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Errors and over-claiming for work related expenses and the Tax Gap (Part 2)

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In case you missed it, Tax Commissioner Chris Jordan made a public address on the 5th of July 2017 in which he spoke about the ATO’s plans moving forward, especially concerning tax gaps. Let’s take a brief rundown of the situation as it stands:

  • The ATO, for the first time is going to publish estimates for corporate tax and income tax gaps for different segments. They were previously publishing estimates for GST based gaps.
  • Their first release of these numbers was for the corporate tax gap calculated based on 2014-15 data, which is approximately $2.5 billion (a tax gap is the difference between what the ATO has collected and what it should have collected, were everyone compliant with the existing laws.)
  • This $2.5 billion tax gap shows that the ATO has collected about 94% of the corporate tax they should be receiving, 91% voluntarily declared and 3% through compliance intervention. While this is around global best practice, the ATO will continue to closely watch the 1400 businesses in that segment.
  • Their current aim for corporate tax is to work with taxpayers to encourage voluntary compliance and move away from the necessity for increased intervention.
  • The ATO is now dedicating more resources to other markets they believe, from their initial findings to have higher tax gaps. Namely; small businesses, the black economy (the cash economy) and the individuals market.

What does this mean going forward for small and cash based businesses?

  • For small businesses, especially those operating under cash basis, they can expect more scrutiny from the ATO. As the Commissioner explained, they would like to increase the use of community referral information (dob-ins) and increase visits to cash only business premises. Their initial aim is to ensure that these businesses are registered correctly and understand their tax obligations. However, if they do not comply, this could lead to audits and penalties. The biggest risk within the cash industry is that these businesses are at a higher risk of not reporting their sales correctly.
  • There is also increased attention towards PAYG and super payments made by employers as the number of dob-ins from employees has increased. In addition to this, the ATO, regulators and Fair work Ombudsman have also pledged to increase monitoring of super payments as well as trying to provide a reliable estimate of the superannuation gap.
  • Therefore, it is important to understand all your obligations as a small business owner in terms of taxation and other employer payments and be prepared to provide evidence of your accounts to the ATO should they come knocking.

What does this mean for Individuals? What are the common misunderstandings when it comes to work related claims?

  • The ATO will now be identifying excessive work related expense claims by comparing taxpayers against their peers in similar jobs that are earning similar amounts of income.
  • The most common work – related expenses are for; car expenses, travel – meals and accommodation, clothing and self - education

These are the following things to remember in regards to claiming work – related expenses:

  • Trips between home and work cannot be claimed unless your house can be regarded as a place of employment and you had to travel to different workplace for the same employer. If you see a travel allowance amount on your payment summary, it has to be claimed as income.
  • You can only claim costs for accommodation and meals if you are required to work away from home for at least one night or more and you can only claim petrol and parking for work trips. Any private/ personal spending on these trips cannot be claimed.
  • Claims can only be made for uniforms and protective gear that would not be worn outside the workplace like uniforms with company logos. Plain clothes like white shirts/ black trousers cannot be claimed even if you are required to wear them by your employer.
  • Self education claims must relate to your current job. You cannot claim expenses for jobs that you want to apply for, etc.

Lastly, what tools will the ATO be using to help close the gap and what does that mean for me?

Two tools that the ATO will start utilising to help combat the tax gap are online applications and evidence based claims.

  • The ATO will start providing online applications to make the process easier and we may soon see that some information is already pre-filled. This would require access to third party information on behalf of the ATO but it would mean that individuals only have to confirm that the information is correct and move on.
  • They will also require evidence for claims made going forward. This essentially means that if you provided the documents you used for your calculations to the ATO they should be able to come to the same amount as what you have calculated. So remember to keep all your records to prove your claims!

Finally, remember to heed the ATO’s message during tax time!

  • Declare all your income
  • Don’t claim a deduction when you didn’t spend the money
  • Don’t claim a deduction for private expenses and
  • Keep records to prove your claims!
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Exclusive Offer For You - Available Only Until 29 August 2017

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Cyber Security has become an essential component to business stability and longevity in today's business landscape. However, at Tailored Accounts, we know that it can be difficult to find reliable, relevant information about the must-knows of Cyber Security - and understanding I.T. jargon can be impossible!

Your security is important to us - so we have done the hard work for you and found experienced, reputable professionals in Cyber Security to bring the essentials to you.

We have partnered with QILA to give you, our valued clients, an exclusive insight to what cyber security means for businesses today. They will run you through the essentials of practicing good cyber hygiene in your workplace, leaving you less suseptible to cyber crime and malicious hackers, and better able to focus on what you do best!

QILA offers you a complete reputation safeguard package for only $300 AUD. The package will give you these benefits:

  • Website vulnerability assessment 
  • Website resilience recommendations
  • Physical security 
  • Information security audit 
  • Security recovery planning

Sign up today by simply contact QILA or Tailored Accounts:

  • QILA: This email address is being protected from spambots. You need JavaScript enabled to view it.
  • Tailored Accounts: This email address is being protected from spambots. You need JavaScript enabled to view it.

This offer is only available for Tailored Accounts client until 29 August 2017. 

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Errors and over-claiming for work related expenses and the Tax Gap (Part 1)

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Commissioner Chris Jordan AO

Address to the National Press Club, Canberra

5 July 2017

The ATO has expressed concerns about the numbers of incorrect work-related expense claims and the tax gap. Below is the key points extracted from the address of Commissioner Chris Jordan AO in early July at the NPA.

The Tax Gap:

  • The ATO will also continue with administrative reforms under our Reinvention Program, such as: earlier engagement, greater transparency and cooperation with clients and partners prevention and early warning, rather than correction and ‘gotcha’ more sophisticated use of data for both service and compliance purposes increased digital service offerings and streamlined interactions.
  • Now, let me share with you ‘what next’; the next big challenges we are facing: Influencing community perceptions and attitudes about tax; and, minimising tax gaps.
  • I want instead, to support mindsets where people feel more positive about their total tax experience – satisfied with their interactions and confident that the ATO is taking action against those who are not paying what they should. Let me turn to that now – paying the right amount and minimising tax gaps.
  • The tax gap is approximately $2.5 billion.
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Telstra Business Awards 2017 ACT Finalist

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Telstra Business Awards has announced Tailored Accounts to be the finalist for Small Business Award Category of ACT in 2017. Once again, we have an honour to become a Telstra Business Award finalist together with many other inspiring Australian companies.

The 2017 Telstra Business Awards recognition has encouraged us to reach for higher achievements in serving our clients and being committed to innovation in management accounting.

This is the third time Tailored Accounts was nominated to be the Finalist. These recognition have been unforgettable moments as they affirm the success of our teams dedication to support Australian businesses. 

Tailored Accounts is proudly listed on Telstra Business Awards Website

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Reconciliation of Your Payment Summaries

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The six important steps of payment summary reconciliation that employers often overlook. 

Payment summaries generation is a simple task, however the back end reconciliation does take half to a day of work. Here are list of 6 STEPS that our staff have to go through to ensure that your payment summaries are faultless!

1. Reconcile all staff payslips in the past 12 months with BASs submitted to ATO during the year. Incorrect payment summaries is the biggest trigger to an ATO tax audit...we understand how important it is to ensure our data is perfectly matched with ATO data;

2. Reconcile all staff payslips information: Gross Salary, PAYG withholding, FBT, Super payable, Salary sacrifice, Termination pays. A full reconciliation between payroll report vs General Ledgers are conducted for the full year to ensure your staff pays are agree with what coded into your accounting software for the last 12 months; 

3. Once ATO = Pay summaries = General Ledger (debit/credit), our staff will print payment summaries and re-check them with employee payroll setup to ensure their pays are in line with their contract/award;


4. Payment summaries to be email to business owner/HR manager/CEO to check before we email to your staff;

5. Payment summaries to be emailed to staff before 14th July;

6. After 1 week from sending staff payment summaries, if we don't need to do any amendment, we will send Annual Payment Summaries to ATO before the DUE DATE 14th August.

 

 

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Simpler BAS and implications on businesses

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Business Activity Statements (BAS) reporting has often been a time consuming and complex process for many small and medium enterprises (SMEs) since goods and service tax (GST) was introduced in 2010. The Australian Taxation Office (ATO) is introducing Simpler BAS for SMEs to reduce the reporting burden. If your annual turnover is less than $10 million, you will report GST on Simpler BAS (unless you report GST by installment).

SMEs who use Simpler BAS will be required to report for the following fields only;

  1. G1 Total sales
  2. 1A GST on sales
  3. 1B GST on purchases

In other words, SMEs are no longer required to report the following fields;

  1. G2 Export sales
  2. G3 GST free sales
  3. G10 Capital purchases
  4. G11 Non-capital purchases

This means that businesses will need only three GST codes instead of seven when reporting BAS. This will not only save time for business owner, accountant & bookkeeper but also reduce room for error….less is more!

However, please be aware that Simpler BAS only affects the GST field, that is, other BAS fields such as PAYG instalment, PAYG withholding and luxury car tax remain unchanged.  Also this does not change the frequency of BAS submissions.

Although this change will reduce the time to complete the BAS and simplifies recording GST information, the change will not significantly change the amount of work performed to get all GST number right! Please do not sacrifice the time that you spend on GST reconciliations as it mean creating more room for mistake. GST still has to be recorded in the correct manner as the underlying GST law has not changed, at Tailored Accounts, we are actually spending the time saving on report to build more layer of GST reconciliation to ensure that our quality assurance is maintained.

While the change is likely to only provide a small reduction in the reporting burden, this certainly has some effects on the setup & function of your accounting department. Not all the accounting software fully supports this change or will require some adjustments or variations. If you need any support in regards to Simpler BAS, please contact Tailored Accounts.

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End of Financial Year Preparation: Magical touch on your books!

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With end of financial year (EOFY) fast approaching, the Tailored Accounts team is counting down to the last day of the financial year! Offices of accountants and bookkeepers will be filled with the hustle and bustle of time-critical challenges. You may wonder why EOFY often becomes such a hectic time for us. I hope this article can shed light on the inner processes of EOFY preparation.

Having worked in the accounting industry for more than a decade, I consider EOFY preparation as a chance to place extra effort to ensure accurate, up-to-date numbers as well as presentable reporting. These outputs are the results of, what I call, a magical touch on your books.

The following list articulates the main examples of magical touches that we exert to ensure your books are in the best order:

1.      The year-end payroll

During the financial year, we process 12 – 52 payrolls for our clients subject to their pay cycles. At the end of each month or quarter, our team reported the payroll information to Australian Taxation Office (ATO), including Gross Wage and Tax details. In addition to the accurate reports regularly lodged to the ATO, payroll reconciliations at year-end takes care and attention to ensure all requirements are met. Here are the core tasks that our team has been undertaking in the process of EOFY preparation:

  • Final super payment runs must be done before 25th June each year to ensure the last super payment is eligible for a tax deduction in the current financial year. Final salary sacrifice payment runs must happen on or before the same date to ensure all salary sacrifice arrangements are captured in the current year’s payment summary for employees. These particular tasks will require a few extra hours of work during the EOFY period.
  • Payment summaries are to be communicated to employees via email/post before 14th July. We ought to undertake a full year payroll reconciliation to ensure the accuracy of the information in payslips, Business Activity Statements (BAS), and payment summaries. This significant task requires half a day at a minimum, depending on the number of employees and complexity of the payroll structure.
  • Payment summary reports must be submitted to the ATO before 14th August in the following year. The task usually takes an hour to complete. To illustrate, 300 clients at Tailored Accounts are interpreted into a budget of minimum 300 hours for all payment summaries with no mistakes allowed.

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Time for change: Accounts Health Check Tools for Not-For-Profit organisations

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By Teddy Nam

The Not for Profits (NFP) sector in Australia is considered diverse and large (approximately 600,000 NFPs in 2010 per the Productivity Commission report), contributing toannual revenue over $100 Billion and representing 8% of the Australia’s workforce (ABS, 2016). With the chief goal of achieving missions beneficial to the public, NFPs are expected to meeta higher standard of public expectations; balancing this withseeking and managing funding has been identified as the greatest problem.

Following the Government policy changes regarding grants in the NFP sector, organisations started to experiencethe impact of increased competition – diminishing funding and enhanced accountability requirements. Specifically, NFPs are expected to convince funds providers of the value of their mission while ensuring efficiency and stewardship of the organisation. This situation creates opportunities for NFPs to manage financials more strategically by reassessing the efficiency of core operations against their budget and demonstrating measurable effectiveness.

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3 useful tips for shop owners to mitigate risk of sales fraud

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20% of our clients are in the retail & food industry or in a business using a Point of Sales (POS) system. Their daily transactions are composed of 20-30% cash and 70-80% Electronic Funds Transfer at Point of Sales (EFTPOS). Though the level of cash transactions may be seen as low, substantial fraud can often take place in cash transactions. According to the research undertaken by Inside Retail Australia, cash fraud penalties for some retail owners exceeded one million dollars.

If shop owners do not have an appropriate procedure for daily reconciliation,it is extremely troublesome to identify irregularities after a few weeks.Thinking of my first casual job as a student at a restaurant, I was responsible for reconciliation between a cash register and a POS system. This sometimes took up to 3 hours per day, but had been proven to be a worthwhile practice,for the restaurant as a small business. As EFTPOS became more popular, shop owners started to pay less attention to their cash revenue, which accelerated risk of fraud. Since owners largely rely on an auto-settlement system provided by EFTPOS providers,fraud in cash transactions have been much overlooked.Furthermore, shop owners may not have thought about potential fraud from EFTPOS transactions.

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The important role of CFOs in Not-For-Profit Associations

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Recent changes in government policy have resulted in substantial impacts on the Not-For-Profit (NFP) association sector. Government grants to NFP associations are expected to decline, contributing to the resourcing pressures for many NFP associations in Australia. Financial resources from memberships, donations, and government grants were core funds used to sustain NFP associations for many years. However, the concern in the sector now would be their survival under the increasing budget constraints. 

The recent changes in the National Disability Insurance Scheme (NDIS) removed many existing grants paid directly to the NFP association sector. According to market research conducted by BDO in 2016, most associations were not ready for the changes in the new scheme even after the NDIS was rolled out. The complexity of the changes required more effective change management. Typical associations in the healthcare and community well-being industry needed significant training and transitional support. 

A significant strategy for NFP associations to effectively adapt to change is the development of new leadership. It should begin with Board reforms to create an “A-team”, who is willing to  lead the association through changes. In order to achieve this changing leadership need, the role of Chief Financial Officer (CFO) is crucial. CFOs can assist their CEOs and Board members with strategic decisions on budget, financial health analysis and estimation. 

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