"You can't stop the waves, but you can learn to surf" — Jo Kabat-Zinn The 2023-24 NSW State Budget has a strong focus on tightening tax compliance, as well as changes to a number of exemptions and duties. It does not explicitly mention specific measures targeted at small businesses however it does mention some broader economic and infrastructure initiatives that could indirectly benefit small businesses. The State Budget also includes an expansion to the First Home Buyers Assistance Scheme to support FHBs with a stamp duty exemption for purchases up to $800,000 and a concession for purchases between $800,000 and $1 million. Five out of every six first home buyers will pay no stamp duty, or a concessional rate, after the Government expanded stamp duty exemptions and concessions from 1 July. 31 October deadline for tax returns Collins Hume clients have an extended lodgement program to lodge tax returns with the vast majority having until 15 May to lodge. This allows us to spread the workload out over 11 months of the year. The reminder everyone is seeing in the news at the moment is just for those members of the public who don’t use an accountant or tax agent. Climate credentials renewed Props to the Collins Hume team for all the effort and conscientiousness that allowed us to be formally re-recognised as a sustainable business by 1% for the Planet and Climate Neutral for another year! We're thrilled that by coming to work every day, we can add value to our clients’ businesses and lifestyles, whilst doing our bit to make the planet a healthier and happier place. Let us know which other topics we covered in our latest Strategist newsletter are of particular interest or concern to you:

Collins Hume takes strides against childhood cancer in 24-Hour Ox Charity Run This past weekend, Collins Hume CEO Christopher Atkinson, together with his BFT Ballina gym teammates, harnessed their endurance racing skills to smash the Ox Charity Run, a 24-hour nonstop 100-kilometre charity run aimed at raising funds and awareness for Diffuse Intrinsic Pontine Glioma (DIPG), the deadliest form of childhood brain cancer. This initiative was particularly close to the heart of our region, with racers undertaking this challenging endeavour in memory of 9-year-old Frankie from Lennox Head, who lost her battle with DIPG. The race, which took place over the whole weekend, garnered amazing community support and was sold out. The Lennox Head caravan park/surf club area served as the event hub with attendees enjoying a lively atmosphere with DJs, food and plenty of positive vibes as participants ran, jogged, and walked to fundraise for DIPG. Chris, along with team members Steph and Lilly from BFT Ballina and Matty Wiggins from Rhythm Home Loans, formed the BFT Ballina team. Despite the anticipated challenges from midnight to 6am, Chris was enthusiastic about raising as much as possible for this very worthy cause. Another noteworthy team, BFT Ballina/McGrath Northern River, featured James Aubusson, Ryan McPharlane, Kirby and Bill Johnstone, who ran alongside Ballina BFT were just as committed to raising awareness and funds for DIPG. In the weekend washout, the charity run achieved a significant milestone by surpassing the $75,000 fundraising goal and is now into six figures. If you’d like to help, please tip in and top-up donations: Community members enthusiastically encouraged the festivities Lennox Head. Their incredible support not only uplifted the spirits of the runners but also generated much-needed positive energy. Special mention to Chris’ family for setting up their position and making a day of it with camp chairs and prosecco! In a world flooded with negative news, Collins Hume is proud to be part of initiatives like the Ox Charity Run that highlight the power of community, resilience and the enduring spirit of giving. For more information and updates or to help out with a donation, please visit https://rundipg-org.grassrootz.com/the-ox-2023-lennox-head Collins Hume's Legacy Like many, we want to leave a positive and long-lasting legacy — one that’s about contribution as opposed to consumption. At Collins Hume, it’s important to us that we witness first-hand the positive difference we make. We want to make a ‘living legacy that will be timeless. Every day, we feel deeply privileged to live, work and play in one of the most beautiful and prosperous regions in Australia and the world. We want to add to that beauty and prosperity locally and worldwide and our giving plays a part in making sure of that. Read more at https://www.collinshume.com/legacy. This year Collins Hume also successfully obtained recertification for both our "1% for the Planet" and "Climate Neutral" certifications. This reaffirms our commitment to the environment, our planet and our stance as a for-purpose business. As we move forward, it's great to see our collective efforts making a positive difference. Our dedication not only strengthens our business as one of the most purposeful accounting firms in Australia but also aligns with our core values. For more details, visit 1% for the Planet and Climate Neutral. Read more about Chris Atkinson in our flipbook.

That's a Wrap Folks! And what a grand final it was! Congrats to all the Panthers fans out there 😎 and commiserations to all the Broncos faithful 😪 Thank you to everyone for taking part this year — there certainly were some great tussles throughout with some well-timed joker rounds playing a big part. Well done to Mr BHG coming away with the overall win ($300), 7 points clear of GeePee in second place ($100), with bjk84 nipping at GeePee's heels to take third, a very close 1 point behind! You'll each have an email in your inbox from us to arrange transfer of prize money. Thanks again and hope to see you again for the 2024 season!

Treasury super update Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality. The draft legislation appears largely unchanged from the Government’s original announcement. The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years. The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year. From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one-size-fits-all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax-efficient vehicle. How to contact us It's important to speak to a financial professional before taking any action on superannuation strategies. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Marisa Worling B Bus (Accounting) Xero Certified Adviser, CPA Following a career that has allowed her to serve the middle market as a business services accountant AND perfect her expertise as a SMSF specialist, Northern Rivers local Marisa Worling is a welcome addition to the Collins Hume team. Having worked as an accountant for a Big 4 outfit right through to mid-sized and local accounting firms here and over the border, self-confessed numbers person Marisa loves helping individuals and business owners make sense of their super funds. And the more complex the structure, the better! Marisa has slotted into her new role at Collins Hume following the departure of long-time SMSF Accountant, Chris Priester. She is currently knocking the firm’s CLASS super software system into shape, preparing super fund accounts and doing the subsequent tax returns. She also plays a key role in liaising with Financial Planners and SMSF auditors. “I like keeping the super funds processed and all updated to give each client a clear picture of a point in time with respect to the value and growth in the fund.” “Whilst it’s great to concentrate on one area well to specialise and help business owners and individuals, it’s just as important to have a good connection with auditors and Financial Planning alike,” says Marisa. Marisa’s dedication is not just reserved for office hours. She is a passionate trail runner on a mission. A few years ago Marisa competed in the Blue Mountains 50km Trail event but had to pull up short with leg pain at the 28km mark. She found out that she had Stage 4 Melanoma which had spread to her skull. After intensive surgery and treatment, including a titanium plate and rod, she plans to finish what she started! You can find her pounding the hinterland trails most weekends preparing for the big race. As a result, Marisa is a passionate fundraiser for Mission Melanoma, Jay Allen The Melanoma Man and the Australian Skin Cancer Foundation. She recently raised over $1,000 and has even walked a leg with Jay in Sydney! You can also find Marisa volunteering at Ballina Lighthouse & Lismore Surf Club and performing in the role of Director of Finance for the Surf Life Saving Far North Coast Branch. Now following the pandemic and a move to Collins Hume in 2022, Marisa loves the variety of people on the team and getting to work with the Partners on a varied range of clients. “I enjoy helping business owners plan for their futures and spot opportunities that present themselves in the financials. The people at Collins Hume, both the team and clients, make my work very interesting.” Copyright 2022. Collins Hume Accountants & Business Advisers. Ballina & Byron Bay NSW

Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction! The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game. Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets. How much? Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year. What qualifies? The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied. First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law. If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024. If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied: The asset must use electricity; and There is a new reasonably comparable asset that uses a fossil fuel available in the market; or It is more energy efficient than the asset it is replacing; or If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset. If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions: It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel; It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source. What doesn’t qualify? Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded. In addition, the following assets are specifically excluded from the rules: Assets, and expenditure on assets, that can use a fossil fuel; Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels); Capital works (such as buildings and structural improvements); Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles; Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and Financing costs, including interest, payments in the nature of interest and expenses of borrowing. What does qualify? The legislation contains a few examples of what would qualify: Electrifying heating and cooling systems Upgrading to more efficient fridges and induction cooktops (for example replacing gas cooktops) Installing batteries and heat pumps Installing an electric reverse cycle air conditioner instead of a gas heater Replacing a coffee machine with a more energy-efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation! Thermal storage that can store heat or cold from a renewable source Solar thermal hot water system (assuming it meets the other criteria). The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.

Nerida Byron, with her local business background and a strong drive to learn, adds firepower to the small business bookkeeping team at Collins Hume, bringing a fresh perspective and a wealth of experience. Originally hailing from Brisbane, Nerida moved to the Northern Rivers region in 2007. Her initial foray into bookkeeping began during the pandemic when she decided to take advantage of some free education courses. Her curiosity led her to explore bookkeeping, which she enjoyed, and she subsequently embarked on her Cert IV Accounting & Bookkeeping certification. Wanting an extra challenge and to advance her career and qualifications, Nerida approached Collins Hume for a bookkeeping and assistant accountant role, and we are glad she did! Nerida's days are filled with various bookkeeping responsibilities. Undertaking tasks for all Partners, her core duties include BAS preparation, payroll, accounts payable and some reporting — all using Xero’s cloud accounting platform on which she has become a dab hand. One aspect that sets Nerida apart is her ability to focus on tasks at hand. She identifies herself as a "doer," emphasising her task-oriented nature, which is crucial in the world of bookkeeping where precision across a multitude of minute actions is paramount for financial accuracy. Culture of Support and Growth When asked about her experience in her new workplace, Nerida is appreciative for the supportive Collins Hume culture. Her onboarding, guided by Clare, was smooth and swift, ensuring that Nerida could hit the ground running. The collaborative atmosphere and the willingness of her colleagues to share their knowledge have accelerated her learning. "It’s amazing — every time I need help I always get an answer. Everyone is very generous with their time and really cool about helping me out and teaching me the ropes, so I'm getting a lot out of it," says Nerida. Outside the office, Nerida enjoys baking and running around after her daughters, going to the beach and spending time with her family with their beloved labradoodle, Nara. Her commitment to continuous learning and relishing her new role stand her in good stead for the future that lies ahead at Collins Hume. "If you stop learning, you just stop, so learning is magic," Nerida added. Nerida’s journey to becoming a bookkeeper is one marked by that same passion for learning. With a Cert IV in Accounting & Bookkeeping nearly completed plus a Bachelor of Arts in Film & Media Studies and Advertising, Nerida's qualifications might seem diverse, but she is poised to become a valuable asset not only to Collins Hume but also to the business owners she assists. She is also Xero Payroll Certified. For Xero conversions and any complex bookkeeping needs, Nerida stands ready to lend her expertise and make the financial world a bit clearer for all.

The shape of Australia’s future What will the Australian community look like in 40 years? We look at the key takeaways from the Intergenerational Report. The 2023 Intergenerational Report (IGR) is a crystal ball insight into what we can expect Australian society to look like in 40 years and the needs of the community as we grow and evolve. It doesn’t map out our path to flying cars and Jetsons-style robotic domestic help (unfortunately) but it does forecast structural trends that will give many of us a level of anxiety about what we need to be doing now to successfully navigate the future. The report links the continued growth and prosperity of Australia to five significant areas of influence: 1. We’re ageing Thanks for the reminder. The number of people aged 65 and over will more than double and the number aged 85 and over will more than triple. We’re expected to live longer with the life expectancy of men increasing from 81.3 to 87 years and from 85.2 to 89.5 for women by 2062-63. And that’s a problem for the younger generation. Who bears the burden of an ageing population? Australia’s low birth rate, limited migration and increased longevity all have an impact. The old age percentage — the number of people aged 65 and over for every 100 people of traditional working age (15 to 64) in the population — will increase from 26.6% to 38.2%. From a tax perspective, Australia’s reliance on personal tax means workers will bear an increasing proportion of the tax burden under current fiscal policy. In a recent interview, former Treasury boss Ken Henry labelled it an “intergenerational tragedy” with personal tax growing from 11.7% of GDP to 13.5% based on current policy. The report says that “only 12% of Australians aged 70 and over pay income tax and this age group now makes up 12.2% of the total population. This age group is expected to increase to 18.1% of the total population in 2062-63.” Wholesale tax reform will be required to prevent the growing tax burden on individuals dragging on the economy. With economic growth expected to slow to 2.2% from 3.1% over the next 40 years, the solution will not magically arise from corporate Australia. If it was not for our high rate of inflation you would think an increase to the GST was imminent. 2. Services and who pays Demographic ageing alone is estimated to account for around 40% of the increase in Government spending over the next 40 years. The outcome of an ageing population, as you would expect, is increased demand for care and support services that will push the Federal Budget back to a point where deficits are the norm if the current policies remain in place. From a consumer perspective, it also means that the trend towards user-pays will only increase. As individuals, we need to ensure that we have the means to fund our old age because Government resources will be limited by increasing demand and this demand is funded by a deteriorating percentage of workers contributing to tax revenue. It's also likely that we will need to look at how we generate income. For some that might mean working longer, for others it is value adding — creating, buying and selling assets in some form, whether that is business, innovation, or through more traditional assets such as property or financial products. Superannuation the size of a nation Australia currently has the fourth largest pool of retirement assets in the world, with total superannuation balances projected to grow from 116% of GDP in 2022-23 to around 218% by 2062-63. Our superannuation system will be what underwrites retirement for most Australians. At present, around 70% of people over aged pension age receive some form of Government income support. Over time, and as our superannuation system matures, this percentage is expected to decline sharply as a percentage of GDP with Government support supplementing rather than providing for retirement (the first generation of workers with superannuation guarantee throughout their working life hit retirement age around 2058). However, the IGR points out that, “the cost of superannuation concessions will increase, driven by earnings on the larger superannuation balances held by Australians.” The proposed tax on future earnings on super balances above $3m may not be the last. We can expect the management of superannuation to be a priority for the Government to ensure that retirement savings are maximised to reduce the reliance on Government support, and to ensure that this enormous pool is leveraged for the gain of not only members but the nation. Growth of services Like most advanced economies, global competition has shifted Australia’s industrial base from the production of goods to services. Ninety per cent of jobs are now in services. With an ageing population, demand for health and care services is expected to soar. People aged 65 or older currently account for around 40% of total Australian health expenditure, despite being about 16% of the population. The IGR estimates that the workforce required to support this sector will need to be twice the size of what it is now to meet demand by 2049-50. The Government’s biggest spending pressures will be health, aged care, the NDIS, defence and interest payments on government debt. Of these, the NDIS is the fastest growing at 7% per year. 3. The role of technology The speed of technological change is difficult to predict, and the IGR doesn’t attempt to make predictions. But what we do know is that technology has had a transformational impact on labour productivity (the value of output of goods and services produced per hour of work). Over the last 30 years, labour productivity has accounted for around 70% of the growth in Australia’s real gross national income. But, tempering this is a slowing of labour productivity growth since the mid-2000s. We know technological disruption is coming and the debate about the role of artificial intelligence is only just beginning. We also know that unless technology is accessible, our future will be one polarised by those who have and have not benefited from technological change. 4. Climate change transformation There are two key aspects to climate change; the cost of rising temperatures, and the opportunity created by the shift to renewable energy. Temperatures are anticipated to increase by 1.5 degrees before 2100, potentially before 2040. From 1960 to 2018, climate disasters reduced annual labour productivity in the year they occurred by about 0.5% in advanced economies. However, for severe climate disasters labour productivity is estimated to be around 7% lower after three years. With rising temperatures, floods, bushfires and other extreme weather events are expected to increase in frequency and severity. The impact of climate change spelt out in the report is sobering with disruptions and changing patterns impacting agriculture, tourism, recreation and industries that rely on labour-intensive outdoor work. On the positive side, Australia could benefit from new “green” industries, such as hydrogen and other clean energy exports, critical minerals and green metals. It is also likely to drive new, innovative ideas as businesses invest in and develop low emissions technologies, providing a source of future productivity growth in a more sustainable economy. Australia’s potential to generate renewable energy more cheaply than many countries could also reduce costs for both new and traditional sectors, relative to the costs faced by other countries. 5. Geopolitical risks Australia relies on open international markets. Trade disputes and military conflicts pose an external threat to Australia’s economy and well-being. While the IGR cannot predict the nature of geopolitical events, it notes the importance of investing in national security, presumably this includes cybersecurity, ensuring access to international markets, and deepening regional partnerships to reduce supply chain vulnerabilities. The 2023 Intergenerational Report projects the outlook of the economy and the Australian Government's budget to 2062-63. This is the sixth report. Its analysis and projections of the key drivers of economic growth will help inform and improve public policy settings to better position Australia for the next 40 years. Read or download a copy here »

The tax refund many Australians expect has dramatically reduced. We show you why. There is a psychology to tax refunds that successive Governments have been reticent to tamper with. As a nation, Australia relies heavily on personal and corporate income tax, with personal income tax including taxes on capital gains representing 40% of revenue compared to the OECD average of 24%. And, for the amount we pay, we expect a reward. The reward is in the form of tax deductions that reduce the amount of net income that is assessed for tax purposes and tax offsets that reduce the tax payable, generating a refund for some. And, refunds have a positive impact on tax compliance. As part of the previous Government’s efforts to flatten out the progressive individual income tax system, a time-limited low and middle-income tax offset was introduced. The lifespan of the offset was extended twice, partly as a stimulus measure in response to COVID-19. The offset delivered up to $1,080 from 2018-19 to 2020-21, and up to $1,500 in 2021-22 for those earning up to $126,000. This was a significant boost for many people each tax time and bolstered the tax returns of millions of Australians. For many, the end of this offset has meant that their tax refund has reduced dramatically compared to previous years. Do we pay more tax than other nations? It depends on how you look at the statistics. Australia relies heavily on income tax, collecting 40% of tax revenue from personal income. That makes Australia the fourth highest taxing nation for personal tax in the OECD – but we were second highest in 2019 if that makes you feel better. But, if you are looking at take-home pay there is a separate measure for that. The Employee tax on labour income looks at our take-home pay once tax is taken out and benefits have been added back in. This shows that the take-home pay of an average single worker is 77% of their gross wage compared to the OCED average of 75.4%. For the average worker with a family (one married earner with 2 children), once tax and family benefits are taken into account, the Australian take-home pay average is 84.1% compared to the OECD average of 85.9%. All of this means that Australia is a high-taxing nation but returns much of that in the form of means-tested benefits. Australia also does not have social security contributions like other nations. These contributions represent an average of 27% of the total tax take for OECD nations. And, because Australia has a progressive tax system, the pain of taxation is felt more by higher-income earners. The top 11.6% of Australian income earners contribute 55.3% of the tax revenue from personal income tax. With the final round of legislated income tax cuts due to commence on 1 July 2024, this should reduce the overall dependence on personal income tax relative to corporate and other taxes. So, do we personally pay more tax than other nations? If you are a high-income earner the answer is likely to be yes. If not, the answer is no. As Benjamin Disraeli reportedly said, “…lies, damn lies, and statistics”. It’s all how you read it. Is a second job worth it? In an Uber the other day, the driver revealed that he had become a driver to pay for his second mortgage. He invested in property but with interest rates spiking, the only way he could hold onto the property was to earn additional income. His “day job” starts early and ends at 3pm at which time he heads off to start driving. He is not alone. The latest stats from the Australian Bureau of Statistics reveal that the number of workers holding multiple jobs has increased by 2.1% since December 2022 – in total, Australia has 947,300 people holding multiple jobs or 6.6% of the working population. The reason why people take on second jobs is varied. For some, it is to manage increasing costs, for others it is to start up a new venture but with the security of a regular income stream from their primary occupation. Is it worth it? From a tax perspective, Australia has a progressive income tax system – the more you earn the more tax you pay, and access to social benefits tapers off. It’s important when looking at a second job to understand your overall position – how much you are likely to earn, your costs of generating income, and what this income level will mean. The trap for many picking up a ‘gig economy’ second job is that they are often independent contractors. That is, you are responsible for managing your tax affairs. All Uber drivers for example, are required to hold an ABN and be registered for GST. There is a compliance cost to this and from a cashflow perspective, 1/11th of the fee collected needs to be remitted to the Tax Office once a quarter. It’s important to quarantine both the GST owing and income tax to ensure you have the cash flow to pay the tax when it is due. The upside is you can claim the expenses related to your second job. If you are taking on a second job, ensure that your tax-free threshold applies to your highest-paying job from a PAYG withholding perspective. How to contact us We’re available to assist you with tax planning including tax deductions: Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000 Read more tax planning topics here » Access our free tax factsheets here »

The tax implications and pitfalls of small-scale subdivisions You’ve got a block of land that’s perfect for a subdivision. The details have all been worked out with Council, the builders, and the bank. But, one important aspect has been left out; the tax implications. Many small-scale developers often assume that their tax exposure is minimal – but this is not always the case and the tax treatment of a subdivision project can significantly impact on cashflow and the financial viability of the project. New guidance from the Australian Taxation Office (ATO) walks through the tax impact of small-scale subdivision projects. We look at some of the leading issues: Tax treatment of the subdivision Subdividing land The tax treatment of even a small subdivision can become complex very quickly and tax applies according to the circumstances. You cannot simply assume that just because it’s a small development, any profit from the eventual sale will be taxed as a capital gain and qualify for CGT concessions. In general, if you own a property personally, it has been held and used for private purposes over an extended period, you subdivide it and sell the newly created block, then capital gains tax is likely to apply to any gain you make. The gain is recognised from the point you first acquired the land, although you will ned to apportion the amount paid for the property between the subdivided lots. If you are subdividing a property that contains your home – the main residence exemption will not generally be available if you sell a subdivided block separately from the block containing your home, even if the land has only ever been used for private purposes in connection with your home. If a property is initially owned jointly but the property is subdivided and the lots split between the owners, then this will normally trigger upfront tax implications even though the land hasn’t been sold to an unrelated party yet. Arrangements like this (referred to as partitioning) can be complex to deal with from a tax perspective. Developing a property But what happens if you develop the land? It’s not uncommon for people to decide to subdivide and develop their block by building a house or duplex and then selling the new dwelling. When someone develops a property with the intention of selling the finished product at a profit in the short term, there is a risk that this will be taxed as income rather than under the capital gains tax rules. This limits the availability of CGT concessions (such as the 50% CGT discount) and will often expose the owners to GST liabilities as well. This can be the case even for one-off property developments. Let’s look at an example. Claude purchased his home on 1 July 2001 for $300,000. In July 2020, Claude began investigating the idea of subdividing his block and building a new house, then selling it. A registered valuers report on the subdivision says that the original house and land is now worth $360,000, and the subdivided lot is worth $240,000 (the valuation is an important step before commencement to prevent any debates with the ATO). Claude decides to go ahead and build a dwelling on the newly subdivided block and takes out a loan of $400,000 for the development. He intends to pay off the loan as soon as the house sells. In July 2021, Claude sells the subdivided block and new home for $1,210,000 (GST-inclusive). Here is how the tax works for Claude’s scenario: Claude made an overall economic gain of $580,000. The overall gain ($580,000) is based on the GST exclusive sale proceeds ($1,100,000, although we are assuming that the GST margin scheme isn’t applied) minus the GST exclusive development expenses ($400,000) and the original cost attributable to the newly subdivided lot of $120,000 ($300,000 × 40%). The increase in the value of the newly created subdivided lot from when it was originally acquired (1 July 2001) up to when the profit-making activities began (1 July 2020) should be treated as a capital gain. The value of the newly created subdivided lot at the time Claude began to undertake profit-making activities on 1 July 2020 was $240,000. The original cost, attributable to the newly created subdivided lot was $120,000 (40% × $300,000) on 1 July 2001. This means that there is a capital gain of $120,000. As Claude has held the subdivided block for greater than 12 months he is entitled to a 50% CGT discount, hence there is a discounted capital gain of $60,000. The increase in the value of the newly created subdivided lot from when the profit-making activities began up to the time of sale should be treated as ordinary income. The net profit ($460,000) will be based on the GST-exclusive sale proceeds ($1,100,000) minus the GST-exclusive development expenses ($400,000) and the value of the subdivided lot ($240,000). If Claude is not carrying on a business, he cannot claim a deduction for the development expenses as they are incurred. They will be taken into account in determining the net profit on sale. If Claude finished the development but decided not to sell the property, then this would complicate the income tax and GST treatment. We would need to explore what Claude plans to do with the property. Do I need to register for GST? If you are an individual who is subdividing land that has been held and used for private purposes then you might not need to GST, although this will depend on the situation. However, if you are engaged in a property development business or a one-off project that is undertaken in a business-like manner, then it is more likely that you would need to register for GST. In Claude’s scenario, because the projected sale price of the developed land was above the GST threshold of $75,000, he will probably need to register for GST. This will mean that he: Has a ‘default’ GST liability of $110,000 on the sale price of the developed block, although it might be possible to reduce the GST liability by applying the GST margin scheme Needs to provide a notification to the purchaser of the amount at settlement to be withheld and paid to the ATO Is able to claim $40,000 credits for the GST included in the development expenses (subject to the normal GST rules), and Must report these transactions by completing business activity statements. The tax consequences of subdivision and other property projects can be complex. If you are contemplating undertaking a subdivision and any property development activities, please contact Collins Hume on 02 6686 3000 and we can help walk you through the scenarios and tax impact of the project.

Help Make Marisa’s Every Step Count Against Melanoma and Skin Cancer You’re invited to be part of a life-changing journey — Jay's Mission Melanoma Walk '23. This event is not just a walk; it's a powerful statement of endurance, awareness and hope. Collins Hume Senior Accountant Marisa Worling will join “The Melanoma Man” Jay Allen and his dedicated team this November as they take on the inspiring challenge of walking from Merimbula to Port Melbourne over two weeks, covering a remarkable distance of 621km from Saturday 18 November to Friday 1 December. “I want to raise awareness and funds for not only melanoma but also skin cancer in general and have joined up with Jay to complete the walk. We have been set a target of $10,000 to be raised by the time the walk is completed on the first day of summer,” says Marisa. How you can help We invite you to be a part of this inspiring movement by donating generously — help Marisa to smash her $10,000 target to fuel melanoma research, support and awareness. Every contribution makes a difference. Why walk for melanoma? The statistics are stark: in Australia alone, an estimated 16,000 people will be diagnosed with melanoma this year. Shockingly, that means someone will hear the words "you have melanoma" every 30 minutes. And it's not just melanoma — over 1 million individuals will also face diagnoses of non-melanoma skin cancers, including Basal Cell Carcinoma and Squamous Cell Carcinoma. Mission Melanoma: Support, Educate, Fund Research, Advocate Jay's Mission Melanoma Walk '23 is more than a fundraiser; it's a call to action dedicated to providing critical support, education, funding for research and a driving force for advocacy against melanoma and non-melanoma skin cancers. Every step we take with Marisa as part of Jay’s team contributes to this vital mission. Marisa's Inspiring Journey from Diagnosis to Triumph Marisa Worling is a true testament to resilience and triumph over adversity. In 2017, Marisa faced a Stage 4 melanoma diagnosis that turned her life upside down which she talks about candidly. Despite the challenges, she emerged stronger, undergoing surgeries, revolutionary treatments and therapy. After a tough battle, Marisa reclaimed her passion for running, completing the 50km Ultra Trail Australia. “Being able to run and walk is very important to me as, at the time of my diagnosis, I really didn’t know what my future was going to be, so I didn’t want to take it for granted. And this is especially why being involved in the walk is pretty special,” says Marisa. “I'm also hoping that sharing my story and being involved in the walk will bring hope to others who have been given a similar diagnosis as mine,” she added. Marisa's journey is a beacon of hope for others facing similar battles. She understands the significance of every step and cherishes her mobility. By joining Jay's Mission Melanoma Walk '23, Marisa aims to share her story, raise awareness and fundraise to support others fighting melanoma and skin cancer. Remember, every step taken brings everyone closer to a world without melanoma. Please support Marisa in her incredible journey, for everyone who has been touched by melanoma. Together, they walk towards a brighter, healthier future. For more information, visit https://www.australianskincancerfoundation.org/mission-melanoma-event. To donate, visit https://jaysmissionmelanomawalk23.raisely.com/marisa-worling. #JayMissionMelanomaWalk23 #WalkForACause #JoinTheJourney 👟🏃

What does it take to hand your business to the next generation? What is the end game for your business? Succession is not just a topic for a TV series or billionaire families, it’s about successfully transitioning your business and maximising its capital value for you, the owners. When it comes to generational succession of a family business, there are a few important aspects: Succession of the business; Succession of the ownership of the business; Succession planning/pathway; and Moving from a business family to an investment family. For generational succession to succeed, even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family, communication is essential. Where generational succession fails, it is often because succession has not been formalised until a catalyst event or retirement planning requires it. A concept of ‘legacy’ is not enough. Successful succession occurs when the guiding principles of governance, family rules, aligning values, dispute resolution, succession and estate planning are managed well before discontent tears it apart. Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business. “One-third of Australian family businesses expect that the next generation will become the majority shareholders within 5 years time. Yet only 25% of Australian family businesses have a robust, documented and communicated succession plan in place.” — Family Business Survey The options for how a movement of an interest may occur are many and varied but usually focus on the transfer of some or all of the equity held in the business over a period or at a defined point in time and the payment of some form of consideration for the equity transferred. Alternatively, a part of the equity transfer may ultimately be dealt with through the estate. Generational succession comes with its own set of issues that need to be dealt with: Capability and willingness of the next generation A realistic assessment of whether the business can continue successfully after the transition. In some cases, the older generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. While reasonable objectives, they only work where there is capability and willingness. Communication of expectations is essential. Capital transfer Consider the capital requirements of the exiting generation. To what extent do you need to extract capital from the business at the time of the transition? The higher the level of capital needed, the greater the pressure on the business and the equity stakeholders. In many cases, the incoming generation will not have sufficient capital to buy-out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. Either scenario needs to be assessed for its sustainability at a business and shareholder level. In some scenarios the exiting owners will transition their ownership on an agreed timeframe. Managing remuneration In many small and medium businesses, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under generational succession, there should be an increased level of formality around compensation. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured. Who has operational management and control? Transition of control is often a sensitive area. It is essential to establish and agree in advance how operating and management control will be maintained and transitioned. This is important not only for the generational stakeholders but also for the business. Often the exiting business owners have a firm view on how the business should be run. Uncertainty in the management and decision-making of the business can lead to confusion or a vacuum - either will have an adverse impact. Tensions often arise because: The incoming generation want freedom of decision-making and the ability to put their imprint on the business. Without operating control, they feel that they have management in name only. The exiting generation believe that their experience is necessary to the business and entitles them to a continued say. A perception that capital investment should equate to ultimate operating control. An uncertainty by either or both generations about the extent of their ongoing roles. Agreeing transition of control in advance, on an agreed timeframe, can significantly reduce tensions. Transition timeframes and expectations Generational succession is often a process rather than an event. The extended timeframe for the transition requires active management to ensure that there are mutual expectations and to avoid the process being derailed by frustration. The established generation may have identified that they want to scale down their business involvement and bring on other family members to succeed them. This does not necessarily mean that they want to withdraw completely. An extended transition period is not uncommon and can often assist the business in managing the change. This can also work well in managing income and capital withdrawal requirements. The need for greater formality and management structure A danger for many SMEs is the blurring of the boundaries between the role of the Board, shareholders, and management. With generational succession, this can become even more pronounced. Formality in these structures is important, with clear definitions of the roles and clarification of the expectations. For example, who should be a director and what is their role? For some, the role of the family is managed by a family constitution – an agreed set of rules. For others there will be an external advisory group that advises the family to ensure that the required independent expertise is brought to bear. Successfully managing generational change is a process we can help you navigate. Talk with Collins Hume about how we can help to structure an effective transition path.