The Square Orange

Structuring Australian Indigenous Business Groups

Australian Indigenous enterprises can be categorised into three main categories:-

1. Those owned and operated by Indigenous individuals or “nuclear” families where profits may be distributed to individuals;
2. Those owned and operated by Indigenous “communities” or larger Indigenous cultural family groups that are operated for the benefit of the whole group and do not result in distributions of profit to individuals; and
3. Those owned and operated by Indigenous corporate and service entities and Native Title Prescribed Bodies Corporate where profits may be distributed back to that particular corporation or service entity or its constituent corporate members such as the previously mentioned “communities”.

The second and third categories may be described as “social enterprises” or “social ventures” whether there is an intention to make a profit as a business, or whether the enterprise is a not-for-profit community service-delivery organisation.

This discussion deals with the structuring of the second and third categories. The first category is clearly a private individual business model and structuring for that category will depend on normal commercial considerations as normally applying to small business, including the application of tax.

The second and third categories are more like a combination of community organisations (that happen to run a business)and  public companies where the structural considerations, apart from any cultural considerations, need to consider the possibility of structuring to take advantage of tax concessions, community involvement, or at least interest in the transparency of governance, the possibility of community interest and possibly interference in management, as well as the more usual concerns of continuity, risk management and business succession, particularly as applying to a large corporate group. Generally these structures are constituted as PBI’s or Public Benevolent Institutions where profits may not be distributed to individuals but are used for the benefit of a group of people.

In our work over twenty years we find that the common issues tend to be:-

• Multiple types of business may be operated across various industries;
• Non-linear growth, where the early years may concentrate on one business and then multiple businesses may suddenly emerge as experience an opportunity reveal themselves;
• The need to funnel profits back to the benefit of the “community for “it” to deal with in accordance with its own goals;
• The probability of employing multiple non-Indigenous or at least “not-connected-to-central-organisation” managers for some or all of the different business lines;
• The need for transparent governance through the group, including clear delineation of management responsibilities;
• The need to encourage and allow participation by community members in key roles, and to mentor community members into management roles;
• The need to protect the central community or organisation and its assets from business failure of an inter-related business;
• The need to build in partnerships and joint ventures with others, whether part of the central group or otherwise;
• The possibility of “hiving off” some of the business elements in future.

In almost all cases we have had experience of, there is a central issue surrounding “ownership” and what that entails, as compared to the legal sense of ownership.

Members of the central community or organisation which owns a business entity do not always understand the Westminster and Common Law issues around the fact that it is the organisation that owns the entity and not themselves as individuals. This misunderstanding is compounded when businesses are placed in separate multiple entities that may have a cascading ownership structure and in such cases the “community” often become frustrated that they are unable to influence the management of an entity at the bottom of the structure.  

In our experience, whatever structures are provided, education and training about this issue is required at the beginning, and throughout the life of the business, alongside training in governance so that those members can be trained to make their voices heard “appropriately” at the meetings of the central organisation rather than those of subsidiary entities.

As a result of our experience, we believe the central principles surrounding any structuring exercise are:-

• Ensuring the businesses are in appropriate and separate entities themselves, so as to “quarantine” effects of any business failure;
• That these separate businesses are owned directly by the central organisation and not by any “trustees” or “nominee shareholders”;
• That where income tax needs to be paid, to register accordingly;
• That there should be a central “Charter” of how Boards of subsidiary entities need to be comprised and how they need to conduct themselves in relation to the central Board;
• That any managers be required to sign employment contracts that include reporting responsibilities to their Boards, which are all of a similar template through the group.

The following is a “template” of a group structure that should be agreed to up front by the central Board so that as any new business activities are considered, the strategy for incorporation and operation is already set.

The Enterprise Holding Entity (“EHE”) should be owned 100% by the Central Organisation (not by members of the Central Organisation as individuals or trustees) so that there is a clearly defined ownership by the larger group and clear profit flows.

The EHE is interposed between the Central Organisation and the entities actually operating businesses so that:-

• There are clearly separate responsibilities of the two different Boards, one of responsibility for all aspects of the central organisation including its enterprises, the other of being solely responsible for enterprise activity;
• There is an interposed “second line of defence” in the case of any business failure and insolvency down the line;
• Accumulated profits can “rest” at this level so that part can be distributed up the line to the central organisation and part can be retained for further enterprise investment, the ratio to be decided as circumstances demand.

As businesses start, they are incorporated into subsidiary entities (herein noted as #1, #2, etc) so that:-

• Each separate business is quarantined from others (and EHE) as well as the central organisation in the event of business failure and liquidation – it is therefore important that cross-guarantees and collateral should not be given;
• Each business entity can have a Board that (perhaps smaller) concentrates only on its responsibility of running that single business and is answerable to the EHE Board for performance;
• Each business can have distinctly separate staff and employment contracts etc as may be necessary if they are in markedly different industries;
• Each entity can be funded separately as required;
• Each entity can be “hived off”, sold, closed, expanded, or partnered/joint ventured with an outside partner/investor without allowing that outside party into the affairs of any other business.

Land assets of the central organisation can sometimes be held in a totally separate non-trading entity. This might be applicable for example in the case of any freehold land that is considered part of the central “estate” that may never be sold. In this case, we believe the best structure is to create a “sister” entity to the Central Organisation but not connected by any ownership, where that land holding entity is owned by all the members in the same way that the Central Organisation is “owned” by the members. There should be no connection to EHE. This sometimes causes issues where the Central Organisation needs to borrow money to fund enterprise as some of this land may be required as security. This needs to be looked at separately should the need arise.

The types of entity that EHE and its subsidiaries should be constituted as, will depend on a case by case review of circumstances. Apart from incorporation as an Aboriginal Corporation under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 – which is often the most appropriate structure for the central organisation – the EHE and subsidiaries may be incorporated as companies limited by guarantee, private proprietary companies, discretionary and unit trusts. Each should suit the requirement for its particular business, position and purpose within the group

Needless to say, any trusts created as part of these structures will need to have separate corporate trustees. This is to ensure control by the EHE is channelled through a Board of Directors in the subsidiary entities, and to provide the appropriate transparency.

The ability of each entity, including the EHE itself, to obtain tax concessions ranging from income tax concessions to deductible gift recipient status to concessional Fringe Benefits Tax status will have to be examined on a case by case basis.

Clearly, a corporate structure consisting of an EHE and multiple subsidiaries under a central organisation could be a recipe for disaster in terms of control and strategic direction. Therefore it is important that before these entities are created, a “Charter” be agreed upon so that as these entities are incorporated, as far as the law allows, the central agreements of the “Charter” are included in the various constituent documents or Constitutions.

 

We believe the following should be included:-

• The constituency of the EHE Board, nominating stated officers of the central organisation Board to the EHE Board, the need of “independent” members, the number and terms of Board members, etc;
• The constituency of the subsidiary Boards, for example that the subsidiary Boards must include x number of members who are also members of the EHE Board, that there are restrictions to the number of Boards one individual may sit on, etc;
• Rules about Chairmanship for example no single individual can be Chair of more than 2 Boards, and Chair of central organisation may not be Chair of any enterprise Board, etc;
• The requirement for all Board members to attend and keep up to date with Governance and Finance Training within a set time-frame of membership;
• The requirement for the subsidiary Boards to report using prescribed template  formats to the EHE Board at set times;
• A minimum ratio of dividends or profit distribution be written into the constitution, subject to waiver by the EHE or central organisation due to the need to establish new businesses or fund capital spending;
• The requirement for Boards to be measured under agreed Performance Measures; and
• The removal of Board members for non-performance.

While it is important that each separate entity be allowed to run their business in the way they see fit, nevertheless, it is equally important that the strategic direction and indeed the day to day operation of these businesses follow the strategic direction set by the central organisation through the EHE, and that common values are being followed. The “Charter” by which the separate Boards operate will help in this.

Further, without limiting the independence of the different business units, we believe that the contracts of the business unit managers need to follow a common template so that all managers employed in the structure follow common goals and measurements. This employment contract template should also specifically spell out reporting and strategic responsibilities such as:-

• They have to prepare Business Plans with Financial Projections using standard templates at the beginning of each year;
• Their Business Plans and models of operation need to follow the general strategic direction and the values set by the central organisation through the EHE;
• They are to provide reports following a group template at set times which will report on matters such as actual to budget and explanations of variances, human resources issues, marketing and business opportunities, and so on;
• Their performance will be measured against agreed Performance Measures.

There could be any number of objectives to be achieved by the central organisation in starting enterprises, ranging from funding its community or charitable activities, increasing economic opportunity for individual members, and so on. It is important to note however that in our opinion, while the EHE and subsidiary businesses should subscribe to the values of the central organisation and operate within its Indigenous culture as well as its corporate culture, they do not have objectives of being a community organisation nor of a charity. In other words they need to be run like businesses (albeit Indigenous businesses that subscribe to Indigenous community culture) that have the objectives of growing the business and investment funds, and making a profit.

As the profits are distributed, what the central organisation does with that profit is outside the scope of the EHE structure and subsidiary Boards and management should not presume to dictate what happens up the line.

Choosing, Implementing and Cascading Performance Measures

Implementing Performance Measures

Determining what to measure can take considerable effort, but it will probably be less than one-third of the total effort required to implement an efficient and effective measurement system. Data collection and processing systems will have to be implemented to produce the measures; everyone will have to be trained in using the systems and measures; and as the measures are used, some problems are sure to be identified that will require changes to the system.

 

Perhaps the greatest challenge faced when implementing performance measurement systems is changing an organisation’s culture. Using performance measures requires managers and employees to change the way they think and act. For most people, this is relatively easy, but for some, changing old beliefs and habits is very difficult.

 

Overcoming such problems requires strong leadership to provide appropriate direction and support. The best measurement system in the world will yield few benefits if the right knowledge, skills, abilities, and values are not developed in a company. An organisation doesn’t just interface with a measurement system; it is part of the system.

 

Developing and implementing effective measurement systems requires leadership, commitment, and hard work. Some investment is required, but it is small relative to the key benefits of a well-designed and implemented measurement system:

· The ability to determine if sales and profit problems are caused by strategies, operations, or both;

· Early identification of problems and opportunities;

· Increased productivity, quality, and customer service;

· A clear understanding of what drives financial and operational performance so resources can be allocated to the areas of greatest return; and

· A cohesive organisation working toward common goals.

 

Cascading Performance Measures

 

Corporate level measures are very important, but they aren’t going to have much impact unless they are cascaded all the way down to front-line employees. The case for cascading is simple: Do you want 10% of your employees working toward company objectives or 100%?

 

With some exceptions, such as market share, what you measure at the top is what must be measured at all levels. However, the specific measures will change with every functional and organisational level because managers doing different jobs need different information to make different decisions.

 

The same methodologies used to develop measures at the corporate level can be used to cascade the measures down to front-line managers, supervisors, and employees. However, as you go down the organisation chart, the focus is on operations or processes. Strategy is incorporated into operational measures by giving more weight to the measures that are strategically important. This communicates strategy to all employees by translating it into operational terms – at the individual level.

 

Key Questions to be answered by Performance Measurement Systems

 

No matter what approach you use to develop performance measures, bear in mind that the objective is not to have a measurement system in itself, but to empower business improvement, and to do so, to enable managers at all levels to answer ten key questions:-

 

1. Are we satisfying our customers?

2. Are we satisfying our shareholders?

3. Are we satisfying our other stakeholders?

4. What is happening to our customer base?

5. Is our company strategy working?

6. Are our individual strategies being properly executed?

7. Are we serving our customers and stakeholders effectively?

8. Are we operating efficiently?

9. Are stakeholders contributing what they should?

10.  Are we developing the abilities we need to  execute our strategies?

 

If all of your managers can readily answer those questions about their areas of responsibility and support their answers with objective numbers, your company has the performance measures it needs. If they can’t, some of the "good" decisions they are making are undoubtedly not very effective - and they may even be harmful.

The challenge of merging two corporate cultures

  

Teik Oh

 

The most challenging change management initiative is the proper management of a successful merger between two organisations. While the actual steps and processes in themselves are not uniquely different or any more complex than any other business reorganisation, the cultural environment in which a merger takes place creates a very different situation.

Unlike any other change management engagement where disparate groups at least work under one singularly identifiable organisation, a merger brings together two totally unique groups with different core values and working environments that need to go through the same change and emerge united. In a merger, while there are usually areas of “fit”, it is unlikely that the deeper indicators of corporate culture such as corporate history and corporate experience will have any but the most remote of matches.

Mergers and acquisition transactions are usually entered into to gain advantages yet the vast majority of these transactions are done with scant thought on how best to maintain the strengths of both parties and indeed to use them to synthesise greater strengths. Accounting models are not the best indicators for merger success; in a merger 2 plus 2 rarely equals 4.

The prime objective of a merger therefore, is to make the sum of the parts greater than the whole, in as quick a time as commercially possible. To achieve this, both soft and hard systems need to be considered, new processes generated, others dismantled. A poorly planned merger, no matter how small or simple (“let’s get together and we’ll work it out as it goes”) will lead to an unmitigated disaster.

Whilst identification of the critical success factors of a merger and planning is fundamental, the merger needs to go beyond the financial efficacies of the transaction and even beyond the perceived advantages of a marriage, into the construction of a post-merger reality.

In any merger, the discovery of a new corporate culture can evolve into one of three results being a balanced integration (rare), a dominant culture and system, or a dominant system with a balanced integrated culture. The planning for any successful merger must at least attempt to achieve either the first or the last, depending on the strengths of each party and in particular the efficiencies of their systems. Based on this objective OTS Management uses a four-stage process to achieve merger success, a methodology we call FitQUICK ™:-

Stage One: Plan Well

All planning needs to be led by leaders of the two organisations, the people who can explain why the merger is taking place, how it fits into the longer term strategy of the combined entity, and the compelling vision of the future that is to come.

Depending on the strength of leadership, this need not be a time-consuming initial phase but it does require a great deal of time to stay “in touch” and on top of the processes. The issue however, no matter how long it takes, is to plan well and plan in appropriate detail. Planning then needs to continue throughout the whole process, but as cultural integration is substantially achieved, more and more detailed planning can be handed over to the integration teams then eventually the functional teams and in time morph into normal strategic planning processes.

Stage Two: Fit Quick

The purpose of Fit Quick is to get both teams and cultures to integrate quickly and feel like one.

If the primary purpose of a merger is to create a greater organisation, then the greatest strengths of both teams need to fit together quickly. The greatest strengths of any organisation rarely lie in systems or even customer lists but usually in their people who are the source of efficiently working systems and the relationships with the customers.

The Fit Quick phase needs to look at:-

• The new vision, brand and corporate culture including value systems and guiding principles (the “how we do it here” elements);
• Staff engagement with the new identity and entity, the one-team reflex (something as simple as weekly pays being converted to fortnightly pays could derail a merger);
• Teams and team structures – analysing and taking the most workable (not necessarily the “best”) parts of both team structures;
• Functional responsibilities – creation of a new and/or blended organisation chart to identify roles, responsibilities and reporting lines in order to clarify “the new way” as soon as possible;
• Analysis of individuals’ roles and where they sit (physically and by responsibility) ensuring people are physically identifiable in discrete integrated groups and the best people to populate the new organisation chart from either party are identified;
• Detailed Human Resources issues such as legacy staff contracts, packages and benefits to equalise to a “norm”.

Stage Three: Work Quick

Whether or not any one set of systems and procedures is more dominant than the other (more than likely) the integrated teams need to be able to work effectively within the new systems and procedures as soon as possible so as to recoup the costs of the merger, reduce inefficiencies and downtime, shorten transition periods, and start to take advantage of the previously identified strengths. The theme of the third phase “Work Quick” is therefore to get both teams knowledgeable about the new (or dominant) systems while integrating the best of the less dominant systems quickly so as to improve overall efficiency.

This phase is best dealt with by creating Merger Implementation Teams in appropriate areas comprised of people from both the merged organisations. These Merger Implementation Teams or MIT’s need to look at each process, procedure and system and decide which to use, how to convert data and processes from one to the other, and then provide recommendations and detailed implementation plans to management. The MIT’s also need to supervise and lead the actual implementation of the revised systems including training and re-training and data and process transfer.

In many areas decisions can be made swiftly, particularly where there are dominant systems. However where necessary it is important to take the time for some detailed analysis to ensure that the best of both are considered and integrated.

As the MIT’s recommended best practice systems may include parts of both the merged organisations, the Work Quick phase needs to identify local “experts” as points of referral to the “new people” who are new to the adopted systems. In this phase product experts need to be revered and supported.

Stage Four: Grow Quick

The fourth phase usually commences some time after the merger, allowing Fit Quick and Work Quick to establish some ground rules and identifiable results, and quite frankly, to allow some emotion to settle, in what is likely to be a stressful period. Obviously, not too much time must pass since the primary purpose of any merger is to “be better, be larger, be more competitive”.

The theme of Grow Quick is to leverage the merger to, firstly, keep the combined customer base, then to expand it, increase sales and grow profits, outcomes that will achieve the real advantages of the merger. This phase needs leadership at the highest levels of the integrated organisation, usually at senior executive level. This phase will require concentrated focus on the strategic objectives of the merger and the compelling vision of the new entity. For this reason, the senior executives who conceived of the merger, its advantages and the vision will need to lead from the front. Often, executive management identify the solid and real reasons to merge, but then expect the merged organisation to automatically realise what those often subtle advantages mean and follow through almost by accident.

As in all organisations striving for best practice, the people with the vision need to talk about it, communicate and explain what it means; bringing others along with them by the strength of the compelling vision.

Looking towards the immediate to medium term future in Grow Quick, the areas that need to be designed in congruence with the vision are:-

• Comparative selling prices and cost structures;
• Strategic marketing planning;
• Advertising and external branding;
• Vision and internal branding, the Unique Selling Proposition;
• Integration of divisions, sales teams and manufacturing teams and locations, physically moving people from both organisations around where necessary so that there is a mix of people servicing a mix of previously separate customer bases;
• Grow new service lines, products and service capabilities using the synergies of the merged organisation.

Conclusion

In working through the four phases, organisations are put well on their way to a successful merger. However two key steps need to be reiterated. The first is to ensure that there is an agreed Vision for the new entity, one that is compelling, engaging and sufficiently quantified to be the central pillar around all strategy and integration. The second key step is selecting the right person or people to lead the overall implementation and the Merger Implementation Teams, and to track the execution. The mergers that do best tend to have such leadership.

Clearly, with proper planning and the right people it is possible to avoid the pitfalls and close a successful merger initiative.

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.

 

Tried Direct Marketing?

  In these recessionary times, business owners beat a retreat. SME owners look at cost savings, financial controls and expenditure. However if this is done in isolation, that is, if you rush to control costs without also looking at the top line, your bottom line will start to shrink anyway!

The other unquantifiable cost is, if you withdraw into a cost-saving shell, what happens to your business goodwill? How will you be seen by your customers? Is that affecting your brand? As you cut expenses, without looking after your market, perceived services may suffer. When the good times roll again - and they will - are you going to be ready to take on the competition again or will you be behind the 8 ball rebuilding your reputation and name-recognition?

Counter-intuitive as it is for SME owners in a period of financial slow-down, SMEs must continue marketing efforts. "Marketing" is not only "advertising" which is what SME owners think when they think of marketing. In fact, advertising may be your least effective marketing cost in a shrinking economy.

Effective marketing is the type of marketing that gets your name out there with its "brand" attached in the most cost-effective way. This can be added-value service, it can be increased contact with customers - this type of marketing can include less-cost or no-cost vehicles.

Direct marketing is not necessarily no-cost but a large part of the effort can be at low cost. It is an effective means of keeping your name open to customers, established and new, and it can be measurable.

There are four keys in a successful direct marketing campaign.

First is timing. When should you do it? You need to consider what exactly you want to market and then target the right time depending on your target market. For example if you were a financial planner with a loan brokerage arm, you can direct market at least three aspects of your business - refinancing client loans, reviewing longer term investment objectives to see if they are still relevant today, and reviewing insurances to cover spouses should the worst happen. All three can be timed now - your target market, worried about how they are dealing with their existing loans or if their retirement plans are still valid, would wake up if approached on these offerings. However you would not market your new loan services right now - keep them and time them for when the market turns and people look forward to borrowing again.

The second key is to phrase the offer well. Do you know what is the difference between your sales proposition and your offer? Again you need to examine your target market to see what offers appeal to them today. Project home builders need to offer value added services, especially to tap into government stimulus packages. Their sales propositions about "being the best" or "guaranteeing their work personally" are less important today. They can rephrase their offer to include items or services that people in a value-for-money frame of mind want today.

The third key is the look and feel of your direct mail. Should it be a mail-out? A letter box drop in a specific area? How about via a social networking website? Direct e-mail? Guess what - again, look at your target market. Then, you need to consider the format of the direct mail - it should be targeted at the people you are trying to reach, not a general advertisement format.

The final, fourth key to successful direct marketing campaigns is the database. How should you segment your market? How should you pitch offers and layouts at different markets. What are expected response rates, and what systems do you have in place to receive interest as well as follow up. I have been at the receiving end of a direct mail campaign which dealt with the first three keys really well, attracted me to the product. But then when I called to follow up, I was greeted by a receptioninst who had no idea what I was talking about! Talk about brand destruction.

So in summary - don't sacrifice effective marketing to cost-cutting. Think about what you want to say, who you want to say it to, and get out there. As your competition cut costs, your opportunities beckon.

Recession Proof Your Business

Is this possible – to recession-proof your business?  Well no, probably not despite the wealth of articles about how to do so appearing on the internet (about 614,000 hits on Google).

 

However, what is possible is to secure your business as much as is possible by following a series of simple and common sense business strategies.  These strategies are no different from strategies you should employ under normal circumstances, but which application is much more acute in today’s economic climate, and with a different emphasis required.  Sadly when times are good, businesses allow themselves to get “fat” and some of these every-day disciplines are allowed to slacken.

 

The strategies can be grouped into defensive and offensive strategies.  As you look at your business performance it is likely that you will find profit performance heading south, and with the economy looking the way it is, it is difficult not to panic and begin to tighten all the hatches.  However you can tighten too much, to the extent that your business finds it difficult to operate normally.  Hence, while it is natural to concentrate on the defensive strategies such as cutting costs, it is important to keep in mind the offensive strategies – those that your business should take to ensure that you are the one in your industry that keeps selling when others are closing down.

 

Let us deal with the defensive strategies first and get them out of the way.  There are six simple strategies that you need to look at and with some discipline, enforce them.  These are:

 

1. Control your inventory

2. Retain your cash

3. Keep your receivables flowing

4. Cut your costs

5. Review your borrowing

6. Increase efficiency

 

First, control your inventory.  If you do not know, find out immediately which lines of stock turn over quickly.  If you do not already know find out immediately the number of days’ each lime of stock takes to turn over.  Calculate economic order quantities (EOQ) for each line of stock – this is a function of cost, time taken to receive an order from your suppliers and the time taken to turn over stock in hand.  Ensure you are only carrying EOQ’s in hand as otherwise you may be sitting on your profits.

 

  Second, retain your cash.  Ever heard the phrase “cash is king”?  Where assets such as stock and capital growth investments or even plant and equipment may have been good investments in times of growth, in times of recessionary influences, cash in hand is useful to take advantage of opportunities, save costs and make rainy day decisions.  The other 5 defensive strategies will help you retain cash, however the most important strategy is to keep focus on cash and cash transactions – how much does stock cost? Can you find a cheaper supply? Are discounts available? Are you carrying excess plant and equipment that can be sold?

 

Third, keep the receivables flowing.  Ensure that you are in constant communication with your customers, not only for offensive purposes as discussed later but certainly to be aware of their trading conditions. Do not get caught out by customers closing down while owing you money.  Review your credit policies and ensure that they are followed.  As soon as debts become overdue, call them and find out why.  Offer discounts for early payment (without allowing margins to suffer significantly).  Be prepared to cut customers who are using you as their bank.

 

Fourth, cut your costs.  Review all your expenditures and ask yourself if any savings can be made.  However a word of caution here!  The answer must be in the light of maintaining trading positions.  It may be clear that you can save costs by reducing telephone lines from 6 to 4, but if your business needs constant telephone contact with customers and all 6 lines are constantly lit up, reducing this cost merely restricts your trading model.

 

Fifth, review your borrowing arrangements.  Most businesses have a medium term relationship with their bankers and financiers, that is, they arrange a loan, lease or hire purchase contract and then fail to communicate with their bank until it is time to renegotiate.  Instead, you must keep your lines of communications with banks open.  Ensure they receive financial reports from you on time, develop a relationship with your bank manager so that they know how your business is travelling.  At the same time, review your arrangements – they may have been made some years ago when interest rates were high.  See if borrowings can be refinanced or renegotiated.

 

Finally, the sixth defensive strategy is to increase efficiency.  When time are good this is usually allowed to slip, particularly as too few businesses measure efficiency.  How do you measure the efficiency of a retail business or a medical practice?  Surely it is much easier to measure efficiency in a manufacturing business or a law firm that keeps time sheets?  It may be easier but it is not impossible to measure efficiency of any business.  You can measure the efficiency of staff, of processes, of equipment.  In a retail business how many customers do individuals serve a day?  How long is a consult in a medical practice?  How long does it take you to receive an order and send it out?

 

I started this article by saying that there are both defensive and offensive strategies that you need to look at.  While we have dealt with defensive strategies first to get them out of the way, it is not defence that will create a strong impression in the minds of the people you need to help you survive the recession – your customers.  In order to clearly put your business in their minds and therefore seek their support through steady sales, you have to go on the offensive.

 

Offensive strategies need not be costly, which is the fear of any business person in a defensive mind-set.  In fact all the offensive strategies discussed here can be implemented without increased cost, by focusing on what you already do but doing it better, or by switching unproductive spending towards outcome-focused expenditure.

 

There are 6 offensive strategies you cannot do without if you want to survive the recession, and not just survive it but exit in a state ready to grow from the first opportunity:-

 

1. Increase marketing efforts

2. Focus on customer service

3. Diversify

4. Invest in winning employees

5. Innovate, innovate, innovate

6. Create partnerships

 

The first offensive strategy is to increase, yes increase your marketing efforts.  The worst possible thing you can do when there is increasing competition for your customer’s dollar is to reduce marketing.  As you reduce marketing your market forgets you.  And be quite aware, marketing is not “advertising”!  Low cost or no cost ways to increase marketing may involve “inbound marketing” on the web through your website. Build a better website, increase search engine optimisation, use social networking sites such as You Tube and Facebook.  One of the most effective means of cost-effective marketing is simply doing what you do well but doing it even better, and ensuring customer service is tuned to 100%.

 

This leads us to the second offensive strategy of focusing on customer service. Do not allow your customer to forget you.  When you are face to face, smile, ensure you are listening to their needs, thank them as they leave whether or not they have bought something.  Keep up contact with them, call them after they have bought something to see if they are happy with the product and the service, offer after sales service and “frequent buyer” programs.  Give them value-added service without it costing you much more – faster delivery times, wider selections.

 

The third offensive strategy is to look to diversify.  Once you have measured your stock turn  (defensive strategy number 1) look to increase products and services with selections that meet real needs.  Firstly, see if any products or services related to the ones you sell now are more appropriate in tighter economic times – appliances that cost less to run, financial reviews by investment advisors, provide “packaged” services.  Second, look at products and services that competitors are exiting from, especially where these leave demand unsatisfied.

 

The fourth offensive strategy is to invest in winning employees.  While it is true that at all times we should look after our best employees, when we are busy and our sales is going through the roof, it is easy to allow the odd non-perfomer to slip through simply because we need the extra hands.  Some of these non-performers may have been weeded out as you went through defensive strategies to increase efficiency and cut costs, but you now need to turn your attention to the winning members of the team.  In many businesses, these are your first contact with the customer.  You need to recognise and reward winners to ensure they stay with you, keep performing, and where necessary, pick up some of the slack from the losers.

 

Innovation is the fifth offensive strategy, and so important it has to be named three times!  As much as marketing and customer service, innovation will keep you in the minds of the customers.  Innovation may take the form of innovative customer service as well as in products and services. Use the latest technology to get your services or goods to market faster; use technology to keep in touch with customers through e-mails and blogs; use innovation to improve processes.

 

Finally the sixth offensive strategy is to create partnerships.  As businesses wind down, supporting one another is a good way to keep head and shoulders above the competition.  Offer cross-selling with related or nearby businesses.  For example, get together with the local restaurant and offer a dinner for two for every purchase above $200 (and the restaurant can offer a small gift collectible from your store for every bill above $200).  On the other hand if you are a clothing retailer you might get together with a local shoe shop and offer discounts for a matching pair of shoes (and the shoe shop can return the same discount offer).

 

So, can you recession-proof your business? There is no guaranteed method but the implementation of simple and low cost strategies can increase your chances of survival, and more importantly ensure that when the recession ends, which it certainly will, you have not only survived but are ready to leap ahead.

Happy New Year - Start Planning

It’s the start of the new year for business, the start of a new tax year, but even more important, the start of a new business year.

While it is important to “re-set” your tax systems and tax plans for the year ahead, consider why you pay taxes. Taxes are paid on profits, and the ultimate tax plan is to simply make losses – however, not a great plan for your business and personal wealth! So, while we would all like to keep the Taxman at bay, ultimately the secret of your success is to make your business grow.

It is an old adage: “businesses don’t plan to fail, they fail to plan”. Yet time and time again surveys show that fewer than 3 to 7% of small and medium businesses that fail have ever done any business planning.

The start of a new business year is the best time to start a business plan. You can “close the books” and think about new initiatives and ideas about your business. It is the business equivalent of making your New Year resolutions, but with a better process that can lead to follow-through and organized action.

A Business Plan is simply a detailed plan of listed actions for your business.

It takes your strategic direction, your overall organisational goals and strategies and lays out the tactics of how to achieve those strategies and thus the goals. It is a document that ensures everyone involved in your organisation - owners, workers, suppliers, advisers - are all stepping in the same direction.

In most cases, you will need help to prepare your Business Plan from an experienced business adviser. This is because an experienced adviser will have a process that is tried and tested to walk you through a series of analytical and dispassionate steps to examine your business and desired direction, and translate it into plans. However, your Business Plan should be your document. It should not be prepared for you, it should be prepared with you.

Your strategic direction is what you are ultimately trying to achieve, your Vision for the business. From this will flow your Organisational Goals and Strategies, and from these will flow the Operational Plans for your business.

There are 5 Operational Plans:-

·          The Marketing Operational Plan

·          The Production Operational Plan

·          The Operations Operational Plan

·          The Human Resources Operational Plan

·          The Finance Operational Plan

Operational Plans are the detailed steps you will take in each operational area of your business in order to achieve your stated goals. That is why it is important to continuously align the detailed steps with the expected results to see if each part of your business will help you get to the Big Picture.

The Marketing Plan will look at your markets and customers, identify who you want and what you are actually selling to them, and what you need to do to get them.

The Production Plan will look at the way you “produce” - whether this is manufacturing, retailing or providing a service, there are processes your coal-face staff follow.

Your Operations Plan looks at your systems and infrastructure, including support systems such as business advisers, accountants, lawyers.

Your Human Resources Plan looks at your most important resource - what are their skills and abilities,

what skills and abilities you actually need, your organisation chart, accountability and performance measures.

Your Financial Plan pulls all the Operational Plans together and quantifies them. It looks at forecasts and cashflows, capital requirements and financial measurements.

It is worth stating again that a successful plan aligns all the detailed action towards the strategic direction. Say for example you plan for and prepare your staff performance measures piece-meal without consideration of the strategic direction. Your performance measures might reward the number of hours the staff charge to their timesheets. However how will this affect your strategic direction that may rely on fast outcomes? The staff are being rewarded for working long hours without measurement against outcome speed. Hence once the operational plans are written they need to be reviewed against the strategic direction.

Ultimately, what is a Business Plan but a written document? In order to make it work you need action. The Business Plan process must include an Action Planning process where each Operational Plan, each step and decision in an Operational Plan, has a series of Action Plans embedded. These Action Plans serve as reminders of the day to day actions required to implement the Business Plan. They highlight negotiated responsibilities, set out what is expected when the action is complete so that everyone can measure success, and they nominate agreed timelines for completion. Where necessary, additional resources are detailed so that people are not set up to fail.

After the intensity of the work required to prepare the Business Plan, despite the best intentions, you will go “back to work” where you will get caught up in the everyday problems of the business. In that situation it is not hard to “forget” what you are supposed to be doing according to the Business Plan you so earnestly believed in just weeks ago. This is where the secret of following-through needs to be implemented and that secret is a Monitoring & Evaluation system built around teamwork and peer reviews. It must not be a punitive system but a system of support and team responsibility.

Effective Meetings

Your meeting should be an event that produces results or outcomes and not the "process of meeting." Things need to get accomplished. To improve the results of a meeting, begin by defining and improving the meeting process and people's commitments to it.

According to a study by the University of Southern California in Los Angeles (as cited in Forbes, 10/25/93)

• The average meeting takes place in the company conference room and 11 in the morning and lasts an hour and 30 minutes.
• It is attended by nine people -- two managers, four co-workers, two subordinates and one outsider -- who have received two hour prior notification
• It has no written agenda, and its purported purpose is complete only 50% of the time.
• A quarter of meeting participants complain they waste between 11 and 25 percent of the time discussing irrelevant issues
• A full third of them feel pressured to publicly espouse opinions with which they privately disagree. Another third feel they have minimal or no influence on the discussion
• Although 36% of meetings result in a "complete" resolution of the topic at hand, participants considered only one percent of those conclusions to be particularly creative.
• A whopping 63% of meeting attendees feel that underlying issues outside the scope of the official agenda are the real subjects under discussion.
• Senior executives spend 53% of their time in meetings, at an average rate of $320 per person hour.

Some Steps:-

1. Clarify The Meeting Objective

The team begins the meeting by ensuring that people understand and agree on what is to be accomplished. Objectives include both the content of the meeting and the specific process objectives, such as improving participation, gathering initial ideas and listening to others.

2. Review Roles of Participants

Confirms who will be taking on specific roles for the meeting and what their roles will be. These can include: leader, team members, recorder, timekeeper, and facilitator.

3. Review the Agenda

Each agenda item includes the methods (e.g., brainstorming, mind mapping, cause and effect tools, fishbone diagrams, system thinking, roadblock analysis process, etc.) to be used for that item as well as the amount of time to be devoted to each.

4. Work Through Agenda Items

There may be one or several items for a particular meeting. The team works through them in an organized manner, using the methods and the time frame decided upon in step 3 above.

5. Review the Meeting Record

Team members should review information recorded on flipcharts during the meeting to refresh their memories about what has occurred in previous meetings along with what has been decided. The team should check for corrections or additions to these meeting records and decide what information needs to be kept in the team's permanent transcript. In many organizations, these are included in formal knowledge management databases and archives. Try to add to the Learning Organization focus, if applicable.

6. Next Steps and Next Meeting Agenda.

By the end of the meeting, the group should discuss what needs to be done based on the results of this meeting and the start of the next. Often, there are multiple steps and tasks needing followup or planning. Agree on the work that needs to be done next in order to advance. Clarify if necessary and complete the transcription of the goals, summarizing commitments.

7. Evaluate the Meeting

Team members should take a few minutes to discuss:

* What went well that we should continue doing?

* How could we improve the next meeting?

Meetings are part of the improvement and communications process. They should be tied to long-term learning objectives and organizational development initiatives. They can serve many useful purposes (but sometimes do not!).

Investment Property - Expenses not allowed as a claim

In a recent decision, the Administrative Appeals Tribunal (AAT) partially disallowed rental deductions on the grounds that the property was purchased for use as a residence and not as a rental property.

The applicant owned a rental property in Sydney for which he claimed rental deductions totalling over $400,000 between 2001–2003. All of these deductions were offset against total gross rent of $14,700.

The deductions were claimed on the basis that the property was available for rent during the entire period, however the property was only rented for 30 days each year in the 2001 and 2002 years, and for 8 out of 91 days in 2003.

The Commissioner argued that as the property was only rented for 8.2% of the 2001 and 2002 years, and 8.8% of 2003, the taxpayer was only entitled a deduction based on the proportion.

The AAT agreed with the Commissioner’s assessment, and held that the expenses incurred by the applicant should be apportioned because:

·         the applicant admitted that he purchased the property to make a capital gain;

·         based on the evidence, the property was only partially used by the applicant for the purpose of gaining assessable income by way of rental; and

·         there was no evidence that the apartment was used or available for use at any relevant time by anyone other than the applicant.

Ø  Tip: where a taxpayer has a rental property as an investment, they must be able to demonstrate that the property has been available for rent for the whole of the income year. If the taxpayer cannot demonstrate this, it is likely that the rental deductions will be apportioned on a use basis.

Investment Deductions Denied!

In a recent decision, the AAT considered whether the anti-avoidance provisions applied to a joint venture investment in a quarrying operation where a taxpayer claimed deductions of over $100,000 in his 1998 income tax return.

The taxpayer claimed that he entered into the investment because he wanted to diversify his investment portfolio, and was attracted to riskier investments. After consulting with his accountant and reading the prospectus, he decided to invest in the project.

Towards the end of June 1998, the taxpayer signed several documents, including an application form for the purchase of five units in the project, a loan indemnity agreement and a loan agreement. He then claimed deductions in relation to the investment.

The AAT held that the joint venture itself was not entitled to claim a deduction for expenses incurred, and the deduction was denied as the activities carried out were too preliminary to the gaining or producing of assessable income. As the joint venture was not entitled to the deduction, the taxpayer was not entitled to a deduction for his share of the loss. 

The AAT also considered the application of the anti-avoidance provisions. It held that as the taxpayer was not entitled to a deduction, the taxpayer did not obtain a tax benefit to which the rules could apply.

However, the AAT then went on to consider if the rules could apply assuming a benefit arose. It held that based on the preliminary nature of the activities undertaken, it could be concluded that the scheme was entered into in order to obtain a tax benefit.

How Home Office Expenses are Apportioned

In a recent decision, the AAT upheld the Commissioner’s decision that a deduction for home office expenses should be apportioned on a floor area basis.

A taxpayer operated its business activities in an office in one of the front rooms of its directors’ main residence, and used this room exclusively for business purposes. For the years ended 30 June 2003, 2004 and 2005, the taxpayer had claimed 50% of the property related expenses in its income tax return.

The taxpayer held a 50% interest in the property and the remaining 50% was held by both directors as tenants in common. The directors, along with their children, used the property as their main residence.

The taxpayer argued that since it had a 50% ownership interest in the property, it was entitled to 50% of the deductions. It argued that its use of the property did not fall within the category of a ‘home office’, which would limit the availability of deductions to a use basis.

The AAT rejected the taxpayer’s arguments and affirmed the Commissioner’s decision, which provided the expense should be apportioned on a floor area basis entitling the taxpayer to claim 10% of the occupancy expenses.

Tip: where a taxpayer is working from home or operating a business at a private residence, careful consideration should be paid as to whether the home is a place of business or a home office.

Tax Office warns of E-Mail Scam

The Tax Office has released an announcement warning taxpayers that a fraudulent email is being circulated that claims to offer a refund from the Tax Office.

Taxpayers are warned that the email fraudulently uses the Tax Office logo, and contains subject lines of: ‘Australian Taxation Office — Notification’ or ‘Australian Taxation Office — Please Read This’.

The email asks people to click on a link which sends them to a bogus website. This website will ask taxpayers for credit card and personal details in order to receive a refund.

Greg Farr, acting Tax Commissioner, explained that anyone who receives the email should delete it immediately.

The Tax Office has asked all taxpayers to type internet addresses directly into their internet browser rather than clicking on hyperlinks attached to emails.

A new way of serving our clients

At OTS Management we are constantly looking at new ways to provide services. The culture we encourage is one where we are not embarrassed at making mistakes, where we take them as learning experiences, and where we are not embarrassed at making an apology as long as we have a new and better way to service our clients.

In completing the 2007/2008 year we realsied that we were faced with something that many industries will face for the foreseeable future - a shortage of human resources at the right times and at the right levels of experience. We realised we had to compensate for this and for some time now our hiring policies have been based on three questions we ask ourselves at staff interviews:-

• Can they do the job?
• Will they do the job?
• Will they do it here?

The third question is the hardest to answer at interview and yet it is the most important because while you can train someone you cannot make them "fit in" and fitting in, we think, is the key to providing the best service for our clients, because then, all our staff will believe in the culture of giving our clients what we would want given to us.

While we are very satisfied with our staff this year in both ability and service culture, nevertheless our human resources are finite resources with a finite number of working hours. We have calculated our "capacity" and have planned to use it effectively next year.

The next issue we found in our review of the year was that the efficiency of our work suffered when we started a job and then had to put it down due to missing information. This would lead to a lengthy series of delays as we stopped, requested more information, restarted, then got stuck and requested more information, In between if the information took time to get to us it caused more delays. As we restarted jobs we would also have to take time to "get up to speed" again, remembering the points in our work processes we had completedhalf-completed, and not quite got there. This meant delays in getting the work back to clients as well as increased costs.

Finally we also found an issue where clients brought in their books only when the deadlines were approaching. This meant, very simply, bottlenecks. While we deal with our clients on a one-to-one basis, it appears (and we want it to be true) that for that time, they are our only concern. However this is patently not true if 30 clients bring their books in at the same time each expecting then at the end of the week - when we only have man-hours to do 10 sets of books in a week!

Imagine a factory-line that can manufacture 100 cars a month at full capacity. If the car salesyards have done a great job and obtained 200 orders that month, some people will have to wait!

Putting all three aspects together we have come up with a new way of serving our clients.

Firstly, having identified our monthly capacity, we shall be making requests of clients to bring in their expected work at certain times of the year, thus matching the "orders" to our capacity. In this way we can work on your affairs efficiently and exclusively during the nominated period. If on the other hand, an individual client may not be able to meet our timed capacity, or if they need the work for a different deadline, we shall try our hardest to reschedule to meet their needs. In order to cater for "emergencies" anmd urgent and unexpected jobs, we are scheduling our staff capacity to 75% and allowing 25% of the time to cater for these unpredictable tasks.

Naturally we need the teamwork and co-operation of our clients. If they bring in their work later than scheduled without letting us know there may well be delays in completing it.

Secondly when we write to clients to ask for their expected work at the stated times, we shall also be providing them with checklists for each of their entities. This will help remind them of what we need to do our jobs efficiently and effectively, avoiding the delays of the stop=start approach.

We believe this will be an improvement to our response times and will only improve with the years.

To us, it is always important to meet the needs of the client and if we have not been able to do so in the past we must look ahead to do so in the future.

Tax Planning

Put simply, tax planning is the arrangement of a taxpayer’s affairs so as to comply with the tax law at the lowest possible cost. A common mistake is to believe that tax planning is optimised when every opportunity to reduce tax is taken. This is because some opportunities to reduce tax rely on strained interpretations of the law. Therefore, tax planning involves much more than taking the option that at first appears to result in lower tax costs. It involves objectively assessing and actively managing tax risk.

Common tax planning techniques that can be deployed are deferring the derivation of assessable income and applying techniques to bring forward deductions. These techniques are discussed below.

It is important to realise that consideration may also need to be given to the general and any relevant specific anti-avoidance measures contained in the tax law.

Deferring assessable income

·         The timing of when business income is derived depends on the method which a taxpayer uses. Depending on the nature of the business, income can be reported using either the cash or accrual basis. If the taxpayer is reporting income on an accrual basis, the income is assessable when a recoverable debt is created. If the taxpayer is reporting income on a cash basis, the income is assessable when it is physically received or applied on the taxpayer’s behalf. However, an exception exists for income received in advance of services provided.

·         If income is received in advance of services provided, it will not assessable until the services are provided. However, the accounting records of the business must classify the unearned income separately from income already earned.

·         Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.

·         Interest, rental income, dividends and royalties are not assessable until received (or otherwise paid or credited on the taxpayer’s behalf).

• Generally, trust distributions are assessable in the year they are declared, notwithstanding the Commissioner’s practice which allows a trustee up to two months after the end of the financial year to distribute the trust’s income.

Maximising deductions

·         An entity’s debtors may be reviewed prior to year-end to identify and write off any debts which have gone “bad”. A bad debt can qualify for a deduction subject to certain conditions being met.

·         Certain business-related capital expenditure may be deductible. These expenditure include: establishment of business premises, research into likely markets or profitability of a business, due diligence reports, and liquidation and deregistration costs for a business. 

·         Consider writing off any depreciating assets which are no longer being held for use because a deduction may be available.

·         Review the asset register to identify any low-cost and/or low-value assets that may be pooled together to access an accelerated rate of depreciation.

·         Non-business taxpayers are entitled to an outright deduction for assets costing $300 or less, provided certain conditions are satisfied.

·         Business taxpayers are entitled to an outright deduction for assets costing $100 (GST inclusive) or less.

·         It is the GST-exclusive value of a depreciating asset that is used in calculating the depreciation, regardless  of whether entitlement to input tax credits has been claimed.

·         If an entity has carried forwarded losses, identify whether any net exempt income has been derived for the income year. Carried forward losses will need to be firstly offset against the net exempt income before being available to reduce any assessable income derived during the income year.

·         Try to avoid making a donation in a year of losses. This is because a deduction for a donation cannot add to or create a tax loss.

·         An entity that has been classified as a small business entity may consider choosing to apply the simpler depreciation concessions, which will provides an immediate deduction for assets costing $1,000 or less (GST exclusive), and accelerated rates of depreciation.

·         Trading stock can be valued at replacement value, market value or cost. The method does not need to be the same for each category of trading stock, therefore maximising deductions.

·         Taxpayers may review their closing stock to consider whether any obsolete stock exists to obtain a deduction. 

·         If an entity has previously elected to use the trading stock concessions available to former Simplified Tax System (STS) taxpayers, consideration may be given to conducting a proper stocktake. 

·         Employers should ensure that superannuation contributions are paid to their employees’ superannuation fund prior to 30 June 2008 to obtain a tax deduction and avoid any superannuation guarantee charge.

·         A personal superannuation contribution is available to taxpayers if less than 10% of their total assessable income and reportable fringe benefits is derived from their employment.

Deemed dividends and private companies

·         Certain loans, payments and forgiveness of debts by private companies to their shareholders and associates can give rise to unfranked dividends, which are assessable to the shareholders and associates. Try to repay any loans or payments by the earlier of the actual lodgement date or due date for lodgement of the company’s return for that year. Alternatively, appropriate loan agreements should be in place.

·         Review whether a trust has an unpaid present entitlement to a corporate beneficiary. Potentially, an unfranked dividend (from the company to its shareholders) can arise. Try to repay any unpaid entitlement to the corporate beneficiary by the earlier of the actual lodgement date or due date for lodgement of the trust’s return for that year to avoid an unfranked dividend from arising.

Personal services income

·         If an individual applies personal efforts and skills in performing services for third parties through an interposed entity (company, trust or partnership), the personal services income rules may instead deem the individual to be assessable on the income generated, unless one of the required personal services business tests is satisfied or a determination is obtained from the Tax Office.

·         Identify any unusual circumstances that will prevent the tests from being satisfied. A determination will be granted only if there are any unusual circumstances.

Non-commercial losses

·         A loss from an individual’s business activity (whether carried on alone or in a partnership) may only be offset against other income derived in the same income year if the business activity satisfies at least one of the four commerciality tests or a determination has been obtained from the Commissioner. Consideration should be given to the relevant tests, as the individual’s overtax position will be impacted when the loss is deferred.

Small business entities

·         Consider whether an entity satisfies the requirements to be classified as a small business entity. A small business entity can access various tax concessions, such as the simpler depreciation and trading-stock rules. (The small business entity regime replaced the STS from 1 July 2007. The definition of a small business entity is broader than that of an STS taxpayer.)

Companies

·         Ensure that all distributions to shareholders during the franking period are franked to the same extent to avoid a franking deficit tax.

·         A private company has four months after the end of the income year to provide its shareholders with a distribution statement for dividends paid. In effect, the company can retrospectively correct any overfranking or underfranking of distributions.

Trust distributions

·         If a trust has derived capital gains and the income and capital beneficiaries are different, consider whether an election needs to be made to avoid the anomaly if the former will be taxed on the capital gains rather than the latter.

·         The trustee distributes the accounting profit, and not the taxable profit, of the trust.

·         It is the Commissioner’s practice that a trustee has up to two months after the end of an income year to distribute the previous year’s net income. (The distribution is still assessable in the previous income year.)

·         If a trustee is distributing income to a minor (i.e. under 18), the minor can receive up to $1,667 in non-taxable distribution.

·         If possible, consider distributing all the income of the trust to its beneficiaries. Income that is retained in the trust will be taxed at the 46.5%.

·         If a company is owned by a discretionary trust, consider the necessity for the trustee to make a family trust election to ensure any losses or bad debts incurred by the company will be deductible.

·         If shares are owned by a discretionary trust, consider the necessity for the trustee to make a family trust election to ensure any franking credits attached to the dividends will not be “wasted”.

·         If a family trust election has been previously made, try to avoid distributing outside the family group to avoid any potential liability to the family trust distributions tax.

Capital gains tax

·         Consider crystallising any unrealised capital losses in the income year if you are anticipating a significant capital gain.

·         Consider deferring the disposal of shortly-held assets. If an asset is held for at least 12 months, a 50% CGT discount may be available to reduce any capital gains.

·         Consider whether a rollover relief is available to defer any capital gains.

·         Consider the availability of the small business CGT concessions which can disregard, reduce or defer a capital gain arising from the disposal of an asset which has been used by an entity in the course of carrying on its business.

·         Review any expenditure incurred on an asset to ensure maximising the cost base of the asset.

·         If a significant capital gain has been made, an eligible taxpayer may consider contributing some or all of the gain to his or her super fund to reduce the tax payable. This is because a deduction is available for personal superannuation contributions.

Salary sacrifice arrangement

·         Consider entering into a salary sacrifice arrangement with your employee for the coming income year, particularly since the repeal of the superannuation surcharge. Salary sacrificing part of your cash salary for non-cash benefits can potentially reduce your income tax liability and result in a better net cash flow.

·         If you are expecting to derived bonus and/or commissions prior to the close of the income year, consider salary sacrificing these amounts to reduce your tax liability.

Superannuation strategies

·         Consider splitting concessional superannuation contributions with your spouse to receive your combined super balances in a more tax-effective manner.

·         Consider entering into a salary sacrifice arrangement with your employer to forego part of your cash salary into superannuation. This potentially can reduce your income tax liability and increase the level of savings in your superannuation account.

·         Eligible taxpayers who make a personal contribution will receive the Government’s superannuation co-contribution.

·         If permissible, consider moving assets into a superannuation fund because of the lower tax rate.

OTS Management now uses Banklink

One of our core-values is being open to change. By this we do not mean simply change for the sake of change, but this core-value means that we are pro-actively seeking new ways to do things that would help efficiency and client-service, and in particular provide added-value for our clients.

As part of this constant search for efficiency and value we have researched the services of Banklink, and have now signed up with them so as to be able to provide our clients with a better accounting service if they in turn wish to use the Banklink service now available through us.

The Banklink service is particularly useful for clients who do not have computerised accounts like MYOB, or even if they do feel that they are operating them inefficiently or simply would rather not have to do it!

Once you ask us to sign you up for the Banklink service, your bank is authporised to send us an electronic copy of your relevant bank statements (you still do your banking the way you do it now and receive your normal copies of your bank statement). This is an electronic copy that "talks" to our accounting software so that we can code your transactions directly from the statements.

Naturally we will still need your help - we do not know for example what a cheque payment maty be for. To get this information, at agreed times whether monthly, quarterly or other agreed time, we send you a Banklink Coding Report for you to enter, in plain English, who you paid and what for. The beauty of the system is that if you make regular payments, say to "Joe's Supplies" and you tell us that those payments are always for "Repairs", then Banklink will remember that and automatically code that next time you tell us a cheque was for Joe's Supplies.

Security is paramount - the electronic statements are sent to our secure server accessible only by our staff. At no time do we ever have authority to conduct transactions at your bank.

As for the cost - how's this, it's free!

Yes, it will cost you no extra to sign up with Banklink because we believe we will absorb the cost of the service in your accounting fees through efficiency. However we may negotiate a monthly fee system with you. This is an advantage to you as well - for no increased cost, we can provide you with periodic service in accounting, and at the end of the year you have smoothed out your accounting fee over the year, so no large fees once a year.

If you would like to know if the service is suitable for you, please give us a call on 08 9242 2085 or email us at ots@otsmanagement.com.au

Super Update

In its Super Update March 2008, the Tax Office reminded employers of two important changes that will take effect from 1 July 2008. Firstly ordinary time earnings must be used to calculate employees’ superannuation guarantee contributions, and secondly employer-nominated super funds must offer minimum levels of life insurance death cover to members.

Taxpayer Alerts! Non-arms length interest, non-arms length SMSF income & SMSF non-recourse borrowings

The Tax Office has issued three Taxpayer Alerts warning taxpayers of certain arrangements that are currently being examined. The Taxpayer Alerts pertain to the following situations:

1.      Non-arm’s length arrangements where a taxpayer uses borrowed funds to acquire an interest, such as units in a trust where the latter uses those funds to purchase income-producing property.

The Tax Office is of the view that such arrangements do not provide a sufficient connection between the expenditure and the production of future income and/or capital gains.

2.      Non-arm’s length arrangements under which a SMSF derives income through a direct or indirect interest in a closely-held trust. The tax implication is similar to that for the arrangement described above.

3.      Arrangements under which the trustee of a SMSF enters into certain limited limited-recourse borrowings, which may breach the superannuation law. This Alert does not deal with taxation issues other than those relating to the application of the superannuation law.

Self-Education Expenses

In a recent decision, the AAT affirmed that a taxpayer was not entitled to a deduction for self-education expenses. The Tribunal found that the expenditure was not incidental or relevant to the taxpayer’s income-producing activities and did not have the essential character of an income-producing expense.

Generally, self-education expenses are deductible if they are incurred in maintaining or improving a taxpayer’s skills and knowledge in his or her present occupation.

However, self-education expenses incurred before employment commences (as in this case) or to obtain new employment are not deductible.

Tax Law Changes

In March 2008, the Government introduced into Parliament an amending Bill to:

·        allow taxpayers to claim a deduction in relation to an amount misappropriated by an employee or agent following the disposal of an asset;

·        extend the period within which employers can make a superannuation contribution – after the quarterly due date, and still be eligible to use the late payment offset to reduce their superannuation guarantee charge liability;

·        exempt from income tax the entire amount received from either a research fellowship under the Endeavour Awards Program or an Endeavour Executive Award, regardless of whether the recipient is a full- or part-time student; and

·        exempt the first $1,000 of an early completion bonus paid to an apprentice by a State or Territory.

The Vision Driven Plan

Stephen Covey, author, personal and leadership development guru is coming to Perth for a seminar at Burswood on the 29th of May next week. For those of you who cannot attend and who have not read his books The 7 Habits of Highly Effective People, and Principle-Centred Leadership, I suggest you get those books and see how a business can be run effectively on core-principles.

At OTS Management we believe in placing our core-values squarely in the centre of our planning and business decisions. Our Vision Statement drives our everyday behaviours, moulds our culture and provides the parameters for our long-term strategic planning as well as our annual business plans.

When we facilitate planning projects for our clients we start with the end in mind and ensure that the client has an enunciated vision for the business and that it is quantifiable so that each goal and objective can be squarely measured as well as relate in a straight line from the vision those goals and objectives are designed to achieve.

Our model is that, from the Vision comes clarity of action. Your planning project should:-

1. Clarify and Quantify your organisation's Vision;
2. Identify the key performance indicators (KPI's) required to reach your Vision from the perspectives of the Customer, Key Business Processes, Financial and Owners' or Stakeholders' requirements, Innovation and Growth, and your People;
3. From your KPI's, derive appropriate targets for achievement over time, or goals;
4. For each goal generate specific, measurable, achievable, results-based and timed action plans.

If you would like to know more about our Vision and Planning services, you can download these brochures:-

The Vision Statement Download brochure_vision_statements.pdf

Strategic Planning Download brochure_strategic_planning.pdf

Business Planning Download brochure_business_planning.pdf

The Federal Budget - May 2008

Personal Taxation

Income tax rates

The Government has reaffirmed its commitment to cutting personal income tax rates. The tax rates and thresholds for the 2008/09 and 2009/10 income years are as follows:

2007/08 Current
Income ($)	Rate (%)
6,001–30,000	15
30,001–75,000	30
75,001–150,000	40
150,001+	45

2008/09 From 1 July 2008
Income ($)	Rate (%)
6,001–34,000	15
34,001–80,000	30
80,001–180,000	40
180,001+	45

2009/10 From 1 July 2009
Income ($)	Rate (%)
6,001–35,000	15
35,001–80,000	30
80,001–180,000	38
180,001+	45

Medicare levy low income threshold

From the 2007/08 income year, the Medicare levy low income thresholds have increased, as follows:

	2006/07 income year ($)	2007/08 income year ($)
Singles	16,740	17,309
Families	28,247	29,207
Threshold increment for each dependent child or student	2,594	2,682
Pensioners below Age Pension age	21,637	22,922

Medicare levy surcharge

The Government has announced that the 1% Medicare levy surcharge for singles will increase from $50,000 to $100,000, and for families, from $100,000 to $150,000, with effect from 1 July 2008.

Employee share schemes

Election required

The Government has announced that a taxpayer will be required to make an election to access the tax concessions available when receiving qualifying shares or rights under an employee share scheme. No further details were provided.

Removal of double taxation

The Government has announced that it will remove double taxation that arises in relation to certain employee share schemes (ESS) that use employee share trusts.

Entrepreneurs’ tax offset

The Government will introduce a family income test for the entrepreneurs’ tax offset. The test will limit access to the offset by restricting eligibility when the adjusted taxable income (ATI) per year exceeds the amounts given below:

Taxpayer	Maximum ATI ($)	Date of effect
Singles	75,000	1 July 2008
Families	120,000	1 July 2008

Income test for benefits

The Government has announced that it will introduce an income test for the following benefits:

Offset	Maximum income threshold ($)	Date of effect
Dependent spouse	150,000	1 July 2008
Housekeeper	150,000	1 July 2008
Child-housekeeper	150,000	1 July 2008
Invalid relative	150,000	1 July 2008
Parent/parent-in-law offset	150,000	1 July 2008

Family Tax Benefit Part B

From 1 July 2008, FTB Part B will only be available to families where the annual adjusted taxable income of the principal earner does not exceed $150,000.

Furthermore, FTB will only be delivered through Centrelink and Medicare, thereby removing claims through the tax system.

Child Care Tax Rebate

The Government has confirmed that the Child Care Tax Rebate will increase from 30% to 50%.

The cap on the amount that can be paid will be lifted from $4,354 to $7,500 per child. In addition, the rebate will be paid quarterly.

Education Tax Refund

The Government has confirmed it will provide eligible parents with an Education Tax Refund from 1 July 2008.

Baby Bonus

From 1 July 2008, the Baby Bonus will be increased to $5,000. In addition, from 1 January 2009, the Baby Bonus will be paid in fortnightly instalments and will only be available where family income does not exceed $150,000 a year.

Measures for carers

The following measures to support carers were announced in the 2008/09 Federal Budget:

·         Carer Allowance recipients will receive a $600 tax-free bonus for each eligible care receiver;

·         Recipients of Carer Payments and Department of Veterans’ Affairs Carer Service Pensions will each receive $1,000 tax-free. Carer Allowance recipients who receive a Wife Pension or the Department of Veterans’ Affairs Partner Service Pensions will also receive $1,000;

·         Eligible carers looking after children with a profound disability will have fairer and simpler access to financial support of up to $546.80 per fortnight; and

·         Disabled children whose ageing parents can no longer care for them at home will be provided with additional supported accommodation.

Bonus payments are expected to be automatically made before the end of June 2008. Those receiving both payments on 13 May 2008 will receive both lump sum payments.

Expanded definition of income

Income eligibility for Government support programs, including the Age Pension and superannuation co-contributions, will include certain “salary sacrificed” contributions to superannuation, effective from 1 July 2009.

Net financial investment losses and net rental property losses will be included in determining the eligibility for certain government support programs, including senior Australians tax offset, Medicare levy surcharge and dependency tax offsets, effective from 1 July 2009.

From 1 July 2009, reportable fringe benefits will be included when determining the eligibility for certain tax offsets, including dependency tax offsets, senior Australians tax offsets and pensioner tax offsets.

Business Taxation

Luxury car tax

The Government has announced that the Luxury Car Tax (LCT) will increase from 25% to 33% with effect from 1 July 2008. However, the Government has stated that the luxury car limit will remain at $57,123.

FBT

Jointly held investment assets

The Government has announced that the FBT law will be amended to ensure it applies appropriately where an employer provides an employee and their associate with a fringe benefit in relation to a jointly held investment asset

The measure will take effect from 7.30 pm (AEST) on 13 May 2008 with respect to new arrangements.

Work-related items

The government has announced that the FBT exemption for work-related items will only apply if the items are used primarily for work purposes and be limited to one item of each type per employee per FBT year, unless they are replacement items.

The list of FBT-exempt work-related items will be extended to all work-related portable electronic devices, including those with multiple functions. The government has also announced that the tax law will be amended to disallow employees from claiming depreciation for the work-related percentage of FBT-exempt items.

The changes to the FBT exemption for work-related items will apply to items purchased after 7.30 pm (AEST) on 13 May 2008.

The changes that disallow depreciation for FBT-exempt items will take effect as follows:

·         for items purchased after 7.30 pm (AEST) on 13 May 2008, this measure will take effect from that time;

·         for items purchased before 7.30 pm (AEST) on 13 May 2008, employees will be denied depreciation for the 2008-09 and later income years.

Superannuation

The 2008/09 Federal Budget did not announce any substantive changes concerning superannuation. There are no changes to the current superannuation regime.

Other Budget Measures

Family trusts

The Government has confirmed that the following changes to family trusts, which were introduced by the previous Government, will be rolled back to revert to the following situations:

·         the definition of “family” in the family trust election rules will be changed to limit lineal descendants to children or grandchildren of the test individual or of the test individual’s spouse. This will take effect from 1 July 2008; and

·         family trusts will be precluded from making a once-off variation to the test individual specified in a family trust election. This will take effect from the 2007/08 income year.

The New Style of The Square Orange

Over the years, our client newsletter "The Square Orange" has received complimentary and flattering feedback. Our clients have forwarded it to their colleagues and friends, sharing information and ideas.

As a result of this marvelous reception, we have had a major re-think and decided to make it available to the public as the OTS Management News-Weblog. We hope you will find it just as informative, and in its new public site, even more readily available to you and your friends.

You can forward the URL (that's address of the website to the not-so computer literate) through some automatic links in your internet explorer by sending the page or the link by e-mail, or you can simply tell them to go to http://ots.typepad.com/tso/ and being on the web it is accessible at any time from any where.

We will be posting entries every month so please add it to your favourites in your internet explorer or bookmark it.

You can even subscribe to its feed by clicking on the link at the right. This will send you a quick email every time an article is posted so that you can keep up to date. From time to time, such as at budget time, we may have more posts than the regular monthly time so the use of the feed is highly recommended.

Over the next few months we will also be adding links to other OTS Management weblogs being The Juice (tips, traps and ideas that was a firm favourite of the old version of The Square Orange but which will now have a blogsite on its own), The Pith (a collection of business and management articles that will contain more depth than the news articles in The Square Orange), and The Zest Factor which will be a free small business course for building and growing your SME. In time we will also post podcasts so that you can download articles to your computer or MP3 player.

It's going to be a busy and exciting time, so get the feed!