

  • The salaries and wages of temporary  employees
  • Income taxes
  • Furniture costs
  • Inventory costs

Do I need it?

It is common for small businesses to experience a drop in profit when the business owner or manager isn’t around to keep up the momentum. But the world doesn’t stop when you’re out of action; while your revenue decreases, your business must still cover overhead expenses. Your Business Expenses Insurance policy safeguards your business against your absence at work.

While Business Expenses Insurance isn’t mandatory it is worth considering if you are:

  1. A small business
  2. A sole trader
  3. A partnership with five or less   partners
  4. A business that relies on services provided to generate cash flow (such as professionals or consultants)

It’s up to you to decide whether you want Business Expenses Insurance. But the guarantee of having enough financial resources to sustain your business in times of  need is a powerful  thing.

It’s worth remembering Business Expenses Insurance is a business expense, which means the premiums are tax-deductible. Of course, since benefit payments are considered income, they can be subject to tax.

How does it compare to Income Protection Insurance?

Business Expenses Insurance and Income Protection Insurance cover different things.

If you become disabled or otherwise unable to work, income protection insurance will usually cover 75% of your monthly income for the claim period. The purchase of Income Protection is to cover your everyday living costs. This type of cover, covers you personally as a worker.

If you become disabled or otherwise unable to run your business, business expenses insurance provides the benefits to cover the expenses your business must pay as a business owner.

Becoming disabled while having both income protection and business expenses insurance could result in benefits that cover both your business and your personal expenses.

Example

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November Practice Update

November Practice Update

Practice Update – November Edition

Fast-tracking tax cuts for small and medium businesses

The Government has fast-tracked the already legislated tax cuts to small and medium businesses by bringing them forward five years.

Companies with an aggregated turnover of less than $50 million will have a tax rate of 25% in the 2022 income year (instead of the 2027 income year based on the previously legislated timeline).

Similarly, the increase in the tax discount to 16% for unincorporated entities will apply from the 2022 income year, rather than the 2027 income year.

Editor: Small and medium businesses will appreciate the earlier access to the already legislated tax cuts.

Proposed expansion of STP to smaller employers

Single Touch Payroll (‘STP’) commenced on 1 July 2018 for approximately 73,000 employers who have 20 or more employees.

There is currently legislation before Parliament to expand STP to all employers from 1 July 2019 and it is estimated that there will be more than 700,000 employers who will enter STP as a result.

Even though the proposed expansion is not yet law, the ATO recommends that smaller employers consider voluntarily opting-in to STP early.

The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently use a payroll product and has indicated that they are not looking to force them to take up a product to do STP.

Efforts are being made to work with industry to look at some alternate reporting mechanisms.

It is being reported that software developers, and even some of the larger banks, have shown an interest in developing some kind of product that would enable micro-employers to provide the necessary data to comply with STP at a low cost.

Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.

The ATO is currently consulting with focus groups to look at flexible options to transition micro-employers to STP over the next couple of years.

Assuming the relevant legislation passes, the ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake.

Editor: This is a very positive message from the ATO, particularly for micro-employers.  Hopefully, together with the relevant software developers, they are able to come up with a low-cost and simple alternative for those who do not currently use payroll software to comply with their STP obligations.

Expansion of the TPRS

The Taxable Payments Reporting System (‘TPRS’) has been expanded to the cleaning and courier services industries from 1 July 2018.

Businesses that have an ABN and make any payments to contractors for cleaning or courier services provided on behalf of the business must lodge a Taxable Payments Annual Report (‘TPAR’) each income year.

The first TPAR for payments made to contractors from 1 July 2018 to 30 June 2019 will be due by 28 August 2019.

Where cleaning or courier services are only part of the services provided by the business, they will need to work out what percentage of the payments they receive are for these services each income year to determine if a TPAR is required to be lodged.

Specifically, if the total payments the business receives for the relevant services are:

  • 10% or more of their GST turnover – a TPAR must be lodged.
  • Less than 10% of their GST turnover – a TPAR is not required to be lodged, but the business can choose to lodge one.

Ban on electronic sales suppression tools

From 4 October 2018, the Government has banned activities involving electronic sales suppression tools (‘ESSTs’) that relate to people or businesses that have Australian tax obligations.

The production, supply, possession or use of an ESST (or knowingly assisting others to do so) may attract criminal and administrative penalties.

ESSTs can come in different forms and are constantly evolving, some examples include:

  • An external device connected to a point of sale (‘POS’) system.
  • Additional software installed into otherwise-compliant software.
  • A feature or modification that is a part of a POS system or software. An ESST may allow income to be misrepresented and under-reported by:
  • Deleting transactions from electronic record-keeping systems;
  • Changing transactions to reduce the amount of a sale;
  • Misrepresenting sales records (e.g., by allowing GST taxable sales to be re-categorised as GST non-taxable sales); or
  • Falsifying POS records.

Transitional arrangements are in place for six months starting from 4 October 2018 to 3 April 2019 for possessing an ESST.

Taxpayers may avoid committing an offence for possessing an ESST if they:

  • Acquired it before 7:30pm 9 May 2017; and
  • Advise the ATO that they possess the tool.

Importantly, the transitional provisions do not apply to the manufacture, development, publication, supply or use of an ESST.

Depending on the offence and severity of the crime, taxpayers can face financial penalties of up to 5,000 penalty units, which currently equates to over $1 million.

Scammers impersonating tax agents

The ATO has received increasing reports of a new take on the ‘fake tax debt’ scam, whereby scammers are now impersonating registered tax agents to lend legitimacy to their phone call.

The fraudsters do this by coercing the victim into revealing their agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered tax agent or someone from the agent’s practice.

As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘tax agent’, victims have been falling for this new approach.

In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.

The ATO is reminding taxpayers that they will never:

  • Demand immediate payments;
  • Threaten them with arrest; or
  • Request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency.

Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their tax agent to confirm the status of their tax affairs and verify the call.

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Fairwork Update

Fairwork Update

Fairwork Award Updates

Changes to Modern Awards

The Fair Work Commission has varied a number of awards as part of its Modern Award Review. The changes affect rules on termination of employment and a number of other clauses.

All changes apply from the first full pay period on or after 1 November 2018.

Updated copies of the awards are available via the list of awards at fairwork.gov.au.

Termination of Employment

Employers are now required to pay an employee’s wages and all other entitlements, within 7 days of the end of their employment.

Changes to notice of termination rules mean an employer can deduct up to 1 week’s wages if an employee over 18 years resigns without  giving enough notice. Employers cannot deduct wages from employees under the age of 18 for not giving notice.

Other Clauses

The following clauses have also been varied:

  • Consultation and major workplace change.
  • Consultation about changes to rosters or hours of work.
  • Dispute resolution.
  • Individual flexibility arrangements.

To ensure you are up to date and complying with these changes, check you award now!

If you would like any assistance in this area please contact your Accountant on 03 5833 3000.

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T: (03) 5833 3000
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