The Square Orange

Federal Budget - 2009

Personal Taxation

Foreign employment income

The Government has announced changes to the tax treatment of foreign employment income.

Under the proposed measures, foreign employment income will generally be taxable, but taxpayers will be entitled to a tax offset for foreign tax paid on the foreign employment income.

The proposed measures will take effect from 1 July 2009

Employee share schemes

The Government has announced that all discounts on shares and options provided under an employee share scheme, whether qualifying or non-qualifying, will be assessed in the income year in which they are acquired. That is, employees will no longer be able to elect to defer taxation on their discount to a later time.

The Government will also limit access to the $1,000 upfront tax exemption to employees with an adjusted taxable income of less than $60,000.

These measures will apply to shares and options acquired after 7.30 pm AEST on 12 May 2009.

Private health insurance rebate

The Government announced that high income earners will receive a reduction in their private health insurance rebate and face an increase in Medicare levy surcharge
should they opt out of their health cover.

From 1 July 2010, the Government will introduce three new ‘Private Health Insurance Tiers’ for high income earners:

·    Tier 1: for singles earning more than $75,001 (couples/families $150,001), the rebate will be 20% for those up to 65 years (25% for those over 65, and 30% for those over 70 years). The Medicare levy surcharge for avoiding private health insurance will remain at 1%.

·    Tier 2: for singles earning more than $90,001 (couples/families $180,001), the rebate will be 10%, for those up to 65 years (15% for those over 65, and 20% for those over 70 years). The surcharge for avoiding private health insurance will be increased to 1.25%.

·    Tier 3: for singles earning more than $120,001 (couples/families $240,001), no rebate will be provided. The surcharge for avoiding private health insurance will be increased to 1.5%.

 

 

Low and middle-income earners are not affected by the proposed changes.

Seniors Health Card

The Government said that it will not include gross income from superannuation income streams from a taxed source when determining an individual’s eligibility for the Commonwealth Seniors Health Card, a measure which was due to come into effect on 1 July 2009.

However, the Government will proceed to include income that is salary sacrificed to superannuation in the income assessment, which will take effect from 1 July 2009.

Medicare levy low-income thresholds

The Government has released the Medicare levy low-income thresholds for the 2008/09 income year. The threshold will increase for singles to $17,794 and to $30,025 for individuals who are members of a family.

The additional amount of threshold for each dependent child or student will also be increased to $2,757.

The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2008 to $25,299.

Seniors Supplement for self-funded retirees

The Government will provide a Seniors Supplement from 20 September 2009.

The Supplement will be available to self-funded retirees who are eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold Card with current Seniors Concession Allowance. It incorporates existing payments of Seniors Concession Allowance and the higher rate of Telephone Allowance.

The Seniors Supplement will be $790.40 a year for singles and $1,190.80 a year for couples combined. Payments will be made quarterly.

Business Taxation

Small Business and General Business Tax Break

The Government has announced the one-off bonus tax deduction available to small businesses under the Small Business and General Business Tax Break will increase to 50%, where a small business acquires an eligible asset between 13 December 2008 and 31 December 2009, and the asset is installed or ready for use by 31 December 2010.

Repeal of unlimited amendment periods

The Government announced that it will repeal certain provisions in the income tax laws that currently provide the Commissioner with an unlimited period in which to amend an item in a taxpayer’s income tax return.

The Government stated that the amendments will take effect from the date of Royal Assent of the relevant enabling legislation.

Assets and deemed dividend rules

The Government will extend the deemed dividend rules to payments by way of a licence or right to use real property and chattels, such as cars, boats and real estate.

This measure will reduce the opportunities for private companies to allow their shareholders or associates to use company assets for free, or at less than their arm’s length value, without paying tax.

It is proposed this measure will apply from the 2009/10 income year.

Use of non-commercial losses restricted

The Government will tighten the application of the rules on the use of non-commercial losses to prevent high-income individuals from offsetting excess deductions from non-commercial business activities against salary and other income.

From 1 July 2009, taxpayers with an adjusted taxable income of over $250,000 will only be able to deduct expenses from non-commercial business activities against the income from those activities. Any excess deductions will be quarantined to the business activity.

Taxpayers will still be able to apply to the Commissioner for relief from the rules if there are exceptional circumstances, or because the nature of the activities means that a taxpayer is temporarily carrying on an uncommercial business but the activities they are undertaking are nonetheless independently assessed as commercially viable.

Superannuation Measures

Changes to concessional contributions cap

The Government will cut the superannuation concessional contributions cap to $25,000 per annum (down from $50,000 per annum) from 1 July 2009.

The transitional concessional contributions cap, which applies until the 2011/12 income year, for individuals aged 50 to 74, will be reduced to $50,000 per annum (down from $100,000 per annum).

From 1 July 2012, the concessional contributions cap for those aged 50 and over will revert to the lower $25,000 cap (or applicable indexed amount at that time).

The Government has not amended the non-concessional contributions cap.

Superannuation co-contribution

The Government has announced that it will temporarily reduce the superannuation government co-contribution matching rate that is payable on eligible personal superannuation contributions, with effect from 1 July 2009.

The temporary matching rates as proposed are:

·    for the 2009/10, 2010/11 and 2011/12 income years, $1 for each dollar of contribution, up to a maximum of $1,000 per annum;

·    for the 2012/13 and 2013/14 income years, the rate is $1.25 for each dollar of contribution, up to a maximum of $1,250 per annum; and

·    for 2014/15 and later income years, the rate is $1.50 for each dollar of contribution, up to a maximum of $1,500 per annum.

Reduction in pension drawdown

The Government will extend its decision to reduce by 50% the minimum annual payment amounts for account-based pensions for the 2009/10 income year. That is, self-funded retirees will only have to draw down half of the minimum amounts from their account-based pensions for 2009/10.

Other Measures

Increase in ASIC fees

In the 2009/10 Federal Budget, the Government stated that it will index fees and charges collected by the Australian Securities and Investments Commission (ASIC) to the Consumer Price Index from the 2010/11 income year

Creating A Resilient Organisation

Organisational culture and behaviour rests on the prevailing climate that exists in the firm. This climate can encourage resilience to appear in an organisation, or it can in fact encourage a set of circumstances where the organisation breaks at the first sign of crisis.

 

A summary of the prevailing attitudes that encourage resilience (or lack of) is in the following table:-

 

Non-resilient Attitudes	Resilient Attitudes
•       Oblivious to the views of customers and stakeholders •       Culture of looking for self-aggrandizing success •       Considering oneself “invincible”	•       Ability to face down reality •       Ability to see meaning and impose core values •       Ritualising Innovation

 

Studies have shown common characteristics of “resilient” organisations, or organisations that have stood the test of time in the way they are managed, successful corporations and those that have “kicked in” the extra mile to out-strip competitors. In particular, Tom Peters’ work in “In Search of Excellence” (1979) and his later book “Thriving on Chaos” (1987) and Jim Collins’ work in “Good to Great” (2001) have identified characteristics of such successful companies.

 

In “Thriving on Chaos”, Peters summarised his earlier work into 5 characteristics of a successful corporation:-

 

1. Total customer responsiveness
2. Fast paced innovation
3. Flexibility by empowering people
4. Leadership at all levels
5. Systems that can handle chaos

In 2001 Jim Collins published his research in a book called “Good to Great” and in it he identified 6 characteristics of companies that “kicked in” an extra effort and outstripped competitors:-

 

1. “Level 5” Leadership
2. First who, then what
3. Confront the brutal facts
4. Hedgehog concept
5. Culture of discipline
6. Technology accelerators

From all the research, we believe the model for a resilient organisation as having the following balanced characteristics. Each characteristic is as important as another, they are not sequential, all must exist:-

 

Having identified the characteristics of organisational resilience, the process of creating a corporate culture that builds in resilience is part of a change management process.

 

The “guru” of change management is Professor John Kotter of Harvard Business School, and in his 1996 book “Leading Change” Professor Kotter summarised his study of international large scale change efforts. Having studied successful and unsuccessful change efforts, Professor Kotter isolated 8 mandatory steps that any successful change initiative must follow.

 

The 8 steps are as follows:-

 

1. Establish a sense of urgency
2. Create a Guiding Coalition
3. Develop a Vision and Strategy
4. Communicate the Change Vision
5. Empower for broad-based action
6. Generate short-term wins
7. Consolidate gains and produce more change
8. Anchor new approaches in culture

Establish a sense of urgency

• Examine the market and current realities
• Identify and widely discuss crises, potential crises, and opportunities

Create a Guiding Coalition

• Put together a group with enough power to lead change
• Get the group to work together like a team

Develop a Vision and Strategy

• Create a compelling vision to help direct the change effort
• Develop strategies for achieving that vision

Communicate the change vision

• Use every vehicle possible to constantly communicate the new vision and strategies
• Have the guiding coalition role model the behaviour expected of employees

Empower broad-based action

• Get rid of obstacles
• Change systems or structures that undermine the change vision
• Encourage risk takers and non traditional ideas, activities and actions

Generate short-term wins

• Plan for visible improvements in performance, or “wins”
• Create those wins
• Visibly recognise and reward people who made the wins possible

Consolidate gains and produce more change

• Use increased credibility to change all systems, structures and policies that don’t fit together and don’t fit the transformation vision
• Hire, promote and develop people who can implement the change vision
• Reinvigorate the process with new projects, themes and change agents

Anchor new approaches in the culture

• Create better performance through customer and productivity related behaviours, more and better leadership, and more effective management
• Articulate the connections between new behaviours and organisational success
• Develop means to ensure leadership development and succession

In order to create a sense of urgency an honest SWOT analysis is a solid first step to confront the brutal facts.

 

SWOT stands for:-

• Strengths
• Weaknesses
• Opportunities and
• Threats.

More often than not consultants and companies conducting a SWOT Analysis during a planning day stand in front of a whiteboard and entice a list of strengths, weaknesses, opportunities and threats from the audience. Whilst a useful effort in itself, unfortunately this approach arrives at an analysis with limited use because what tends to happen is that:-

• People answer quickly from the gut, usually with what is most pressing at that point in time to them personally;
• Very quickly the distinction between “Strengths” and “Opportunities” and between “Weaknesses” and “Threats” start to blur and sometimes a great deal of debate starts between something is a weakness or a threat, or whether something is a strength or an opportunity, or even that “it could be both”; and
• The negative side of the equation starts to build up as against the positive, because mentally, everyone is there to “improve the situation”.

A SWOT analysis needs to be conducted with far more balance, thought and care. A SWOT analysis should be started some time before the planning day and then brainstormed from those previous considerations at the planning day.

 

Firstly the best way to explain the difference between Strengths v Opportunities, and Weaknesses v Threats (and they are never a bit of both!) is to categorise Strengths and Weaknesses as internal positions and Opportunities and Threats as external forces.

 

Strengths and weaknesses exist within the organisation because of the way the organisation is structured, managed, operated, and so on, whereas opportunities and threats are pressures put upon the organisation by outside forces. And the reason why they are never “a bit of both” is that while a strength may look like an opportunity, it only does so because it is a strength and you can make much of it (hence it looks like an opportunity.

 

Then, when you strategise, whilst looking at your vision and goals, the principle is to:-

• Use your strengths
• Repair your weaknesses
• Exploit opportunities
• Prepare against threats.

A model to use to properly analyse SWOT is to break the “SW” from the “OT” by using three tables.

 

The first table is to examine the Strengths and Weaknesses

 

 

In this table, you examine in turn 5 internal sets of focal points being Operations, Customer Orientation, Management & Governance, Finances and HR Practices. Whilst focusing on one at a time you consider the organisation’s strengths and weaknesses, thereby categorising strengths and weaknesses in specific areas of the organisation’s begaviour.

 

The second table is to analyse the organisation’s Opportunities and Threats

 

 

Again the trick is to focus on only one external source of pressure at a time, being the political scene, the economic arena, the social and demographic context of the organisation, and the way technology and the environment may impact the organisation. In each, identify forces and trends and then consider the impact these have on the organisation, whether they are opportunities or threats,

 

Finally, the analysis can be summarised, after brainstorming, into a SWOT matrix:-

 

 

Having identified the characteristics of a resilient organisation and examined Professor John Kotter’s 8 steps of successful change management and how these 8 steps can be used to transform your organisation into a resilient organisation, what are the implications for Leaders?

 

Firstly, the most important implication is the need for a Leadership mind-set. Whilst the business of management is still important and has to be balanced with the qualities of leadership, nevertheless all the case studies have shown that a transformation is not possible without strong Leaders in the organisation.

 

Assuming the Leadership mind-set exists in your organisation , then what do Leaders need to do to transform the organisation into a resilient organisation?

 

• Communication, communication, communication: Leaders need to ensure they have the skills to communicate well, fully, and with conviction about the need for change, the urgency, the change vision and the strategy. This is imperative; put time aside in a disciplined manner; you need to lead the way forward not push it through. Communication needs to be constant and use all types of vehicles. Leadership communication is not about an article a month in the company newsletter, it is about using every opportunity to speak about change, discuss change, and champion change.

• Provide communication that is simple and heartfelt
• Understand what people are feeling
• Speak to people’s fears and anxieties
• Clear “junk” out of communication channels
• Use new technologies such as internet, webinars
• Use metaphors, analogies, examples
• Use many different forums, newsletters, meetings, social events, intranet, “in the corridor”
• Repeat, repeat, repeat
• Walk the Talk, show examples
• Explicitly address seeming inconsistencies, “out” them and put them away
• Listen, listen, listen

 

• Understand Leadership qualities, develop them in yourself and others In his 1990 book “A Force for Change: How Leadership Differs from Management”, John Kotter outlines the differences between Leadership and Management:-

 

Management ·         Planning & budgeting: establishing detailed steps and timetables to achieve results, then allocating resources to make it happen. ·         Organising & staffing: establish structure for accomplishing plan requirements, staffing that structure with individuals, delegating responsibility and authority, providing policies and guidelines and creating methods and systems to monitor implementation. ·         Controlling & problem solving: monitoring results, identify deviances, then planning and organising to solve the problems.

Leadership ·         Establishing direction: developing a vision for the future and strategies for producing the changes needed to achieve that vision. ·         Aligning people: communicating direction in word and deed to all whose co-operation is needed to influence the creation of teams that understand the vision and strategy and accept their validity. ·         Motivating & inspiring: energising people to overcome major political, bureaucratic, and resource barriers to change by satisfying basic, but often unfulfilled, human needs.

Produces a degree of predictability and order and has the potential to consistently produce the short term results expected by various stakeholders.

Produces change, often dramatic, and has the potential to produce extremely useful change eg new products that customers want, new approaches to labour relations that help make a firm more competitive.

©1990 John Kotter

 

While the existence of good managers is important and necessary in any organisation, the need for leadership is imperative in any change effort.

 

• The need to focus on your Vision Change is Vision-driven, and the desire of human beings to change is vision-driven.

Therefore be prepared to spend substantial amounts of time in drafting and detailing your vision for the new organisation. You and the guiding coalition must be able to explain the vision at the drop of a hat, to draw examples and analogies from day-to-day circumstances as to why a situation does or does not follow the path of the vision.

 

All decisions – hires, promotions, product development, new procedures must answer in the affirmative to the question: “is this directly aligned to the achievement of the vision?”

 

• Uphold your core values People and organisations have many values that they act on; thou shalt not steal, the customer comes first. However core values are those values which the organisation would never betray. In fact, core values are those that, given the choice, the organisation would rather close down (and people would rather resign) than to betray.

Leadership is all about upholding values. Leaders need to measure their behaviours against the core values, often made explicit by the vision or vision statement, and to walk the talk. Leaders need to explain why behaviours are no longer tolerated while other behaviours are rewarded, starting with their own behaviours.

 

• Use people’s strengths Leaders looking to create a resilient organisation need to use the strengths they have in their people; they need to make resilient people. This means that you need to analyse your team’s strengths and weaknesses as employees and in their functional roles. Training takes a large position on this stage, in order to provide people with soft as well as hard skills.

You will need to look at your HR practices to see if these portray a culture that matches the change vision – are people viewed as assets or commodities? Does the organisation engage its workers or are they merely paid to be present?

 

The challenge today in building a resilient organisation is no different to 20 years ago, although we may apply different tools. The characteristics to develop are still the same, being the ability to face brutal facts, the ability to apply meaning to events and apply core values, and the sense to ritualise innovation. Leaders have to act far more quickly now, than 20 years ago when the pace of change was much slower, and the implications for leadership are immense.