USA cuts tax rates to Companies by 40%!!

By Steve Marsten

On 20 December 2017, the United States (US) Congress passed US tax reforms including a reduction in the federal corporate tax rate from 35 to 21 per cent. That’s a whopping 40% reduction. Just for a moment – let’s not listen to all the naysayers (big spending politicians I mean) who only want to live in a world of high taxes. Let’s look at what this means for Australia. There is a global trend toward lower corporate taxes. In theory, a corporate tax rate cut stimulates investment by making more investment opportunities sufficiently profitable to attract financing.

The extent to which this is the case in practice will depend on how the tax cut is funded and whether investors consider the tax cut to be permanent. If the corporate tax rate cut results in an overall reduction in tax on US investments and investors believe that the tax cut is permanent, we are likely to see an increase in the level of US investment.

When you consider that the UK corporate rate is 19% for small corporates; France is reducing their corporate tax rates and Germany sits at 15%. Australia is a fair way behind the eight ball.

The magnitude of the resulting capital loss in those countries with higher tax rates like Australia will depend on the size of the US corporate tax cut – but I can tell you this is a BIG cut.

For Australia, the size of the negative impact will also depend on how other countries respond. As capital markets have become increasingly global and business locations increasingly mobile, governments have sought to drive economic growth in their jurisdictions by lowering corporate tax rates. The US reforms have the potential to accelerate tax competition between jurisdictions, making Australia’s current corporate tax rate increasingly uncompetitive internationally.

Here we only just got the 27.5% rate in for Corporates. Just ask yourself would you like to pay 21% or 27.5% and 30% in some cases here in Australia? Messrs Turnbull and Shorten do you not see the likely impact? Capital WILL leave Australia as a result of the US’s huge decision to free up domestic capital. Increased investment means increased workforces and more people employed. Both shades of politics should be happy. Let’s make 2018 the year of economic sensibility!

Call us on 4972 1300 for all your business needs.

New Year, New Entrepreneur?

By Joe Smith

At this time of year, is it likely that most people will be starting the year with a fresh slate.  Some will have personal goals or maybe even be looking to go into business for themselves.  A recent study has found there are some decisive factors in becoming an entrepreneur and also points to the requirement of having three character traits – being independent, trustworthy and hard working.  If this sounds like you then please read on!

One interesting finding of the study was that less than 25% of entrepreneurs researched mentioned money as a motivating factor.  The desire to be their own boss was the main factor that was reported, with freedom and being in control of your work closely following.

There are a few things to keep in mind if you are thinking of starting your own business or buying an existing business with the aim of becoming the next Richard Branson.  Firstly, it is important to carry out due diligence on the new venture.  This can include research on whether there is a market for the idea that you have for a business, are there any legal requirements for operating the business, preparing estimates of income & expenses and cash flow requirements Finally, if you decide to go ahead a business plan will also be required.

If it is an existing business you are looking to buy, a detailed investigation of all aspects of the business will be required.  For this, it would be advisable to speak to a professional who has experience of carrying out this due diligence work as will include an analysis of the historical financial statements and records to determine whether the purchase of the business is viable and that the data provided by the seller can be relied upon.

One thing it is important to look out for in the financial review is the add backs of expenses that were deemed to be personal to the owner as this is a major factor in calculating the value of the business.

If you are thinking of starting or buying a business, talk to the experts at Sothertons Gladstone on 4972 1300 or email Joe at j.smith@sothertonsgld.com.au

Fast Track your First Home

By Tina Zawila

It’s the time of the year when many of us review our goals and for some buying their first home is on the list.  This particular goal will require patience, persistence and determination, to save for the deposit, find the right property, and navigate the home loan market to find the best deal for you.

In the May 2017 Federal Budget the Government announced the First Home Super Saver Scheme which came into effect from 1 July 2017.  This scheme allows taxpayers to make voluntary contributions to superannuation to save for your first home, and then apply to have the funds released (with earnings) from the fund when you are ready to buy (provided it is after 1 July 2018).

The benefits of this scheme, over the traditional means of saving for a deposit via a bank account, include:

• ·    The contributions can be made before tax (concessional contributions) via a salary sacrifice arrangement, or by claiming a tax deduction for the contributions in your tax return.  This has the potential to save tax (depending on your marginal tax rate), allowing you to put a little extra away.

•     Upon withdrawal, you will be entitled to the earnings on the contributions which will be calculated based on the 90 day Bank Bill rate plus 3 % (which is the ATO’s Shortfall Interest Charge and it is currently 4.72% for the March 2018 quarter).  This rate is likely to be higher than the interest rate on a traditional savings account from a financial institution.

Of course, there are terms and conditions associated with this scheme including that your first home saver contributions must be made within existing superannuation caps ($25,000 in 2017-18).  Which means you need to know how much is currently contributed to super for you by your employer including any existing additional contributions.

You will also pay tax upon withdrawal of the funds at your marginal rate, however, a 30% offset will be applied, which may mean that little, if any, tax is payable depending on your income level in the year of withdrawal.

This is general information; please contact the professional team at Sothertons Gladstone on 49721300 for advice tailored to your own personal circumstances.  We are here to help you achieve your goal of home ownership. 

The Bitcoin Phenomena

By Steve Marsten

Clients have been asking us about Bitcoin for several months now. I thought it was time to cover the basics. Bitcoin was invented as a peer-to-peer system for online payments that does not require a trusted central authority such as a bank. But it does require that you TRUST the system. Since its inception in 2008, Bitcoin has grown into a technology, a currency, an investment vehicle, and a community of users.

Since anything digital can be copied over and over again, the hard part about implementing a digital payment system is making sure that nobody spends the same money more than once. Traditionally, this is done by having a trusted central authority (like PayPal) that verifies all of the transactions. The core innovation that makes Bitcoin special is that it uses consensus in a massive peer-to-peer network to verify transactions. This results in a system where payments are non-reversible, accounts cannot be frozen, and transaction fees are much lower. Its like an honesty system but everyone is keeping an eye on each other.

You will hear and read about Bitcoin Mining or Miners. They are not the miners as we know the term. These are computer nerds who are the backbone of the Bitcoin network.  They oversee the network and process every Bitcoin transaction. Without them the network would collapse and lose all value. Nobody seems to know who these people are other than the few souls who have shown their faces on documentaries over the past 12 months. These users are rewarded with new bitcoins proportional to the amount of computing power they contribute to the network.

As we mentioned above, there is no central person or central authority in charge of Bitcoin. Various programmers donate their time developing the open source Bitcoin software and can make changes subject to the approval of lead developer Gavin Andresen. It is in the miners’ best interest to only accept changes that are good for the Bitcoin currency in the long run. These checks and balances supposedly make it difficult for anyone to manipulate Bitcoin.

The best way to learn about Bitcoin is to spend time researching it. It is not an investment that we would recommend due to its highly volatile state.

For further information though, call our team on 4972 1300. Happy New Year from the Sothertons Team!

Buy Local

By Joe Smith

Recently I was interviewed as Treasurer for the Gladstone Chamber of Commerce regarding the benefits of buying locally at Christmas. However it should be an all year round mindset to think first about buying local and maybe a New Year resolution! 

When you buy from a local small business you are contributing not only to that business – there are various other benefits that flow through to the local community! The first thing we think of is jobs. The local business will most likely employ local people who in turn will spend their wages in the local community which has a compound effect which is required if our region is going to be self sustainable.

Depending on the type of business, many of them will employ and train apprentices which is a vital part which contributes to the local economy. If these businesses can't employ apprentices such as electricians, plumbers, carpenters or hairdressers we will have a shortage of skilled tradespeople locally in future. And our children will then have issues finding jobs in in these trades.

Local businesses also put significant amounts back into the local community via sponsorship of sporting teams and not for profit organisations. This reduces the costs to us when we register ourselves or our kids for a sporting team the sponsorship funds are put towards buying kits or equipment to be used.

There is always an argument that it is more expensive to buy locally. However have people arguing this point gone to the effort of contacting a local business to see what the best deal is that they can do? If you are going to the effort to find cheaper prices online then it will be worth a 2 minute phone call to a local business.

The other thing to consider is delivery charges and the environmental impact of getting the products to your front door.

I am not suggesting that absolutely everything you buy can or should be bought locally. What I would suggest is that you think of buying local first and give the local businesses a chance.