The Taxation of Tradies: A Case Study Webinar Series for Junior Accountants – 5 programs

Program 1: The Business Lifecycle of Dan the Carpenter – As a Sole Trader

Dan the carpenter has finished his apprenticeship and stayed on with his employer for a number of years learning the ropes. Now he feels like the time is right to go out on his own. He has decided a sole trader structure will suit him for now and has come to you for advice to ensure he stays on top of his tax obligations. This session covers suggested discussion points with Dan, including:

• ABN and GST registration requirements
• Tax record keeping requirements, including:accounting for cash transactions
  • how substantiation of vehicle claims depends on the type of vehicle
  • apportionment methods for expenses that include private use 
• BAS completion guidance
• Tax cash flow management, including factoring in:
  • the tax deferred “holiday” in the first year of business
  • the lump sum catch up at tax return assessment time
  • workings of the quarterly PAYG tax instalment system
• GST budgeting
• Superannuation as a sole trader and obligations to enable tax deductible treatment
• Requirements if considering engaging:
  • casual labour or an apprentice
  • subcontractors
• Impact that the personal services income (PSI) rules can have on sole traders, including:
  • how the components of an invoice between labour and materials can determine PSI status
  • how to self assess that you are a personal services business
• The asset protection discussion

Program 2: The Business Lifecycle of Dan the Carpenter – as a Partner in a Partnership

Dan has found that after operating as a sole trader for a number of years, the work he is performing can be better handled by two. He has a friend, Stan, from trade school days that is interested in forming a business partnership, which is the structure they have decided on to “give it a go”. They have both come to you for advice to ensure their partnership is tax compliant. This session covers suggested discussion points, including:

• Tax record keeping requirements for a partnership, including:
  • partner withdrawals and contributions
• ABN and GST registration requirements
• The partnership agreement, including:
  • the taxable income allocations if agreeing to allow partner salaries
• The tax treatment of:
  • existing equipment owned by each partner with tax written down values
  • one partner lending funds to the partnership at a commercial rate of interest
  • motor vehicle and mobile phone claims and private use apportionment
• How tax is paid on partnership income, including:
  • how to apportion partnership income if the partners derive “personal services income”
• The types of small business tax concessions that may apply*
• The asset protection and joint and several liability discussion

Program 3: The Business Lifecycle of Dan the Carpenter – Time to Incorporate

Business been good for the partnership and with the intention to obtain licences that allow an increase in the contract value of work they can undertake, the partners foresee potential for growth on the horizon. A previous consultation they had with you on asset protection is now meaning more to them and they are coming to you for advice on the next phase of their business venture. This session covers suggested points for discussion, including:

• The structuring options available, including the pros and cons of:
  • retaining a partnership structure with the individual partners incorporating
  • incorporating the business
  • using a trust or trusts

• Are there tax consequences with restructuring and if so, is there scope to minimise using rollovers?
• Who will be subject to tax regarding the various restructure options, including:
  • a comparison of the applicable tax rates that may apply in each case
  • how the “personal services income” rules apply to companies and trusts
• The administrative obligations that may come with a restructure (incl. renewed ATO registrations)
• Practical examples

Program 4: The Business Lifecycle of Dan the Carpenter – Can You Trust a Trust?

Dan and Stan have built a successful building company that they own as equal individual shareholders. Along the way, Dan’s personal situation has changed from single to married with children and his thoughts have turned to how he can arrange his own assets and investments for the longer term benefit of his family. Advice from his solicitor is that a discretionary trust may be useful and suggests that he seeks advice from his accountant, so that he is fully informed of the tax implications if he proceeds. This session covers suggested points for discussion, including:

• How income of a trust is taxed:
  • when applied to adult beneficiaries
  • when applied to children
  • to the trustee
• Trustee requirements and time limits to effectively resolve to distribute trust income
• The methods and tax implications of bringing investments in own name into a trust, including:
  • if any CGT rollovers or concessions are available to transfer the building company shares
• The ATO’s views on distributing income to beneficiaries when tax savings are apparent
• Whether distributions have to be paid or can they accumulate for a “rainy day”
• The tax consequences of falling foul of ATO requirements
• Franking credit eligibility for beneficiaries, including:
  • the holding period rule
  • the small shareholder exemption
  • the family trust election option
• Practical examples

Program 5: The Business Lifecycle of Dan the Carpenter – Depreciation and Other Tax Deductions

During the course of Dan’s career journey in the construction industry, he will acquire and accumulate numerous assets for business use, as well as incurring various one off and ongoing business expenditure. This session covers some of the types of costs likely to be incurred along the way, along with the corresponding tax treatment, including:

• The interaction of GST with business expenditure
• Options available for depreciating assets, including:
  • simplified depreciation for small business
  • using own estimates for effective life or applying ATO effective life rates
  • the methods available if the personal services income rules apply
• The work vehicle (ie. the ute) and:
  • the distinction between vehicles designed to carry a load of more or less than one tonne and more or less than nine passengers
  • the tax treatment depending on the entity that owns the vehicle
  • when employee use of a commercial vehicle can be an exempt fringe benefit
• The passenger vehicle (ie, a car) that is owned in a company or trust and:
  • the tax deductions available
  • the fringe benefits tax implications
  • the impact on FBT and GST if private usage is reimbursed
• Tax treatment of start up capital costs, including:
  • professional advice or services
  • incorporation costs
• Conditions to be met for:
  • payments to workers to be tax deductible based on the employee/contractor distinction
  • superannuation obligations, depending on the classification of the worker, to ensure tax deductibility
• Tax treatment of:
  • trade registration fees and licences
  • course fees to enable registration and licence eligibility
•  A checklist of typical deductions in the building and construction industry