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Running a business as a Barrister
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Bar Practise CoursePractice Management
Monday 18 August 2014
Proudly presented by
RUNNING A BUSINESS AS A BARRISTER
Presenters:
Tim TaylorMarsha Lal
Hanrick Curran
You / YourPractice
FamilyTrust
ChambersEntity
Superannuation
LifestyleAssets
FamilyHome
So it wasn’t to do …:
General Administration?
Financial Management?
Intimately understanding Tax obligations of sole trader?
Testing your effectiveness in sales & marketing?
Risk Manager?
Business Planning?
Why are you coming to the Bar?
Agenda
Understanding Structures HC Accounting for and Invoicing for Revenue HC Tax obligations and time frames HC The use of Leverage – Good Debt vs Bad Debt HC
Budgeting and Cash Flow Management HC Workshop exercise HC
BREAK Consider your Assets and how you can protect them MLIG Estate Planning – a few reminders WHTM Retirement Planning – Super considerations
WHTM Key Messages HC
Understanding Structures
Barristers are unique – special rules for you!
Business revenue must be received personally so you are unable to access the benefits a Company or Trust structure when carrying on your business
Business expenses – you may share resources, or share a % of Chamber expenses, this arrangement can be structured in a Company
Your Investment Revenue and Assets can use Company or Trust structures Family home – non-at risk spouse for asset protection Investment properties or shares – trust for asset protection Superannuation – a trust for asset protection & tax concession
benefits
Accounting for & Invoicing for Revenue
Things to do before you get started
Get an ABN Not registered for GST if <$75k income p.a.
Register for GST
Determine Cash vs Accruals basis
Design invoice template ATO tax invoice
Consider your payment terms and timing of invoicing
Establish a special purpose Practice bank account Sweep ‘wage’ across to a personal acct to fund personal expenses
Tax Obligations
1. Personal Income Tax Rates For FY 2014-15 Add Medicare Levy of 2% Budget Repair Levy of 2% applied to income > $180,001
Tax Threshold Tax Rate
0 – 18,200 0%
18,201 – 37,000 19%
37,001 – 80,000 32.5%
80,001 – 180,000 37%
180,001 + 45%
Tax Obligations
Timing of Personal Income Tax Income Tax is not deducted from your revenue, therefore you need
to provide for it, particularly in the first year
ATO will assess your prior year’s income and determine your tax obligation payable up to 18mths after financial year end*.
ATO will then determine a quarterly tax instalment or % rate to be applied to income received in prior quarter.
* Assuming you use a tax agent, or else your tax return and payment is required in Oct 2015
Income $200,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
FYE-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17
Tax $0 $0 $0 $0 $80,000* $20,000 $20,000 $20,000 $20,000 $20,000
Tax Obligations
2. GST (Cash Basis)
10% charged on all Goods and Services
Tax payers registered for GST may claim a refund for GST paid on goods & services purchased in order to generate an income, ie on travel, phone bills etc. If you had expenses of $5,000 associated with generating your income, you would be entitled to a rebate of $500
Rebates accumulate and can be claimed quarterly via Business Activity Statement (BAS)
You need to include the 10% GST into your services and charge this to your clients. ie if you perform $50,000 of services, you will need to either add 10% onto this and charge your client $55,000 or be prepared to fund the GST obligation within your professional fees.
GST obligations can be paid monthly or quarterly and are offset by any rebates, the net GST liability will be paid when lodging BAS.
Use of Leverage Good Debt V Bad Debt
What component of debt is deductible and when?
The interest payable on the principal sum borrowed, only when the principal sum has been borrowed with the intention to create an income ie interest on investment property loan, geared share portfolio,
overdraft facility Interest on a home loan (where you occupy the property) is not
deductible, nor is interest on a personal use credit card or personal loan
In the instance of a car lease …
Principal repayments of any loans are not deductible, this includes the residual value on car lease
What purpose will you need to use debt in the future?
Cash flow Management and Budgeting
Preparing a budget and forecasting your cash flow is an important function in any business, but especially so when the following are present: Income is not stable/cyclical Regular fixed costs must be met Tax obligations need to be managed
Key attributes to an effective operational budget are: Realistic well considered assumptions Realistic timing Discipline to review and cross check actual vs budget to gain a
good understanding of business cash flow Forecasting monthly cash flows will readily highlight:
The ‘working capital’ funding you need at the outset Provisions you need to make in the ‘good months’
Refer to handout Appendix A, a detailed budget and cash flow
Workshop
Please split into pairs
Refer to Appendix B - the Income section of your cash flow
Consider your future as a Barrister and outline the following assumptions: Who is going to pay your invoices? (ie Solicitors or Crown) How often are you going to invoice them? (upfront, every 2 weeks, monthly, end of
trial, upon provision of advice?) What are your terms for payment, and realistically how long should you allow to
receive payment? Using some simple assumptions, forecast when and what your revenue will be for
the next 12 months, for simplicity assume it is excluding GST and using Cash Accounting which means you are only deemed to have earned the income when you receive payment of your invoice.
20 mins break
Consider your Assets and how you can protect them
Stuart Carter
Authorised Representative of Millennium3 Financial Services AFSL No. 244252
www.mlig.com.au
What are your responsibilities?• Practicing Certificate / Professional Indemnity Insurance• Cash Flow Protection• Protecting your Family’s Lifestyle
What are your options?• Replacement Revenue• Injection of Capital
What provisions are already in place?• Group Life Insurance• Possible Superannuation
www.mlig.com.au
Main reasons barristers and legal professionals claim
Source: Asteron Life Limited, based on 2011 income protection claim statistics
www.mlig.com.au
You
MLIG Insurance
Hanrick Curran Accountant
Wilson HTMInvestment
Bank Account/loans
www.mlig.com.au
1
Bar Practice CourseFinancial Planning & Investments
Andrew Fleming and
Michael Börjesson
A Leading Wealth Manager and Adviser
Wilson HTM
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Established in 1895
National presence
ASX listed
Over $11Bn in Funds Under Management
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Financial Planning
External Wrap WHTM Wrap
Retail Offer Funds, Direct Shares, Fixed Interest
Funds Under Admin
Funds Under Management
Client TypeIndividual, Family Trust, Self Managed Super Fund,
Superannuation Account
Level of Service
Transaction based Fees Asset Based Fees
Service Matrix
Investment Advice
Asset Allocation – Driver of Investment Returns
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Tactical Asset Allocation for “Balanced” Investor
Source: WilsonHTM
The majority of superannuation funds have a “Balanced” asset allocation Diversification across a number of differing asset classes serves to reduce volatility Asset allocation is the main determinant of investment returns Investment selection within asset classes is also important
Asset Allocation – How does this make a difference?
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Value of Tactical AA
Asset Class Performance FY 2014
Source: IRess, Bloomberg, WilsonHTM Estimates
2014 financial year, equities out-performed bonds.
We expect this to continue, albeit at a reduced rate.
Over-weight international equities allocation provided a large positive contribution.
Currency and interest rates will be significant determinants for asset allocation going forward.
Focus on underweight bonds and preference for emerging markets over Europe in international exposure
Financial PlanningFinancial planning is the long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time negotiating the financial barriers that inevitably arise in every stage of life. Financial planning is a process, not a product. (Financial Planning Association)
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Objective Considerations
Protect • Insurance & Risk Management• Cash Flow Management• Tax Structures• Estate Planning
Position • Tax Structures• Effective Income Distribution• Personal / Income Growth• Diversified Income Streams
Provide / Prosper • Wealth Creation and Investment Management• Debt Structure and Reduction• Retirement Planning
Effective Superannuation
Super FundTax Rate: 15% - 0%
OutputsTax Rate: 31.5% - 0%
InputsTax Rate: 30% - 0%
Salary Sacrifice
Reduce Income Tax
Reduce CGT
Splitting Contributions
Spouse Contributions
Govt Co-Contribution
Small Business R/O’s
Tax Effective Fees
Life Insurance
Estate Planning
Tax Effective Pensions
Income Ratios
Legislative Compliance
Investment Strategy Australian Shares
Direct Property
Business Property
Borrowing
High Yield Securities
Reserves Strategy
Super Contributions
Who can contribute? – Anyone under age 65 (regardless of your employment)– Anyone under age 75 (subject to an activity test)
Who can get a tax deduction?– Individuals who contribute to super in a financial year where less than 10% of your
assessable income comes from an employer who provides superannuation support How to contribute?
– Salary Sacrifice– Personal Concessional Contributions– Personal Non-Concessional Contributions
Where?– Existing Super– Industry Super – Self Managed Super
How Much?
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•Concessional Contributions
•Non-Concessional Contributions
•Excess Contributions– 1 July 2013 forward– 85% of contributions refunded– Non-concessional cap reduced by refunded amount
Contribution Limits
Age FY 2015
Under 50 $30,000
50 & Over $35,000
Age Amount Bring Forward
Under 65 $180,000 $540,000
65 & Over $180,000 Not available
Contributions No business asset to sell at retirement No employer contributions, notionally:
– $13,875 based on a salary of $150,000– $18,500 based on a salary of $200,000– $23,125 based on a salary of $250,000
Access to a diversified income stream
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40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 $0
$300,000
$600,000
$900,000
$1,200,000
$1,500,000
$1,800,000
Early Contributions Both Contribute (from age 50) Late Contributions
Estate Planning
The arrangement, management and securement and disposition of a person’s estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and after his death, no matter when death may occur. (Meyerowitz)
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Instrument Considerations
Will (valid) • Control of tax structures (via the will, or embedded in the structure)
• Inter-entity loans• Testamentary Trust (mandatory or voluntary)• Guardianship of children
Power of Attorney • Enduring or not
Advanced Health Directives
Superannuation Nominations • Binding or Non-Binding• Lapsing or Non-Lapsing• Tax consequences for different beneficiaries
Insurance Policy Ownership • Super, Individual
More Estate Planning
Ensure that all of your assets are controlled by your testamentary instructions, and that your testamentary instructions properly populate your testamentary vehicles.
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Asset Owner Directed by Will?
Testamentary Trust
Home Joint No No
Bank Accounts Joint No No
Shares Individual Yes Yes
Shares (CHESS) Joint / TIC No No
Investments Individual Yes Yes
Investments Family Trust No No
Insurance Individual Yes Yes
Insurance Super No? No?
Superannuation Super No? No?
Things to Consider
Financial Planning should be an integral part of your on-going practice management as a self employed professional
We recommend that you reserve some of your earnings for retirement planning Superannuation is a tax effective structure in which to save for retirement Superannuation allows the potential for tax effective treatment of cash flow for
older members through the use of transition to retirement income streams We recommend that practitioners have an estate plan in place supported by
adequate protections through insurance/s to ensure financial stability during illness, to cover debts and/or provide for dependants.
Your Estate planning should be integrated with your superannuation Seek advice with respect selecting the appropriate product service offering to
facilitate your superannuation nest egg or other investments and the appropriate level of insurance cover
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Get the right professional team
Get the right structures in place for your income & assets from Day 1 This means appointing a proactive Accountant who knows your Industry, asap
Understand your tax obligations and timing of these Don’t over spend your pre-taxed income and be left with an unfunded tax bill
Carefully consider the use of debt, structure it optimally, use it wisely Get into the habit of seeking a 2nd opinion before committing to debt
Prepare a budget and cash flow annually, cross check Actual V Budget
Insure your assets, that includes YOU
Keep an eye on the future, plan for retirement and invest wisely
Establish comprehensive Estate Plans, keep them current with regular reviews
Meet with us now and prepare for a successful practice!
Key Messages
Key contacts
Tim Taylor [email protected] Lal [email protected] Cooper [email protected]: 07 3218 3900
Andrew Fleming [email protected] Tel: 07 3212 1326
Michael Borjesson [email protected] Tel: 07 3212 1908
Stuart Carter [email protected] Brown [email protected]: 07 3007 7800
Thank you
Hanrick Curran Disclaimer
The information contained in this presentation and accompanying papers is necessarily a summary only of relevant matters and is not intended to be a complete outline of practitioner responsibilities.
These contents are not a substitute for detailed direct advice and should not be relied upon as such.
DisclaimerThe information provided is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. The contents are not to be relied upon as a substitute for financial or professional advice. The information is provided by Medico Legal Insurance Group Pty Ltd which is an Authorised Representative of Millennium3 Financial Services Pty Ltd AFSL No 244252‘
www.mlig.com.au
Disclaimer
– This presentation has been prepared by Wilson HTM Investment Group Ltd (WIG).The information in this presentation is current as at 04/02/2014.
– This presentation is not an offer or invitation for subscription or purchase of securities or a recommendation with respect to any security. Information in this presentation should not be considered advice and does not take into account the investment objectives, financial situation and particular needs of an investor. Before making an investment in WIG, any investor should consider whether such an investment is appropriate to their needs, objectives and circumstances and consult with an investment adviser if necessary. Past performance is not a reliable indication of future performance.
– WIG has prepared this presentation based on information available to it. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of WIG, its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising from fault or negligence on the part of any of them or any other person, for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it.
