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Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware of your liability as a small business owner for tax credits you have claimed, or not knowing what your bookkeeper/wife is reporting in your BAS and tax returns – ignorance is not an excuse with the ATO! As Terry Hayes relates in Smart Company about a carpenter in a recent Dispute with the ATO –

While it’s often said that lawyers and accountants are their own worst clients, or doctors are their own worst patients, taxpayers too can be their own worst clients when they represent themselves in disputes with the Tax Office.

This happened recently with a carpenter who represented himself before the Administrative Appeals Tribunal in a GST dispute with the Tax Commissioner.

In that case, the AAT upheld the Tax Commissioner’s decision to impose on the taxpayer a 50% administrative penalty on the basis of “recklessness” because he had over-claimed GST credits.

The taxpayer is a carpenter by trade, a sub-contractor in the building industry. He is a sole trader and has no employees. The Commissioner audited his Business Activity Statements for the period 1 January 2007 to 30 June 2010 and found he had over-claimed input tax credits. The BASs showed that claims for ITCs exceeded his GST payable in all but six out of the 42 BASs lodged in the relevant period. The tax shortfall amount was around $130,000 and the penalty imposed was some $65,000 based on 50% of the shortfall amount.

The taxpayer said that his wife prepared and lodged his BASs and that he never reviewed them or any of the supporting documents, including the invoices that he kept in a box in the linen closet which, as it transpired, did not substantiate his ITC claims. He also did not keep vehicle log books. Nor did he ever check any of his bank statements and so he was unaware that he was receiving GST refunds from the Commissioner over a lengthy period of time in the joint bank account that he had with his wife.

The taxpayer did not dispute the tax shortfall but argued he was not responsible for the penalty maintaining that it was the Commissioner who was mostly responsible for it. He alleged that Tax Officers had represented to his wife that he was entitled to claim ITCs for the purchase of his family home because he maintained a home office (although the AAT noted the settlement statement for the purchase of the home did not show any GST having been charged by the vendor to the taxpayer and his wife as the purchasers). Additionally, the taxpayer claimed it was the Commissioner that allowed the situation to go on for so long without him being audited.

The taxpayer also alleged that a car salesman had represented to him that he could claim back the GST on the purchase of two vehicles, but he accepted before the AAT that he was given wrong information by the salesman.

The taxpayer also stated that he had lost a lot of information about his purchases when his old computer died and that many other receipts that he had stored had faded and were illegible. The taxpayer contended that the mistakes in his BASs “were not made intentionally by his wife and that he had always been honest with the Commissioner”.

The taxpayer was self-represented. The AAT did not accept what the taxpayer said his wife was told by the Tax Officers or what the taxpayer said he was told by the car salesman. It agreed with the Commissioner’s contention that the taxpayer had over-claimed ITCs “for a lengthy period of time in circumstances where he knew or should have known that he was not entitled to claim the ITCs”. The AAT said the taxpayer had conceded he was “indifferent as to whether the BASs were accurate”. It also noted the taxpayer “never checked any of the BASs or whether he had the supporting documentation for the ITC claims because he thought everything was fine”. The AAT was of the view that the taxpayer “chose to leave the preparation of his BASs in the hands of his wife who had no taxation expertise”.

In the Tribunal’s view, the taxpayer’s conduct amounted to recklessness because there were foreseeable risks as to a tax shortfall where his BASs included claims for ITCs to which he was not entitled. The AAT said a reasonable person in the taxpayer’s position should have known about those risks. The Tribunal said the taxpayer “displayed complete indifference to the high risk of non-compliance in his GST affairs”. Game, set and match to the Tax Office on this occasion.

The AAT held the taxpayer had failed to discharge the onus of proving that the penalty was excessive. It held the decision to impose an administrative penalty of 50% was correct and that it should not be remitted in the circumstances.

Taxpayers must exercise care in their taxation affairs. They have that responsibility, and while they may claim they have no intention of making mistakes, that does not unfortunately stack up. Leaving the preparation of BASs to a family member (even if they are well versed in this), be it a wife or someone else, does not absolve the taxpayer from his or her responsibilities.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Business Finance 101 – What is a Profit & Loss Statement and what it tells us

Business Finance 101 – What is a Profit & Loss Statement and what it tells us

What is a Profit & Loss Statement and what it tells us

Want to know what is a Profit and Loss Statement? It is one of the main business reports we use, and what it tells us is how the business is going financially (whether you are making a profit or loss for a period) – it is the Profit & Loss Statement or Income Statement or Trading Statement. The statement shows all the sales for a period less the cost of goods (if you sell product) which leaves Gross Profit, then from that all the Expenses (operating or overheads like rent, wages etc) leaves  the Operating Profit (not always reported), then from that less any non-regular income and expenses, gives us the final Net Profit.


In summary, there are three main levels of profit or profit margins

  • Gross profit (after cost of sales deducted from sales/revenue),
  • Operating profit (sometimes given = after expenses deducted) also known as Pretax profit (before tax and other non-regular items) and
  • Net profit (Final, after tax and other non-regular expenses and income).

Note that “profit”, “earnings” and even “income” are all used interchangeably, and mean the same thing.

When the term “margin” is stated, it can apply to the dollar number for a given profit level and/or the number as a percentage of sales/revenues.

The absolute amount, the dollar amount, is on the Profit & Loss Statement. The net profit margin commonly uses the percentage calculation to provide a measure of a company’s profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. The margin is the amount of profit (at the gross, operating, pretax or net level) as a percent of the sales generated.

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Cashflow Tips – Improving cashflow in small business – Tip – Invoice Promptly!

Cashflow Tips - Improving cashflow in small business – Tip – Invoice Promptly!

Cashflow Tips – Improving cashflow in small business – Tip – Invoice Promptly!

Small business owners are often uncomfortable about asking to be paid, yet the top way to improving your cashflow is by invoicing PROMPTLY!. When you run a business, (especially for service businesses) if you don’t invoice promptly as well as collect payment promptly (which causes a cash crisis in the first place), then consider the following consequences –

Consequences for your cashflow:

  1. Clients can quickly forget what they owe you;
  2. They are less likely to remember how much they loved your work and pay you promptly;
  3. They may conclude that you do not expect quick payment and will take their time in sending in their money.

Some ACTION steps:

  1. Where possible, issue invoices at the time services are delivered;
  2. Send your invoice by email to speed the process;
  3. If you can’t issue immediately, be sure to issue your invoices weekly, or at least twice per month on designated days, such as on the 15th and the last day of each month;
  4. Do it like clockwork – it will help to even out your cashflow.

Take-away message and case studyCreate the habit – invoice quickly and often!

Part of our service is assistance with cashflow budgets, debtor collection and reviewing supplier costs and terms. One of our clients said the business finance is now in the BEST shape it has ever been – for our 4-5 hrs work weekly involves managing the invoices, payment follow up unique method and now supplier payments! The owner now can catch up on quoting jobs and finalizing the sale to grow the business.

Could this assist you in your business and let you focus on your best skills and on running the business?

If you would like to speak with these clients, email me and I’ll supply contact details!

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

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Bookkeeping – New Year Resolution – Organising bookkeeping tips for small business – Part 2

Bookkeeping – New Year Resolution – Organising bookkeeping tips for small business – Part 2

Bookkeeping – New Year Resolution – Organising bookkeeping tips for small business – Part 2

Part 1 last month, we looked at how to organise your books, your bank and credit cards as separate from your personal banking and tips from the ATO website on record keeping.

Part 2 here, we show 6 steps that look at how to keep track of account-keeping tasks, things that need answers (queries and who to ask) and storage of records.

6 steps to get your accounts in order

Here are 6 steps to get your accounts in order – off to the right start (or improve current systems)

  1. Bookkeeping Task ChecklistA summary snapshot checklist of the full accounting year – tells you what to do and where you are at – down the left side, number the items that apply to you – you may do invoices manually in another book or Word, but then only record the actual sales deposited/cashed in your excel sheet or accounting software (cash basis), or generate invoices from accounting software and then record when customers pay you (accrual basis). Or if you have lots of small sales in a retail shop, you record the end of day sales total only, eg deposit to the bank.
  2. Cash Expense Organiser Sheet – Photocopy one sheet per month, then each week, sort your cash receipts into categories – fuel, stationery, postage and then paper-clip them to the sheet. Enter each receipt, or the total fuel, etc. At end of month staple the bundles, total the expense categories – total fuel, stationery, stamps, etc. Enter in the accounting records, reconciling the petty cash. Then start a new sheet and slip on the clips ready to go for the next month.
  3. Small Expense Organiser  – A Sheet for small receipts paid by EFT, credit card, clip then staple as at end of month after recording. Or put the sheet and all slips for a month in a plastic pocket. File all the other supplier invoices in A4 size, in alphabetical order.
  4. Contact Register  – For important conversations and negotiations such as price bargaining or discussions on what will be supplied and agreed. Also best to record disputes time and dates, very carefully.
  5. Year End – Comprehensive Checklist – Year end can be a busy time, especially with payroll so this checklist can be adapted to the items that apply to your business
  6. Year End – Report Folder Cover SheetIf using manual accounts or Excel, list and check Debtors (accounts receivable, that you are still owed) and Creditors (accounts payable that you still need to pay). Copy the last bank and credit card statements and any reconciliation reports. If using accounting software, print Profit and Loss, Trial Balance, and check Debtors (accounts receivable) and Creditors (accounts payable) PAYG and Super reconcile to the Balance Sheet. Gather all BAS statements and reports. Gather all asset Invoices together.

Fill in the cover sheet and year, collect reports together (separate by labelled tabs for easy reference) and give to your accountant to prepare the tax returns.

DOWNLOAD a Free “Bookkeeping Quarter Checklist” to get organised!


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Business Tax Tips – Fringe Benefits tax – An overview

Business Tax Tips – Fringe Benefits tax – An overview

Fringe Benefits tax – An overview

The Australian Tax Office (ATO) is the best source to define many business tax issues and here are some extracts where they explain Fringe Benefits Tax (FBT).

1.1 What is a fringe benefit?

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The ’employee’ may even be a former or future employee.

An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of ’employee’ in the FBT legislation. The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services.

As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. When we refer to ‘you’ in this guide, we are referring to you as an employer.

1.2 Who pays the tax?

FBT is paid by the employer.

You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations, or if you provide benefits in lieu of such payments. These withholding obligations may apply to payments made to an Australian resident employee working overseas.

If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand, which currently include FBT).

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

This is regardless of whether you or another party provides the fringe benefit. FBT is payable whether or not you are liable to pay other taxes such as income tax.

You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

1.3 Are you providing fringe benefits?

The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.

  • Do you hold any cars or other vehicles that are available to employees for their private use, including a car garaged at the employees’ place of residence?
  • Do you provide loans at reduced interest rates to employees?
  • Have you released an employee from a debt?
  • Have you paid for, or reimbursed, an employee’s non-business expense?
  • Do you provide a house or other accommodation to your employees?
  • Do you provide employees with living-away-from-home allowances?
  • Do you provide entertainment including food, drink or recreation to your employees?
  • Do any of your employees have a salary package arrangement in place?
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

Fringe benefits have been categorised into 13   different types so that specific valuation rules can be used. These benefits are dealt with separately in their respective chapters in this guide.

A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by some international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT.

For more on reducing your FBT liability and what is not subject to FBT, read more here.

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Business Finance 101 – What does the accounting equation mean?

Business Finance 101 – What does the accounting equation mean?

What does the accounting equation mean?

The Accounting Equation is used in both small and large business, and gives a financial position of the business – ie its value (also known as equity), after debts/liabilities. The Accounting Equation or financial position is calculated from three items – assets (what it OWNS), liabilities (what is OWES) and equity (the difference between assets and liabilities, or owner’s equity).

The accounting equation is a simple way to understand how these three amounts relate to each other, and written –

Assets – Liabilities = Equity

The accounting equation is also reported another way (eg USA)

Assets = Liabilities + Owner’s Equity for a small business sole proprietor

The accounting equation for a company/corporation is:

Assets = Liabilities + Stockholders’ Equity

So let’s break down what each part is –

Assets are the company’s resources —what the company owns of value – cash, accounts receivable, inventory, prepaid insurance, investments, land, buildings, equipment, and goodwill. From the accounting equation, we see that the amount of assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity.

Liabilities are the company’s obligations—what the company owes – notes or loans payable, accounts payable, salaries and wages payable, interest payable, superannuation, and income and payroll taxes payable.

Owner’s equity or stockholders’ equity is the amount left over after liabilities are deducted from assets:

Assets – Liabilities = Owner’s (or Stockholders’) Equity. It also reports the amounts invested into the company by the owners plus the cumulative net profit/income of the company that has not been withdrawn or distributed to the owners.

With accurate records, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of the company’s accounts. As an example, if a company borrows money from a bank, the company’s assets will increase and its liabilities will increase by the same amount. When a company purchases inventory for cash, one asset will increase (inventory) and one asset will decrease (bank paid for the stock). Because there are two or more accounts affected by every transaction, the accounting system is referred to as double entry accounting.

A company keeps track of all of its transactions by recording them in different accounts in the company’s general ledger. Each account in the general ledger is designated as to its type: asset, liability, owner’s equity, sales/revenue, expense, profit, or loss account.

Balance Sheet and Profit & Loss

The balance sheet is also known as the statement of financial position and it reflects the accounting equation. The balance sheet reports a company’s assets, liabilities, and owner’s (or stockholders’) equity at a specific point in time. Like the accounting equation, it shows that a company’s total amount of assets equals the total amount of liabilities plus owner’s (or stockholders’) equity.

The profit and loss or income statement is the financial statement that reports a company’s sales/revenues and expenses and the resulting net profit/income. While the balance sheet reports one point in time (the FINAL Balance at a date), the profit & loss covers the total amount over a time interval or period of time (eg a month). The profit and loss will explain part of the change in the owner’s or stockholders’ equity during the time interval between two balance sheets, as the profit or loss is reported on the balance sheet.

Learn why Profit does not equal Cash HERE

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Cashflow Tips – Managing cash flow in a small business – How a cashflow can help

Cashflow Tips - Managing cash flow in a small business – How a cashflow can help

Cashflow Tips – Managing cash flow in a small business – How a cashflow can help

Here are some great tips from a great resource for managing cash flow in a small business, at the Queensland Govt site at: and under the Running a Business then – Finances cash Flow.

Managing Cashflow –

Your cash flow is the money you have coming in from revenue and going out for expenses. Good cash flow management will ensure you always have money available for paying your expenses when they are due.

Even profitable businesses can fail if cash flow is not managed properly. If you don’t have enough money available to pay your lenders or suppliers, banks may foreclose and suppliers could cut supplies.

There are many areas in your business that can impact on your cash flow. It is important to understand how customer payment terms, supplier payment terms, loan payments, future spending decisions and other items can affect your cash flow.

This guide will help you to manage your cash flow and understand how to use cash flow analysis to inform business decisions.

Plan and Monitor Cashflow

Planning and monitoring your cash flow is one of the most important things you can do when running your business. This should also include how you will address cash shortfalls or surpluses if they occur.

Forecast cash inflows against cash outflows

A cash flow statement will help you forecast your money coming in and going out. Forecasting your cash flow is usually done annually and broken down into monthly amounts. Always record the amount in the month it is expected to be spent or received. For example, electricity is usually paid quarterly so should be recorded in the month it is due.

You can use a cash flow template to forecast your annual cash flow. You will need to estimate and record the following amounts for each month:

  • total monthly cash inflow – includes sales, sales of assets, capital injections from borrowings or owners funds, interest revenue and any other sources
  • total monthly cash outflow – includes items such as purchases, loan payments, supplies, telephone, electricity, wages and any other bills
  • net cash flow – take the total outflows from the total inflows to see if there is more money in or out
  • opening balance – record your cash available at the beginning of the month
  • closing balance – calculate your funds available at the end of the month by adding the net cash flow to the opening balance. This will become your opening balance for the next month. Note: If your net cash flow is negative, this amount will be reduced.

Include GST when inserting amounts for some cash inflows (particularly sales) and many cash outflows (particularly purchases). Calculate the difference between total GST inflows and total GST outflows and insert this as GST payments.

Different businesses are subject to differing GST requirements, so you should seek specific advice from your tax adviser. Learn more about working with business advisers.

Monitor actual inflows against outflows

As each month passes it is important to record your actual cash flow. This can be compared against your forecast to see if you are tracking as planned. You may find you need to review and adjust your forecast as amounts change over the year. Always make sure your payments received match invoices issued, and receipts and payments match.

Invest surplus cash or arrange loans

If you forecast excess cash for some months, it can be worth putting it in short-term investments to maximise your income. If you anticipate any shortfalls in cash, you may want to plan to use this invested excess, or seek for an appropriate loan to temporarily cover your costs. Don’t forget to include these extra payments or receipts in your cash flow forecast.

What are your thoughts? Call for FREE 30min advice / strategy session today!

0407 361 596 Aust

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