Menu

So You Want to be an Independent Contractor

 

 

Confused about what it means to be an Independent Contractor?

Maybe you are working for a business but you want to start your own business.

Maybe your employer has suggested that you could work at home, and they will change your status to that of an Independent Contractor.

Before you make this change, you should know about some of the pros and cons of working independently.   

Benefits

  1. Independence.  You may be able to work your own hours from whatever location you choose depending on the type of job.  You should be able to negotiate pay rates and a payment schedule.  You will have to keep records required by your host business such as timesheets etc.
  2. No Tax Withholding.  Some people consider it a benefit that the payments you receive as an independent contractor don't have income tax withheld.  This can be a curse if you don't put away funds to cover this debt.  It will come home to roost every year.
  3. Deducting Business Expenses.  Expenses you pay to run your independent contractor business are tax deductible.  Check what is and is not an "approved expense", never assume.

Drawbacks

  1. No Guarantee of Income.  Being independent also means you don't get a regular paycheck. If you are lucky enough to work for one or more clients who pay you regularly, that's great.  Manage your cash flow and have a slush fund to cover you through lean times.
  2. No Benefits. One of the main reasons people stay employed is to have employer-paid benefits such as healthcare. If you need health insurance, you can get it but you will need to pay for it.
  3. You Still Pay Taxes. As an Independent Contractor, you still have to declare all the income from your work and you still must pay taxes and any other levies required on that income.

TIP:  An Independent Contractor can have a contract.  Get a written contract from each person or business you work for.  Having a contract spells out "what happens when."  Having a contract can settle many disputes before they start, and you can take a contract to court to get paid, if necessary. 

If you need further guidance on the benefits and drawbacks of being an Independent Contractor, consider a consultation with your Accountant.  This is a critical decision which can affect your future wealth creation and your current living standards.

Scams Alert

 Tax Scams Update: Stay Smart Online and Offline

The ATO reported recently that the most common type of scam is where the scammer demands payment for a fake tax debt or sends an email asking for personal information in order to pay out a refund, which may at first glance appear quite attractive! Not only do scammers try to steal money, they also try to steal identities. The Government has identified several cases of misuse of stolen personal information that have led to fraudulent income tax returns, as well as GST, superannuation and welfare frauds.

Scammers are becoming more sophisticated in their attempts to defraud the public and trick people into handing over money, their tax file numbers and other personal information. A recent scam is to telephone people, displaying an official-looking ATO number as a caller ID so the victim feels confident enough to engage with the scammer and will provide personal information – this type of impersonation is known as "spoofing". Sending emails containing links to bogus websites that mirror the official ATO website is also still a popular scamming method.

The typical story is that a fraudster contacts a taxpayer out of the blue claiming that the taxpayer has overpaid taxes and is entitled to a refund. The fraudster often asks the taxpayer to pay an "administration" or "transfer" fee to obtain the refund. They may also ask for the taxpayer's personal details, including financial details such as bank account information so that the "refund" can be transferred. If the taxpayer hands over money, chances are that it is never seen again, and no transfer is forthcoming.

Another tactic is when fraudsters phone to demand that people pay allegedly unpaid taxes. The ATO is aware of one such aggressive scam where taxpayers are threatened with arrest if they do not pay a fake "tax debt" over the phone. Scammers may also demand payment in gift cards, such as iTunes or prepaid Visa cards.

Kath Anderson, Assistant Commissioner recommends for people to look out not just to protect their own personal identity but also to make family and friends available to the risks. Those people who may be particularly vulnerable are those who do not have regular interaction with ATO and so may find it more difficult to determine genuine requests for information from those that intend to cause harm.


"There are a few simple steps taxpayers can take to protect themselves online, including only giving out personal details to people you trust, keeping tabs on your tax affairs so you know what to expect, and to be cautious about personal information that you share, especially on social media."


If you receive an email, a text message (SMS), or an unexpected phone call from "the ATO" claiming that you are entitled to a refund, or that you owe taxes, or that you must confirm, update or disclose confidential details, such as your tax file number, delete the message or hang up the phone. Do not click any links or download any attachments.

From time to time, the ATO itself will send emails, text messages or official social media updates to advise you of new services. However, the ATO's messages will never request personal or financial information by SMS or email, and its representatives will never ask you to pay money into a personal bank account.

If you receive a call, an email or an SMS and are concerned about providing personal information, you can call the ATO on 1800 008 540 (8am to 6pm, Monday to Friday), forward the suspicious email to ReportEmailFraud@ato.gov.au, or check your myGov account for any message from the ATO. You can also contact our office for more information if you have concerns.

You should practise the same level of vigilance in relation to calls and emails from people who claim to be from other government bodies, such as state revenue authorities.

Document verification service for businesses

The Government has developed an electronic Document Verification Service (DVS) for business use. The DVS can help you protect your business against identity crime and makes it easier for you to meet any regulatory obligations to verify your customers' identities. The DVS allows businesses to verify information on Australian-issued driver licences, passports, visas and Medicare cards "in real time" directly with the issuing agencies. The system is not a database and does not store any personal information. All DVS checks must occur with the informed consent of the person involved. Further information is available on the DVS website at http://www.dvs.gov.au/.

Improve your Personal Cashflow

Simple Options to Improve your Personal Cashflow

 

It is very simple: To gain wealth, you must spend less than you earn.

Being fiscally astute is not rocket science.  Let's review simple options to help you turn your spending habits around and achieve a positive personal cash flow.

  • Settle bills by the due date unless there is an incentive to pay early. Your money is better placed to work for you in an interest-bearing account.
  • Pay off high-interest rate debt to free up money. This is your priority task.  Debt is not a given.  Break the cycle and pay off your debts.  Pay as much extra off the debt as you can.  This will ultimately reduce the amount of interest you are paying and save you money.  Short-term pain for long-term gain.
  • Use credit cards as a means of delaying cash payments to manipulate your cash flow to your advantage.
  • Be market savvy. Keep an eye on the interest rates you're paying on your debts and make sure they're competitive. If they're not, speak to your bank.
  • Evaluate your daily spending habits. Keep track of every item of expenditure for a month.  It is probable that you will be shocked.  Consider carpooling to work, making your own lunch and ditching the gym membership in favour of going for a walk with friends and family.  You will be surprised how much you can save!
  • Be Mean. Develop an attitude toward cutting costs, no matter how small. Turn lights out when you leave a room, sleep on purchasing decisions, never impulse buy, etc.

Making changes to your spending can feel hard. Persist. Being cost-conscious will have a far greater and positive impact on your life.

Hire for Culture

Hire For Culture, Train For Skills

 Cultural fit is a concept that can be hard to define but everyone knows when it is missing.

Simply put, cultural fit is the likelihood that a person will be able to effortlessly live your business core values and behaviors.

If you assess cultural fit throughout your recruitment process, you will ensure you hire people who will become fantastic in their new roles.  This will certainly help drive long-term growth and success for your business.

What this means is that when you hire on both job fit and cultural fit, you'll find that your new team members are:

  • Faster to start really becoming part of your team
  • Start contributing quicker than others
  • Are happier in their new role
  • Tend to stay longer with your business
  • Become brand ambassadors
  • Are likely to become 'star performers'

When you make recruiting decisions purely on skills and don't take into account the cultural fit of the candidate, you may find:

  • The candidate doesn't fit in with your existing team
  • They will quickly become dissatisfied with their role
  • Will not adhere to the values and behaviours expected of them
  • May end up leaving through resignation or termination

 

Top Tip:  Give applicants a chance to lead the conversation.

We've all been to interviews where the interviewer sticks to an approved list of 10 questions.  Instead, hand the interviewee the keys.  See how they communicate without prompts or guides. This can provide an opportunity for vibrant personalities to shine.  If the interviewee has difficulty conversing with you of their own accord, that can be a sign that their personality doesn't fit the role.

 

Do You Know What Your Core Values Are?

It's important as the leader to know yourself well enough to know what your true or core values are. If you discover that you actually value timeliness over creativity, that's your prerogative.  When you started your business, how did you want it to run?  What did you want to motivate people? Don't worry about being "wrong" when you answer these questions. The important thing is to answer them.

Perhaps, respect, open communication and on-time delivery of service are your core values.  For another business, it may be delivering your products at the lowest cost. Whatever your core values are – live them and be sure to communicate and promote them at every opportunity.

 

Growth through Systemisation

Grow Your Business With Efficient Systems

 

Many small businesses are so busy running the business and fending off daily emergencies that systems go completely ignored and chaos often prevails.

 

Efficient Systems Create a Better Experience for Customers and You

The business that leads in the race for customers is the business that has all its systems integrated and working smoothly together.  A business that has an infallible billing system, acceptable customer service but has too much inventory is not going to win the race.

Ideally, your systems create an experience for the customer that makes him or her want to come back for more.

 

How to Improve Your Systems

Here are some tips to make sure your systems are up and running at a winning pace:

  1. System Reviews: Make sure you have a schedule for reviewing your systems and procedures.  Consider reviewing them:
    • Monthly to ensure procedures are being followed and required (not out of date)
    • Annually to check for potential efficiency gains. This check should include talking to relevant team members to gain their practical advice about things they think work well or should change.
  2. Lead the Pack. Do not follow.  Just because a system worked for one business does not mean it will work for yours.  Always consider your business and your customer needs when using other businesses as referees for model systems.
  3. Have a Backup Plan. Take care that your systems have a backup and do not rely on one person to make them work.  People get sick, make mistakes and have emergencies.
  4. Document Everything. Documenting how you do business safeguards your business in emergencies, alleviates confusion on the part of your team members and can ultimately protect you in potential legal matters.  Think how much more appealing your business would be to a potential investor, lender or buyer if you could present a how-we-do-it-here manual.
  5. Finally, Verify that Your Systems Align with Your Goals: This check is to verify that your systems have the capacity to help you achieve your business goals.  As an example, there is no point having a business goal to grow using an online store if your website is not set up to handle online purchases.

 

2017 Budget Summary

Federal Budget 2017-18 – What it means for you


Highlights

-         Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (levied at two percent of taxable income in excess of $180,000) will cease on 30 June this year as planned.

-         The $20,000 immediate write-off for small businesses is being extended for one year, to 30 June 2018.

-         The Medicare levy is being increased from 2% to 2.5%, effective from the 2019-20 income year.

-         A number of measures have been announced to reduce the pressure on housing affordability, including:

-          an annual charge on foreign owners of underutilised residential property

-          various CGT changes for foreign investors, including denial of the main residence exemption

-          an option for individuals aged 65 or over to contribute the proceeds of downsizing their home to superannuation

-          denial of deductions for expenses related to inspecting, maintaining or collecting rent for a residential investment property

-          access to a higher CGT discount of 60% (as compared to the 50% available in other circumstances) for investments in qualifying affordable housing

-          the introduction of a first home super saving scheme

 


If you are an individual . . .

who pays tax

. . . you may not have to pay the Medicare levy this year.  From the 2016-17 income year (this year) the Government will increase the Medicare levy low-income threshold for singles to $21,655 (from $21,335), for families to $36,541 (from $36,001), for single seniors and pensioners to $34,244 (from $33,738) and for senior and pensioner families to $47,670 (from $46,966).  The additional amount of threshold for each dependent child or student will also be increased to $3,356 (from $3,306).  This means that you can earn more before triggering a liability to pay the Medicare levy.

. . . if you are required to pay the Medicare levy you will have to pay more from the 2019-20 tax year, as the Medicare levy is being increased from 2% to 2.5%

earning more than $180,000 per annum

. . . you will pay less tax next year.  Notwithstanding speculation to the contrary, the Temporary Budget Repair Levy (an additional two percent on taxable income in excess of $180,000) will cease on 30 June 2017 as planned.  It is not being extended.

who owns a home

. . . if you are aged 65 or over and have owned that home for at least 10 years, from 1 July 2018 you will be able to make a non-concessional (after tax) contribution of up to $300,000 from the proceeds of selling your home. You will be able to do this regardless of the existing age test, work test and soon to be introduced $1.6 million cap on after tax contributions.

. . . if you are a foreign or temporary resident you will not have access to the CGT main residence exemption from 7.30pm on Budget night (although existing properties held prior to this time will be grandfathered until 30 June 2019).

who wants to own a home

. . . you will be able to withdraw on or after 1 July 2018 voluntary superannuation contributions you make from 1 July 2017, along with associated deemed earnings, for a first house deposit.  You will be taxed at your marginal rate, less a 30 percent offset, on concessional (before-tax) contributions you withdraw. You will be able to contribute up $15,000 per year, and up to $30,000 in total.

who is studying

. . . repayments on your Higher Education Loan Programme (HELP) debts will be subject to revised income thresholds - a new minimum threshold of $42,000 will be established with a 1% repayment rate, and a maximum threshold of $119,882 with a 10 per cent repayment rate.

who has a SMSF

. . . the use of limited recourse borrowing arrangements by your fund will be included in your $1.6 million total superannuation balance and transfer balance cap, thereby reducing your scope to make non-concessional contributions from other sources.

. . . you can expect greater focus on the use of related party transactions on non-commercial terms to increase your superannuation savings.

If you invest in residential property . . .

and are a foreign resident

. . . where the property is not occupied or genuinely available on the rental market for at least six months per year, you will be charged an annual 'penalty' of at least $5,000.  The new charge applies to applications to acquire property from 7:30pm Budget night.

. . . you may find yourself barred from buying into a new development, as the Government will introduce a 50% cap on foreign ownership in such developments.

and incur travel expenses related to inspecting, maintaining or collecting rent for the property

. . . from 1 July 2017 you will no longer be able to claim deductions for those expenses.  The cost of engaging a real estate agent for property management services will remain deductible.

that qualifies as 'affordable housing'

. . . on or after 1 January 2018 you will benefit from a higher CGT discount - 60% instead of 50%.  To qualify for the higher discount, housing must be provided to low to moderate income tenants, with rent charged at a discount below the private rental market rate. The affordable housing must be managed through a registered community housing provider and the investment held for a minimum period of three years.

. . . you will be able to access concessional tax treatment by investing in a Managed Investment Trust that itself invests in affordable housing, provided the affordable housing is available for rent for at least ten years.

that contains plant and equipment

. . . you will not be able to claim depreciation deductions for assets purchased after 9 May 2017 by a previous owner of the property. 

that is newly constructed or a new subdivision

. . . on or after 1 July 2018 you will be required to remit GST on the purchase  directly to the ATO as part of settlement, as opposed to the developer being required to remit the GST as is currently the case.

If you are a business . . .

planning to employ foreign workers

. . . from March 2018 you may be required to pay a levy. Businesses will be required to make an upfront payment of $1,200 (for businesses with turnover of less than $10 million) or $1,800 (for businesses with turnover of $10 million or more) per visa per year for each employee on a Temporary Skill Shortage visa, and make a one-off payment of $3,000 (for businesses with turnover of less than $10 million) or $5,000 (for businesses with turnover of $10 million or more) for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

planning to invest in a depreciating asset or two (or more)

. . . if you are a small business (which you are if your turnover less than $10 million for the year) you will be able to immediately deduct purchases of eligible assets costing less than $20,000 through to 30 June 2018 (initially planned to cease on 30 June 2017).  From 1 July 2018 the immediate deductibility threshold will revert back to $1,000.

in the courier or cleaning industry

. . . the taxable payments reporting system (TPRS) that operates in the building and construction industry will apply to you from 1 July 2018.  You will be required to report payments you make to contractors (individual and total for the year) to the ATO.

and you are intending to dispose of your business, or CGT assets used in your business

. . . your accountant may need to take a second look at whether the small business CGT concessions will be available to you, as the Government is planning to make changes to those rules from 1 July 2017 designed to restrict their availability.

Whoever you are . . .

if you operate in the black economy

. . . your affairs are more likely to be picked up by the ATO, as the Government will be extending the provision of additional funding for ATO audit and compliance programs to better target black economy activities, such as non lodgement, omission of income and non payment of employer obligations.

. . . the Government will act to prohibit the manufacture, distribution, possession, use or sale of electronic point of sale (POS) sales suppression technology and software, which apparently allows businesses to understate their incomes by untraceably deleting selected transactions from electronic records in POS equipment so that income earned from these transactions and tax owing from this income is not reported to the ATO..


Text Box: These materials are intended to be used as a guide only. They should not be relied upon as a substitute for professional advice regarding actual facts or circumstances.
Barbagallo & Allen Pty Ltd, its employees and agents do not accept any liability for any injury, loss or damage resulting from any person acting, or refraining to act, in reliance on all or part of these materials.

Stress Free or Stressful" Business Transition to New Owners – It's a Choice

 Blueberry Trailers was established by Jack Jones in 1970.  Since its humble beginnings as a husband-and-wife-based business, the company has grown to manage 30 team members across two factories and build approximately 50 custom trailers per year.

That said, along the way it has had its struggles.

In 2012, Jack suffered a non-fatal heart attack and it suddenly became his children's responsibility to keep the business alive while their father recovered in the hospital.  The transition in management wasn't easy.  Dave and Peter were forced to step into their roles at a young age.  They had no training or knowledge of their father's role.  Jack had set up a great business but it was 'a handshake type of business'; nothing was documented properly.  Processes, procedures and analysing business performance was almost non-existent.

This is a problem that commonly occurs in the family-run business space.

 Accountant's Role – Trusted External Advisor

Davy and Peter agreed the best strategy was to seek help and to work with an external trusted advisor. They chose their accountant who had a good knowledge of the business and who knew their father.  Bringing in an external party allowed their family to hear a well-educated objective opinion and kept everyone's egos out of the way.  With the Accountant's guidance, they 'flipped the business on its head'.  It took about two years of financial struggle and hard work but the business started to change and it has been for the better.  The company has continued to thrive ever since.

 The Result

With their Accountant's help, Dave and Peter implemented new strategies in their family business.  They successfully took over from their father and now have 30 team members across two factories.

Dave says, 'Dad was really apprehensive. Although they say you can't teach an old dog new tricks, Peter and I insisted we could prove that we could get the job done and we did.  And we enjoy having our weekends off.'

Imagine how much easier this process would have been if Jack had committed to succession planning.  The issues would have been identified earlier and corrected.  His sons, his team and his business would have been prepared for the event.  Succession Planning would most certainly have made the unplanned leadership transition a stress free, organised event.  Instead it was 2 years of struggle albeit with a happy ending.

 

Effective Low Cost Business Marketing

Traditional Effective Low-Cost Small Business Marketing

 This case study demonstrates how Hair Salon owners worked with their Accountant to create an effective low-cost marketing campaign which targeted lapsed and new customers to increase sales.  The campaign was traditional but effective.

 About The Client

A Client runs a small funky hair salon in New York.  They decided it was time to move to larger premises with more passing foot traffic, but they knew they had to grow their existing strong and loyal client base first.

 Solution

To achieve this goal, a project was completed with the following objectives:

  • Analyse the Hair Salon's strengths, weaknesses, opportunities and threats (SWOT).
  • Use the analysis to identify traditional low cost small business marketing ideas
  • Use the marketing campaign to re-connect with lapsed customers, gain new customers, revitalise sales and customer retention

This was successful and helped get them on their way.

 Accountant's Role

The Accountant reviewed the business operations and based on the outcome of a SWOT analysis, the Accountant recommend that the Client:

  • Review their contact database and identify customers who hadn't visited the salon for over six months.
  • Create an email campaign offering these customers an incentive (a free hair treatment) to make an appointment.
  • Publish a Facebook promotion offering this incentive to new customers.

 Benefits for Client

The emails resulted in numerous new appointments from lapsed customers and a number of new customers were acquired.

This campaign also created an opportunity to introduce these lapsed customers to a new senior hairdresser on the team.

 Might similar strategies work in your business?

 

Marketing Avoid Changing Horses in Midstream

It's rare that Accountants are spoken of as examples of great marketing. So please indulge us as we share with you a wonderful campaign run by the Institute of Chartered Accountants in England and Wales back in 1995.

 So proud were the Institute of their campaign that they bought serious billboard space in London. On the billboard was written in huge writing:

"It's easier to sleep with a Chartered Accountant."

 Talk about impact. The number of letters this campaign generated to the national press in England was amazing. It probably even turned up in comedians' lines, news bulletins and so on.

And then, six months later they changed it.

What to? Well, we can't tell you. Because we haven't noticed any of their campaigns since - nor have there been reports of any letters appearing in the Times!

So, the question to ask is obvious. Why change it? Or more particularly, why change something that was working brilliantly?

They changed (like most other people) because they figured it was "time to change."

In doing that, they fell into the trap into which many businesses fall - change for change's sake. It's wrong!

 Many companies indiscriminately change campaigns in midstream. In the process of that change, they:

  1. Don't allow the cumulative effect of a winning concept to work for them.
  2. Don't allow the dynamics of testing to work for them.
  3. Make a patchwork quilt of their company's image and position.

 The truth is that you get tired of your own campaign long before it's done its work out there in the marketplace.

Don't arbitrarily abandon it. Only replace an approach when you've verified and validated a more successful and profitable successor. Again, that requires measurement, management and testing. And, as you'd understand, as Accountants we're well-placed to help you with implementing those measurement systems. Please reach out if you'd like to discuss how we might do that.

 

 

Beware of Scams

 Protect Your Business from False Billing Scams

Small business owners should constantly be alert for scams involving false billings. Small businesses are a particular soft target as scammers recognise they are busy and have fewer resources than larger businesses.

False billing scams include attempting to trick busy businesses into paying for unwanted or unauthorised listings or advertisements in magazines, journals or business directories. Common scam tactics are to send a business a subscription form disguised as an outstanding invoice to get the business to sign up for unwanted ongoing advertising services. Scammers also falsely claim that the directory or publication is well known or has a high readership.

Another common scam approach is sending invoices for the renewal of a business's current domain name registration – however the domain name will be slightly different, for example ".com" instead of ".com.au". Scammers will also do anything to get businesses to sign up to a scheme, including claiming a charitable connection. Scammers can also easily copy or modify letterheads, making them look real to create phoney websites.

Businesses should always be aware of such schemes. However, businesses should be more vigilant during the end of financial year. This being a prime time to settle accounts, businesses should to take a moment and check if the invoices are legitimate.

The Australian Competition and Consumer Commission (ACCC) is aware of the rise in billing scams. To help businesses avoid being a victim of scammers, the ACCC has provided the following tips for small businesses:

Make sure the business you are dealing with is the real deal – if you receive a form or tax invoice out of the blue, verify the source by contacting the company directly using contact details you sourced independently through a phone book or online search.

  • Make your business "fraud-free" – effective management procedures can go a long way towards preventing scams. Have a clearly defined process for verifying and paying accounts and invoices. Try to avoid giving too many staff members the authorisation to make orders or pay invoices.
  • Don't be intimidated – do not let anyone pressure you into making decisions involving payments or contracts. If you are unsure, always seek independent financial or legal advice.
  • Update your IT security software regularly, and make sure you use and offer secure online payment methods.

While scammers are professionals at evading the law, the ACCC said it does take enforcement action where appropriate to deter and discourage scammers targeting Australians.

The ACCC has prepared an information sheet that sets out details of the most common scams targeting small businesses. The publication, What you need to know about: Small business scams, is available on the ACCC website at: http://www.accc.gov.au/publications/small-business-scams.

Management Consulting

We have the know-how and experience to offer advice that helps you run your business more effectively.

FIND OUT MORE

Self-Managed Superannuation Funds

At LBA Partners we provide the professional advice you need to set up your own fund and greatly simplify the process for you.

FIND OUT MORE

Taxation

At LBA Partners we offer a full range of taxation services.

FIND OUT MORE