News Update April 2012

Welcome to the Simeoni Monthly News Update.

This month we look at the following topics:
- The truth about online business
- Living away from home?
- Quote of the Month

April News Update

The truth about online business 

Online business is nothing new so what is all the fuss about?

A recent report by Access Economics compared the impact of the internet to the roll out of electricity because both are enabling technologies that change all industries in their wake, not just a few.  We explore why online vs instore is a bigger issue than ever:

1. Economic conditions 

The high Australian dollar is giving Australian consumers ‘more bang for their retail buck’ globally. Not only do Australian consumers benefit from a currency driven discount but they can also take advantage of heavy discounts offered by retailers domiciled in underperforming economies.

Australian in-store retail is suffering more from consumer cautiousness than as a result of international ecommerce.  In-store and locally based online retailers are simply competing for ‘share of wallet’ in an environment where consumers are looking for the best available deal.  Economic conditions have given consumers a reason to go global  - particularly for commoditised products.

The Communications Report (No. 1) released last year by the Australian Media and Communications Authority (ACMA) showed that overseas websites have attracted an increasing proportion of online shoppers.  In the six months to April 2011 the number of shoppers mostly purchasing from overseas sites increased by 7% to 19%, however, the number of shoppers purchasing equally from Australian and overseas sites increased by 10% to 29%.  So, online does not necessarily mean overseas.

2. Fear of online shopping has diminished

The ACMA Communications Report (No. 3) states that the proportion of people reporting ‘lack of trust’ in the internet declined from 25% of non-internet shoppers in November 2009 to 19% in April 2011.

 3. Technology is a part of our life.
The Access Economics report The Connected Continent states that, “The direct contribution of the internet 
to the Australian economy is worth approximately $50 billion or 3.6% of Australia’s Gross Domestic Product (GDP) in 2010. This contribution is of similar value to the retail sector or Australia’s iron ore exports.”  The report also predicts that over the next 5 years, this contribution will increase by 7% to $70 billion - twice as fast as that forecasted for the rest of the economy.

Internet use, and in particular smartphones are an integral part of our lives.  As access speeds increase, the integration of technology into the way we live and act will only become more pronounced.   

The ACMA Communications Report shows that at April 2011, approximately 58% of adult mobile phone users in Australia had a 3G mobile handset, with 37% of mobile users owning a smartphone.  During June 2011:

• 1.55 million people in Australia aged 14 years and over used social     
   networking services via their mobile phone

• 751,000 went online via their mobile phone to use banking and bill
   payment services
• Just over 100,000 purchased a good or service 

That’s in one month - almost a year ago.

4. The internet and online shopping is just for the young

The ACMA Communications Report (No. 3) states that “in the six months to April 2011, approximately 62% of adult internet users purchased a good or service online” with the 35 to 44 year olds most likely to have made a purchase.  This age group also reported ‘convenience’ as the primary reason for shopping online whereas the 25 to 34 age group reported ‘price’ as their motivation.

 5. Online vs instore - is it fair?

In Australia much of the debate has been around the Low Value Import Threshold (LVIT) that exempts goods under $1000 from GST and duty.  The Productivity Commission recommended that the Government lower the LVIT to promote tax neutrality but not until it is cost effective to do so. 

In reality, there are many businesses trading online as part of their overall strategy – not as their complete model.  Think Apple - they have a strong online presence and invest heavily in their shop fronts.   And, according to PayPal, over Christmas 2011 Toys ‘R’ Us and Dan Murphy’s experienced their largest ever online sales during the Christmas trading period.  

Competing with a global online business whose customers do not need to pay GST is not fair.  But neither is the bargaining power and price differential exercised by big retailers playing on the same field as small retailers.  It’s just a fact of business life.

In Australia, according to Access Economics, all SMEs they surveyed have internet access but only half have a website and only 30% use the internet for marketing, sales and procurement.  There is a lot of room to move. The internet is only one facet of a broader picture of your business strategy.  If you need assistance to refine your strategy, talk to us today.


Living away from home? 

Living Away From Home Allowances (LAFHA) are paid to employees to compensate for additional expenses and disadvantages they might suffer because they need to live away from home to do their job.
However, the Government is concerned by the rapid expansion in the number of claims made with a 457% increase in the value of LAFHA claims in six years (from $162 million in 2004/2005 to $740 million in 2010/2011).
Anticipated to take effect from 1 July:

• Temporary residents will only be able to access LAFHA concessions
  where they maintain an Australian residence for their own use and are
  required to live away from this residence as part of their employment
  duties. This rule mainly targets expatriate employees who do not have a
  residence in Australia.

• LAFHAs will be included in the taxable income of the employee rather than
  being taxed in the hands of the employer through the FBT system. The
  employee will be able to claim deductions for actual accommodation and
  food expenses incurred while living away from home, but these expenses 
  must be substantiated under the normal operation of the rules. This
  means that employees will now need to hold invoices or receipts for rent,
  grocery and other outgoings in order to reduce their taxable allowance.

• Reimbursements and payments of actual food and accommodation
  expenses by employers will still be exempt from FBT subject to new
  substantiation requirements.

The main practical issues are:

1. The after-tax salaries of expatriate employees are expected to drop significantly after the implementation of these changes. This may lead to an increase in the employer’s costs because they may need to increase these employees’ gross salaries in order to compensate for the extra tax payable. This will especially apply to expatriate employees working in Australia.

2. Employees receiving a LAFHA benefit will need to ensure they are keeping records to offset their LAFHA allowance.

3. The completion of the LAFHA declaration alone may no longer be sufficient for employers paying LAFHA benefits. Invoices evidencing the costs incurred for both accommodation and food expenses would need to be kept. Employers should start thinking about supplementing systems or processes to capture and record this information to avoid adverse tax consequences to employees (in the way of increased income tax) and employers (in the way of increased fringe benefits tax).



 Quote of the Month

“The tragedy in life doesn't lie in not reaching your goal. The tragedy lies in having no goal to reach.”

Benjamin Mays

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PO Box 725, Five Dock, NSW, 2046
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