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Selling goods without a physical presence in Australia

Posted on: November 21st, 2017 No Comments

If you are looking to sell goods or services into Australia then you need to consider the taxation consequences, particularly where you are selling from a treaty country such as the USA, UK etc.

Selling from a treaty country without a physical presence in Australia

This section applies to you if:

  • you are a resident entity of a country that has a tax treaty with Australia
  • you export goods to Australia without having a physical presence in Australia, such as an agent, subsidiary or permanent establishment, and
  • you don’t employ staff in Australia.

Under these circumstances you will have the following tax obligations:

  • Income tax – You will not be liable to pay Australian income tax. Income tax only applies if you have an Australian permanent establishment.
  • Capital gains tax (CGT) – You will not be liable to pay CGT. CGT only applies to assets that are taxable Australian assets.
  • Goods and services tax (GST) – You may be liable for GST. GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.
  • Superannuation, PAYG withholding and fringe benefits tax (FBT) – As you don’t have employees, you won’t have any of these obligations.
  • Other tax obligations – If you are exporting goods to Australia by selling to an Australian resident entity on a free on board (FOB) basis, this may be considered an importation by the Australian entity. This means you may not have any Australian tax obligations – rather, your Australian customer will have tax obligations relating to the importation.

You will need to register for an Australian Business number (ABN).

Selling from a non-treaty country without a physical presence in Australia

This section applies to you if:

  • you are a resident entity of a country that does not have a tax treaty with Australia
  • you export goods to Australia without having a physical presence in Australia, such as an agent, subsidiary or permanent establishment
  • you don’t employ staff in Australia.

Under these circumstances, you will have the following tax obligations:

  • Income tax – You may be liable to pay income tax. You need to work out the source of your income, as this will determined how you are taxed.
  • Goods and services tax (GST) – You may be liable for GST. GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.
  • Superannuation, PAYG withholding and fringe benefits tax (FBT) – As you don’t have employees, you won’t have any of these obligations.
  • Other tax obligations – If you are exporting goods to Australia by selling to an Australian resident entity on a FOB basis, this may be considered an importation by the Australian entity. This means you may not have Australian tax obligations – rather, your Australian customer will have tax obligations relating to the importation.

You will need to register for an Australian Business number (ABN).

Am I Running a Direct Selling / MLM Business?

Posted on: June 24th, 2017 No Comments

With the ATO reviewing a number of direct selling / MLM business to access whether their independent contractors/associates are entitled to an Australian Business Number (ABN), our firm has compiled some general information to help explain the criteria in determining ABN entitlements. That is, am I running a business?

The intention of the taxpayer in engaging in the activity is a relevant indicator. However, there needs to also be an activity. (see Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497).

“The extent of activity determines whether a business is being carried on”

Factors which are relevant to demonstrating whether you are running a business include:

  • You have consulted with an accountant or business advisor;
  • You are advertising through social media or a webpage;
  • You have obtained the required business insurance (such as public liability);
  • You are undertaking activities of significant size and scale;
  • You have a business plan which demonstrates an intention to make a profit;
  • Your activities are systematic, repetitive and organised;
  • You are keeping records of activities and receipts of expenses;
  • You have the relevant knowledge or skill to operate the business.

Table 1 below can help determine if you are running a business or whether the activity can better be described as a hobby (which is a form of recreation or a sporting activity).

Table 1: Am I Operating a Business?

Indicators which suggest a business exists Indicators which suggest a business doesn’t exist
A significant commercial activity Not a significant commercial activity
Intention to carry on a business activity No intention to carry on a business activity
Intention to make a profit from the activity No intention to make a profit from the activity
The activity is or will be profitable The activity is inherently unprofitable
Repetition and regularity of activity Little repetition or regularity of activity
The activity is organised and carried on in a businesslike manner and records are kept The activity is not organised or carried on in a businesslike manner and no records are kept
Significant size and scale of the activity Small size and scale of activity
Not a hobby, recreation or sporting activity Is a hobby, recreation or sporting activity
A business plan exists There is no business plan
Commercial sales of product Sale of products to relatives and friends
You have the relevant knowledge or skill You lack the relevant knowledge or skill

It is a question of overall impression, rather than how many of the factors exist.

see http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR9711/NAT/ATO/00001

Superannuation Changes 2017

Posted on: April 11th, 2017 No Comments

The superannuation changes coming into effect on 1 July 2017 are the most significant in a decade.

We have summarised the main changes that may affect you.

The key changes are:

  • $100,000 annual cap on non-concessional contributions
  • Concessional contributions limit for everyone reduced to $25,000
  • Non-concessional contributions restricted to those with less than $1.6m in superannuation
  • Amounts held in pension accounts will be limited to $1.6m
  • Investment earnings of transition to retirement pensions to be taxed at 15%, the same as super accumulation accounts.

Three things to do now:

  1. Maximise concessional contributions before July 1, 2017

From 01 July the maximum amount of contributions will be $25,000. Currently you can put in $30,000 if under 50 or $35,000 if over 50. Take advantage of the higher amounts and put the maximum contributions amount in this year.

  1. Maximise non-concessional contributions before July 1, 2017

The cap for 2016-17 is $180,000. For people under age 65 (at July 1, 2016), they can bring forward a further two years contributions, totalling up to $540,000 before June 30, 2017.

From July 1, 2017, the non-concessional (after-tax) contribution cap will reduce to $100,000, with a maximum of $300,000 being able to be contributed under the three year bring-forward rule. As well, the ability to make non-concessional contributions will be limited to those with less than $1.6m in superannuation.

  1. Review Pensions before June 30, 2017

The $1.6m limit on the amount held in the retirement (pension) phase is retrospective. That is, it applies to existing pensions as well as those established in future.

This means that the excess over $1.6m will need to be retained in an accumulation account where the investment earnings are taxed at 15%. Alternatively, all or a part of the excess may be withdrawn from super.

If you need any more information feel to contact us.

Do you need Accounting or Tax advice?

Posted on: March 27th, 2017 No Comments

ATO review of the Direct Selling / MLM industry

Posted on: March 27th, 2017 No Comments

It has come to my attention that the Australian Taxation Office (ATO) is about to conduct a review of the direct selling industry. In particularly they are going to select 12 companies and review the entitlements of that companies independent salespeople (agents) to be registered for an Australian Business Number (ABN).

I have spoken with the ATO Assistant Director and she has informed me that the ATO will pick 12 companies at random (some of which will be members of the Direct Selling Association).

The purpose of this review is for the ATO to establish a position in relation to ABN entitlement for independent salesperson operating within the direct selling industry. The aim will be to develop case studies that can be used by the direct selling industry to outline when it is appropriate to have an ABN and when it is not appropriate.

The ATO have advised me that they are looking at:

  • The entitlement of independent salespeople to an ABN;
  • The treatment of good and services tax (GST) by independent salespeople;
  • The treatment of withholding tax where there is no ABN; and
  • Whether independent salespeople are actually operating independently or should they be classed as employees.

I expect the review to start in the next month and most likely to complete in the next 12 months. At this state I am not aware of which direct selling companies are going to be reviewed, though as this is an important issue I wanted to bring it to your attention. This is also a good opportunity to revisit the entitlement for an Australia Business Number (ABN).

For example, while becoming an independent salesperson (agent) can also include the added benefit of being able to purchase products at a discount while also receiving commissions. A genuine business opportunity can usually be characterised as having some of the following:

  • The activities performed have a commercial character and they are being done for the purpose and likelihood of earning a profit;
  • The business has repeating transactions and appropriate business records are kept; and
  • There is a separate bank account, a registered business name and other registrations.

Where independent salespeople (agents) purchase products for personal use and for their immediate family, such purchases are private in nature and would not indicate the existence of a business opportunity. Furthermore, this could lead to a further legal issue where a business opportunity is being wrongfully promoted.

I will be sure to keep you informed of any developments and please let me know if you have any questions or require further information.

How to setup a Direct Selling / MLM Business

Posted on: December 10th, 2016 No Comments

If you are looking to setup a direct selling / MLM business then generally we suggest the following:

 

Australian Cothe-advantages-of-direct-sellingmpany

We generally recommend registering and trading through a local Australia company because it enables you to establish a local business presence while also helping to stop other businesses from using your business name. Furthermore, if you want to get Therapeutic Goods Registration (TGA) then you will need a local company anyway.

The Australian company will need to have a local Australian director, public officer and a registered office address. Our firm can provide these services while we setup the company and get ready to start trading.

Overseas Shareholders

Generally an Australian Direct Selling / MLM company with a foreign shareholder needs to be audited and submit its financial statements to the Australian Securities and Investment Commission (ASIC). However, there are a number of options available within the first three months for the Australian company to elect not to be audited. Applying for audit relief can save business a fortune in audit fees.

No Australian Business Number (ABN) Withholding

If your Independent Salespeople do not have an ABN and the total payment for goods and services is more than $75 (excluding GST) you:

  1. cannot claim the GST input tax credit for that supply; and
  2. must withhold 49% of the payment and pay it to us.

However, our firm is able to get an exemption from the 49% withholding tax where Independent Salespeople’s commission is less than $10,000 per year.

 

Please contact our office for further information.

Direct Selling / MLM and ABN Requirements

Posted on: December 2nd, 2016 No Comments

abn

The Australian Taxation Office (ATO) is reviewing several Australian Business Number (ABN) registrations of Independent Salespeople within the direct selling /MLM industry. The ATO is becoming increasingly concerned that many people who believe they are conducting a commercial enterprise are in fact only engaging in a hobby or part time recreational activity.

The Australian business landscape is complicated and it is not enough to simply register for an ABN and then rely on that ABN as proof of your commercial enterprise. The ATO’s view is that a business consists of many characteristics including: repeated transactions, a thought-out business plan, a separate office space and an intention to generate a profit, etc.

Our firm sees difficulties for both the Direct Selling / MLM firms and their Independent Salespeople where no ABN is provided by the Independent Salesperson. Particularly as the ATO requires that 49% of the commissions be withheld from the Independent Salesperson and reported and paid by the Direct Selling / MLM firm to the ATO.

However, our firm has been successful in getting exemptions from the requirement to withholding 49% of the commissions where no ABN is provided, up to $10,000 a year in commission. This has proved very helpful for our clients and their sales teams.

2016 Budget Summary

Posted on: May 12th, 2016 No Comments

I have put together a few summary points form the 2016 budget. The main changes are to superannuation, including a reduction in the concessional contribution cap to $25,000 and the introduction of a lifetime non-concessional contribution cap of $500,000.

The instant deduction for capital items costing less than $20,000 remains until 30 June 2017.

Small Business

  • The small business entity annual turnover threshold will be increased from $2 million to $10 million from 1July 2016 for the purposes of accessing the proposed 27.5 per cent company tax rate and certain existing income tax concessions including the $20,000 instant asset write off.
  • From the 2016-17 income year, the company tax rate for businesses with an annual aggregated turnover of less than $10 million will be reduced to 27.5 per cent.
  • Simplified depreciation rules under Subdiv 328-D of the Income Tax Assessment Act 1997 (ITAA 1997), including the instant asset write off threshold of $20,000 available until 30 June 2017
  • Option to account for GST on a cash basis and pay GST instalments as calculated by the ATO
  • Other tax concessions such as the extension of the FBT exemption for work-related portable electronic devices available from 1 April 2016 and the immediate deduction of professional expenses under s 40-880 of ITAA 1997.

Other enterprises

  • Tax incentives for investing in early-stage innovative companies are to be expanded.
  • Funding arrangements to attract more venture capital investment will be expanded.
  • The tax treatment of asset backed financing arrangements such as deferred payment arrangements and hire purchase arrangements will be amended.

Superannuation

  • The threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000.
  • The tax exemption on earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017.
  • A lifetime non-concessional contributions cap of $500,000 will be introduced (see more details below).
  • Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.
  • From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
  • A balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017.

Lifetime cap for non-concessional superannuation contributions

A lifetime non-concessional contributions cap of $500,000 will be introduced. To ensure maximum effectiveness, the lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, from which time the ATO has reliable contributions records, and will commence at 7.30 pm (AEST) on 3 May 2016.

The lifetime non-concessional cap will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65). Contributions made before commencement cannot result in an excess. However, excess contributions made after commencement will need to be removed or be subject to penalty tax.

GST and other indirect taxes

  • GST will be extended to low value goods imported by consumers from 1 July 2017.

A Genuine Home Business

Posted on: May 5th, 2016 No Comments

Home Business Startups

Australian businesses are continuously moving away from traditional ‘bricks and mortar’ retail outlet and office spaces and are now learning how to take advantage of low cost E-business platforms. As an accountant and business advisor I see more and more of our clients moving towards alternative business models such as home offices, virtual offices and café meeting.

The internet has enabled new E-businesses to startup and operate from the home while still enabling them to grow to a size that can maintain national and often international sales. When we look at some of the large iconic American companies that started as a home businesses, for example: Apple, Amazon, Google and even The Walt Disney Company, is not surprising that more and more people are becoming inspired to start a home business.

Enter the Independent Salesperson

It’s not just the possibility of financial success that motivates people to start a home business, but it’s also the ability to work your own hours, manage your work/life balance and the challenge of working for yourself.

Furthermore, working as an independent salesperson enables people to have direct contact with their customers and the ability to build and manage their own relationships. For example, a carefully planned marketing campaign on social media can enable independent salespeople to leverage personal relationships to help their friends become loyal customers. In this way, social media has also enabled businesses to gain access to customers that would otherwise not purchase their products.

A Genuine Business Opportunity

Direct selling businesses (particularly multi-level marketing) usually promote more than just their products. They also offer a business opportunity by encouraging the happy and enthusiastic customers to join the direct selling business as an independent salespeople. This new opportunity can also include the added benefit of being able to purchase products at a discount while also receiving commissions.

However, it can be difficult to determining if a genuine home business exists and we often see that direct selling businesses and independent salespeople get it wrong. A genuine home business can be characterised as having some of the following:

  • The activities performed have a commercial character and they are being done for the purpose and likelihood of earning a profit
  • The business has repeating transactions and appropriate business records are kept
  • There is a separate bank account, a registered business name and other registrations

Where independent salespeople purchase products for personal use and for their immediate family, such purchases are private in nature and would not indicate the existence of a home business.

Please contact our firm for all your direct selling accounting and taxation needs.

Not For Resale (NFR) Model

Posted on: May 1st, 2016 No Comments

The Not For Resale (NFR) model is often used by foreign companies wishing to enter the Australian direct selling / MLM market. The revolution of Ebusiness has largely changed the nature of multi level marketing (MLM) businesses by enabling customers to go online and purchase products directly from overseas companies.

The Australian customer therefore becomes the direct importer of the overseas product, rather than the customer purchasing a local product from an independent salesperson.

However, customers should be careful when purchasing therapeutic goods, such as weight loss products, from overseas companies as these products may not meet Australian health standards.

The Therapeutic Goods Act (TGA) ensures therapeutic goods within Australia meet acceptable standards of quality, safety and performance.

The TGA and the Australian Border Force (ABF) can stop shipments of products which are known to be potentially dangerous and to sample and identify suspect products so future shipments cannot enter Australia.

Furthermore, it is an offense under the Therapeutic Goods Act to promote unapproved therapeutic goods within Australia.

Foreign direct selling / MLM companies wishing to enter the Australian marketplace need to be sure they seek local accounting, taxation and legal advice before they start promoting their products within Australia.

More information about the TGA can be found here: https://www.tga.gov.au/about-australian-therapeutic-goods-legislation

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