Smartwatches are wearable computers in the form of wristwatches. Their functionality is similar to smartphones and includes:
- Mobile apps.
- Mobile operating systems.
- Wi-Fi/Bluetooth connectivity.
- Portable media players, with FM
radio and playback of digital audio and video files. - Making and receiving phone calls.
- Sending and receiving emails.
- Digital cameras.
- Heart rate monitors.
- MicroSD cards (which are recognised as storage
devices by many other kinds of computers).
The ATO deems smartphones to be portable electronic devices and as such they are an exempt fringe benefit when used primarily for the employee’s employment. Businesses can provide these devices to employees under salary sacrifice arrangements.
Even when employees salary sacrifice the cost of the items with their employers, they still benefit from saving the GST and having an upfront tax saving (instead of purchasing the item and depreciating it over several years in their tax return).
Business Structures Strategy | Limited Company (Limited by Shares)
Proprietary limited companies are the most common company structure in Australia and account for 98.5% of all companies. Generally, they are the most appropriate company structure for small businesses.
A proprietary limited company (also known as a Pty Ltd company), cannot raise capital from the public, and is restricted to a maximum of 50 non-employee shareholders. Shareholders personal assets are protected due to the companies limited liability status.
The advantages of operating a business through a proprietary limited company include:
- 30% tax rate (standard company tax rate).
- 27.5% tax rate for companies with a turnover less than $50m pa (falling to 25% in 2021/22).
- Limited liability – this ensures shareholder liability is limited to the capital invested in the company.
- Ability for investors to pool their investment funds together.
- Ability to introduce new shareholders, and change current shareholders.
- Easier succession planning (as companies have perpetual succession).
- Extra tax saving opportunities/strategies. For example, the owners’ private motor vehicles can be salary packaged by a company, but not a sole trader.
- Privacy – the ability to keep the company’s owners (shareholders) secret.
The main disadvantages of operating through a company are:
- It doesn’t receive the 50% general capital gain discount like individuals.
- Extra compliance and regulatory costs (i.e. annual ASIC fee of $263).
- Directors legal obligations and duties need to be considered.
Profit Improver Strategy | Lower Your Prices by 10%
Lowering your selling prices will increase sales when your product or service has an elastic demand curve i.e. when you slightly lower your prices, volume goes up substantially. This will be a profitable strategy if lower prices produce greater gross profits due to increased sales volume even though the profit per unit has fallen.
Additional benefits of lowering prices include:
- Pricing lower than your competition demonstrates to customers seeking value and affordability that you are a bargain.
- If you have a large share of the market and can survive on low margins, lowering your price makes it more difficult for your competitors to compete.
- Prevents new competitors from entering the market, as they will have start-up costs that increase their overheads and lower their profit margins at a time when they have low sales volumes.
- Attracting new customers without a large marketing plan.
Implementation process:
- Determine whether your product or service has an elastic demand curve – there is no point lowering your selling price unless it substantially increases volume sold.
- Find out what your competitors are offering and their current pricing.
- Determine your objective in lower prices – i.e. to increase sales, increase gross profits, wipe out the competition, prevent new competitors entering the market, etc.
- Calculate the financial effect of lower prices and higher volumes on your gross profit and net profit.
- Lowering selling prices often requires the business to reduce costs at the same time.
- Consider whether reducing prices will reduce the business’s reputation, brand quality, or credibility.
Limit the initial selling price reduction to 10%, and monitor the effect on sales, gross profits, and net profit.