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 MGAA AboutTax Blog

The Three 'I's of Professionalism

A barber and an accountant 

After having used services of a very professional and proficient barber Anthony, for years, I thought I will try and save some money. After all spending $25 pp for haircuts for a 9 year old and a 5 year old sounded more of a splurge. Anthony is well trained, experienced and highly knowledgeable, his salon ambience is good, service even better!

Added to my motivation was to support an upcoming small business run by migrants.

A few minutes into the haircut of the two boys at the new place, there seemed to be a small problem. The 9 year old had hair standing up at the back of his head, and for the 5 year old, there seemed to be a funny gap right above his forehead. Upon approaching the barbers, they meekly said, they had no idea of what was happening, and tried to blame it on the hair style the boys had asked for. I gently told them that the boys have been having the same style for years, and never before had we faced this problem.

It took me a visit to my old barber to technically understand what had really happened. It appears, both my boys have something called 'a double cowlick', a condition where if cut too short, hair either stands right up, or leaves a balding gap.

 

                                                 

A rare, and otherwise harmless situation, it takes a professionally trained barber to recognise and manage the specific requirements of a set of hair, something an amateur may lack in.

It didn't take me long to equate this experience to my own profession. As in any profession, we have some tax accountants who have gained a bit of experiential knowledge but lack structured education and training. Then there are others who are unable to or unwilling to invest their time and money in continuous professional development and training. When a small business or mom and dad situation raises a tricky tax situation or a possibility of an advantageous tax planning, it is the structured education and ongoing training that sets you apart. There could be savings through strategic tax planning, restructuring, reduced capital gains or fast track business deductions. Similarly, unknown tax hits from errors like untimely trust distributions or director loans can be avoided. 

Clients who prefer to save a few bucks thus miss out on these opportunities or end up with unwanted tax bills.

In my words, a professional accountant (and generally any professional) is someone who passes the test of the three 'I's:

  • Intelligence, gained through structured education and ongoing training

  • Integrity, to do the right thing by the client ahead of his own personal gain

  • Intuition, to be able to understand what a situation demands intuitively and come up with a simple solution?
 
I don't have anything against those who cut prices to win business, nor against those who tend to seek price over quality. All I say is:

Don't be casual, lest you might be a casualty.

With present times of far reaching impact of Covid-19 on businesses and complicated new rules around Jobkeeper and other incentives, there is no better to time to test if your accountant passes the test of the three I's.

It is also a time to be understanding, patient, and appreciative for the extra yards your accountants are going through, to make it work for you.

Our Economy : A House of Cards

In just the last few days and weeks, businesses have been closing down, workers are being stood down and people are queuing miles long outside Centrelink. Looks like our economy is falling apart like a house of cards!

Hindsight is a great weapon. If only we all had this advantage.

To see our government so taken aback by the impact Covid-19 shutdowns are having on our economy, lead us to ponder if they saw any of this coming, and if they were prepared for this!

Consider this. The hugely talked about cash flow support for small and medium businesses to support them in keeping people employed;

  • Rewards employers who had employed people in Jan to March period, a period when there was no COVID impact.
  • Limit it to only SMEs with turnover of less than $50m. Hence all large businesses and chains of retail stores were automatically out.
  • Doesn't give them hard cash in their bank to be able to pay wages in future! Instead puts this money into their ATO debt account. Who is being saved from going belly up? The business or the tax office?

As a result of this misplaced policy, on one side large number of businesses have no money to pay wages and on the other hand a number of other businesses which are not impacted by COVID are enjoying free money! Why reward the toilet paper makers or grocery stores who are already milking this crisis?

If only a little financial common sense could prevail.

It's not that we didn't know what was happening in the financial markets across the globe? A step by step analysis would help.

  • What do we want to prevent? A large scale of unemployment.
  • What do we not want to see? A long line at Centrelink for financial support.
  • How do we do it? Incentivise employers, who are unable to continue functioning, pay some base wages so employees can pay their basic living costs.
  • And how do we do it? Well UK and other countries are already doing it. Subsidise say 80% of the wage bill of employees a business can't afford to keep. Make the business still pay 20%, so that they have some skin in the game.
  • A blanket subsidy? No, that would be a huge drain on our exchequer.
    • For employees who would otherwise loose their job, subsidise 80% of their wage capped at $1000 per fortnight. Exclude owner-employees and their associates from this leg of the incentive.
    • For employees who would continue to be employed, subsidise 20% of their wage capped at $200 per fortnight. Include owner-employees in this part. This measure is to just bring a level of equity, so that businesses who are trying to do the right thing don't feel cheated.
  • And can we make it better? Sure can. May be exclude businesses from having to pay super, so they can use cash to keep more people in jobs. May be make part or all of this subsidy tax free, so that we are not just rotating cash in and out of the treasury.
  • Which businesses would qualify? Simply ALL! After all, businesses which are not impacted are only going to get a small subsidy.

If you do it right, and minimise the scope of exploitation, most businesses will do the right thing. There will be fewer stood downs, largely reduced stress of living costs, businesses trying harder to survive rather than choosing the easy way of closing down, and the government under much less pressure to do something!

But what about the huge cost of mortgage and rent, both residential and commercial.

Let's take a step back. Our Prime Minister has been vocal about saying that in this period of financial crisis all our balance sheets will suffer, be it mom and dad household, small to big businesses or indeed the governments. He possibly missed out one key economic player, our banks! Banks are being asked to defer mortgage payments, but they are going to accrue interest for the deferred period, and charge interest on interest. I thus fail to understand what sacrifices are they making to help our community get through this catastrophe?

Better would have been to 'hibernate' the economy, as Scott Morrison keeps alluding to. Again some suggestion to do the trick.

  • Legalise a 75% drop in rents, interest and mortgage payments.
  • Allow those who cannot pay even 25% mortgage to request deferral but at a cost of this going on to their credit files. After all, these are the spenders - not the rainy day savers. They need to take some responsibility for making the choices they did.
  • This will impact negatively our retirees who live off rental income. Increase their Centrelink support equal to say 80% of loss of rent.

 So what does it take, to take the right decision? As always, strong political Will. 

When the going gets tough, the tough needs to get going!

 

In a recent high profile speech at The Tax Institute's National Convention, Tax Commissioner Chris Jordan said, quite proudly:

'"For the first time in almost 25 years, the average work-related claim decreased, falling on average by about $130 over the past two years … The estimated revenue gain for that same period will be around $600 million,'" (ref: The Australian, March 14, 2019)

Jordan further claimed credit for the Australian Tax Office's crackdown on investment property claims, claiming that 9 out of 10 audits result in an adjustment in favour of the tax collector. Going further, he then pointed fingers at small businesses for dodging taxes, saying that: 

"the ATO would soon release an estimate of the 'tax gap' – the difference between the amount of tax collected and the amount the ATO thinks should be collected – that would be 'much larger in percentage terms than in other market segments at between 10 per cent and 15 per cent.'"

Read more…

Have you sold an investment property or a parcel of shares this financial year? Are you losing sleep, worried about a big Capital Gains Tax (CGT) bill this tax time? There could still be some solutions , as long as you act well in time!

Taking an example: if you sold an investment property for $900k in FY18, which you bought for say $500k a few years ago, your gross capital gain is $400k. Assuming you are eligible for 50% Long Term CGT discount, your taxable capital gain is $200k. Split this between husband and wife owners, each of you are liable to pay your marginal tax rate on your share of $100k of this gain. This could be as high as $47k each, if you are in the top tax bracket.

 

Image source: balikesirseviye.com  

So what can you do about it?

1. Contribute to super.

Untill 30.06.2017 tax deductible contribution to super could only be possible through salary sacrifice (unless you were running your own business, this added to the complexity and hence the limitation). From 01.07.2017 any one can contribute to their super, and claim it in tax. Hence you can possibly contribute a part of your capital gains into super, and thus reduce the taxable gain. It is important to note; Read more…

Single Touch Payroll

Image source: solpay.com.au

What is Single Touch Payroll (STP)? 

In simple terms, ATO would like to know your employees' wages, PAYG and super guarantee which you process on a pay day. It starts from 1 July 2018 for employers with 20 or more employees. STP will be extended to include employers with 19 or less employees from 1 July 2019. This is subject to legislation being passed in parliament.

Read more…

 Image Source: CEX.IO Blog  I must first acknowledge a host of planners and insurance advisors, who work with integrity and in the best interest of their clients. Unfortunately, they are few and far apart.

Over the years, I have faced an ongoing ethical dilemma;

 On one hand I see my clients lose hard earned money through shoddy financial planning advise;

and on the other, I get told by the regulators, I am not licensed to comment about it.

Last two weeks of Royal Commission hearing into banks and AMP have exposed serious flaws in the financial planning sector, including dodgy advice and fee rip-offs.

"To have one bank go rogue is a scandal. When they all go rogue, it's a failure of regulation", says Jeff Morris in SMH of 28.08.2018.

Interestingly, as the revelations on greed and self-indulgence in financial planning industry have increased over the years, so has the regulations on accountants to 'not to do' anything about it. I wonder what is the cause of this inherent greed and inept control? 

Read more…

Ball Tampering in the game of TAX


Often, in my profession, I get asked 'How would they know?'

My immediate response is, 'The question is not how will they know. The question is, what if they know?'. 

As this ball tampering saga unfolds with drastic implications on those who were involved and flow through implications on those who weren't  (family, team, coach, the list goes on..), it is a staggering reminder to us on how life unfolds 'when you get caught out breaking the rules'.

No less in the game of tax, as in the game of cricket, do we have a number of cameras looking at us from all angles, using smart eyes and technology to check if we are playing our game by the rules. ATO has been quite vocal in using increasingly large sources of information with extremely smart super computers to 'catch us out'.

 
 

Read more…

ATO has announced that, from the 1st of July 2017 it will start reporting unpaid and overdue business tax debts to Credit Reference Bureau. What this means is, if your business has a tax debt of over $10,000, that is over 90 days old, and you have not effectively engaged with ATO to manage it, your business might lose its credit rating for the next five years.

You will need to worry if:
  • You have an ABN
  • The debt amount is over $10,000 and over 90 days old
  • The debt is not in dispute
  • There isn't any established payment plan with the ATO or                                    
  • The payment plan with ATO  has defaulted

ATO assures it will notify the business before referring the tax debt to a credit bureau, and only after it has exhausted all ways of recovering this debt.

If you are concerned, please give the ATO a call before your tax bill is due, or alternatively give us a call so we can assist you to arrange a payment plan with ATO.

Source: www.ato.gov.au

 


Welcome to Tax Time 2016

Welcome to Tax time 2016. To better prepare you for this tax time, please click here to download our tax time checklists. 

Meanwhile, below are 2 messages from ATO on the areas of audit that they will focus on this tax time. 

 ATO Focus on Work Related Deductions 
 The ATO has announced that it will focus on work-related deductions claims that are higher than expected, in particular, car expense claims for transporting bulky tools, an deductions for travel, internet and mobile phone, and self-education. 

The ATO said that this year, for the first time ever, it will check taxpayers' deductions in real-time as they complete their online return. IT will take a closer look at any unusual deductions and contact employers to validate these claims. 

The ATO has also reminded that there has been a change in the rules for calculating car expenses this year and taxpayers need to use a logbook or the cents per kilometer method to support their claims. It is encouraging taxpayers to use the myDeduction tool in the ATO mobile app which allows taxpayers to record work-related deductions on the go, and uploads directly into their next tax return just like the pre-filled information.

 ATO Focus on Rental Property Deductions 
The ATO has announced that it will focus on excessive interest expense claims and incorrect apportionment of rental income and expenses between rental property owners. It will also look at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties. 

The ATO has reminded taxpayers when claiming deductions for their rental property to include all the rental income and make sure that their property was genuinely available for rent when the expenses was incurred. The payers must also make sure the apportion any deductions to take any private use into account, and must have records for the claims they make. 

Contact us to book an appointment to do your taxes.

 


Act Now, before this budget changes everything, again!

At best, we can call it a calculated risk, at worst a rumour.

Based on what PM Malcolm Turnbull and Treasurer Scott Morrison seem to be saying in public media, and based on what experts in the industry seem to be indicating, this year's budget could be a watershed in Superannuation Tax changes.

We share with you some of the changes that might happen, and suggest action plan so you can take advantage of the current generous concessions, before it is too late.

 

Some Changes that might happen

Salary Sacrifice (concessional) limits for super contribution could be reduced            

 Age Category          

Current        

Might reduce to

 under 50 yrs

$30,000 py

$20,000 py

 50 yrs & over 

$35,000 py

$25,000 py                  

In order to take advantage of tax deductible salary sacrifice (or pre-tax contribution), ensure you top up your employer / pre-tax super contribution before budget night.

Post tax (non-concessional) limits for super contribution may be reduced.

Age Category       

Current        

Might reduce to

 under 65yrs

$540,000 py (bring forward)        

$150,000 py (bring forward might be scrapped)

65 yrs & over 

$180,000 py  

$150,000 py                 

 This action might be aimed at scrapping 'withdrawal and re-contribution strategy'.

Taxpayers have used this strategy over the years to steadily convert their taxed component in super into tax free component. This substantially reduces tax on death benefits paid to adult children.

Contact your advisor to see if you could do a withdrawal and re-contribution strategy before budget night.

Transition to retirement income stream (TRIS) benefit may be limited.

Currently, you can start TRIS to withdraw tax free pension, and get tax benefit via salary sacrifice into super, provided you are above 60yrs of age.

Entry to TRIS may be restricted to eligible taxpayers who reduce their working hours to under 30 hours a week (move from full time to part time roles)

This strategy has been used by many taxpayers in their golden age (above 60 years of age) to reduce their tax on salary or business income, yet ensuring their cash flow is not impacted.

Contact your advisor to see if you could start your TRIS before budget night. In most probability, TRIS started before budget night would not be impacted by any possible changes to this policy area.

 

If you would like assistance with working out the best possible strategy for your personal scenario, please do not hesitate to contact us.