Tax time housekeeping transcript

By Fiona Boyd |

This post is the transcript of the videopost Tax Time Housekeeping.

Fiona Boyd: Welcome today to Phil Grant, Managing Partner at Nexia ASR. Hi, Phil.

Phil Grant: Hi Fiona, how are you doing?

Fiona: I’m good. Look, the word on everyone’s lips at this time of year is, of course, tax time. I took a call from Michael, who works with you at Nexia ASR, and he said to shoot our accounts over so he could take a look, and have a think about a bit of tax planning, make sure everything’s in order and right for the end of the financial year. And everyone’s going to be in that situation, aren’t they? So I’m just wondering – what is it that accountants are looking for in May/June, in order to make sure that their clients are sitting right to prepare the end of financial year accounts?

Phil: I think what we’re looking for, is just to get a picture of how things have travelled. We might have a high-level idea about where things are at, but it’s more about understanding at a more defined level, what the numbers are likely to roll out as. And to make sure that whatever needs to be done, pre 3rd June – and, truthfully, there isn’t a huge amount that can be done. If you intend to make a superannuation contribution and you haven’t done so, that needs to be paid before 30^th June. If you need to make sure you’ve picked up all your expenses that need to be captured… things like that. It’s really a bit of housekeeping. Truthfully, there isn’t a lot that can be done to reduce tax in a legal manner. The idea is to get information, so then we can at least project forward what we think the likely tax liability’s going to be, and then inform you what the likely tax obligation’s going to be over the next twelve months or so. So it’s really to keep the client informed about where they sit, because ultimately, it’s cashflow planning.

Fiona: Is it a bit of a prompt, as well? Because I had a stash of cash receipts – i.e., where David and I had spent our personal money on business items, we’d used cash – and I had a stash of those that went back to last July. And I went, okay Michael, I actually have to write these up and get these into the accounts! Other businesses would be like that too, surely?

Phil: And that’s housekeeping. It’s just making sure that you’ve captured everything that needs to be captured. It’s a good time to do it. I mean, the reality is, for those type of items, if you’ve spent the money already it doesn’t really matter when you process them. But, no doubt, there’ll be some GST involved, and you want to claim that back too before the end of the year. So this, it is housekeeping, and it’s good to capture that information while it’s relatively fresh in your mind, rather than waiting later when you forget about it and you miss out, and it’s too late. Look, it is just an opportunity just to take stock and just to make sure that your records are in order. We can then cast our eye over it, we can do a bit of a projection to the end of the financial year, make an assessment about how perhaps we ought to deal with income, if it needs to be distributed, if you’re in a trust structure how it’d be managed. There are lots of, there are recent changes in the tax rules regarding companies and the treatment of distribution.

Fiona: That means distributions have to be actually distributed.

Phil: No, no they don’t but as of yesterday a final tax ruling was issued, which we’re all trying to get our heads around, which may mean that you have to do something like that. But, look, it’s good to simply touch base, and just to see, what position am I in, and what do I need to do? It might be nothing or it might be something, so…unfortunately we do have a drop-dead date of 30^th June and some things will have to be done by 30^th June – every client’s in a different situation. But, to me, it’s more about if you’re structure’s right – and I’m, as you know, very big on structure – the rest should look after itself. So, the housekeeping needs to be done, and then you just sort of say, well what’s the end result, what’s the bottom line result? And then, how are we going to manage it? Then we transpose that into a tax cashflow for the client, so they know they can plan with the next 12 months cashflow what their obligations will be. Because, as you know, yes you pay some tax along the way, but there’s always a bit of a catch-up sometimes, the business is always changing. So it’s a matter of making sure the clients clearly know where they’re at.

Fiona: How does the ATO deal with that? Because business is so much more dynamic now, isn’t it, that ups and downs can happen at a much faster rate than even 10 years ago. When you were on the slide, then it might’ve taken six months, but you can hit a wall in a week in current times. How does the ATO get their head around the fact that business patterns really have changed – and it’s a lot more volatile and dynamic?

Phil: Well, we have a system where we pay tax quarterly, through what’s called the PAYG system, Pay As You Go system and that’s based on the most recently revised information at the tax office. So typically that might be based on your prior year’s activity, and as you rightly say, your prior year’s activity might not be a reflection of your current year’s activity, so there is the ability to vary those instalments based on current activity. And you need to take care – because if you over-vary you can get penalties for underpaying tax along the way. But there is the ability to communicate to the tax office that your circumstances have changed and your tax obligations should reduce. But it’s a matter of managing that – and that’s part of our job, to help manage that, so we can sort of steer it in the right way, so you’re not paying too much, you’re paying the right amount at the right time. Because it ultimately comes back down to managing cashflow.

Fiona: Just one more thing to do with the tax office, it being tax time: we had a letter a few months ago from the tax office and it was about income that we’d been receiving from overseas and that was earned income from an overseas client that we were consulting to. Maybe you could explain a bit more about what’s going on there, because I know that others have received – others I know have received a similar letter too. And they’re doing business online and a lot of their income comes from the States, rather than Australia.

Phil: Sure. Well, the government, through AUSTRAC, monitors any significant sums which flow cross-border. And a lot of that’s to do with, you know, money laundering, terrorism, all those horrible things.

Fiona: The bad stuff.

Phil: The bad stuff, that 99 per cent of us, I hope, are not involved in.

Fiona: Not normal commerce.

Phil: That’s right. And of course it is a mechanism for tracking undisclosed income if it is not disclosed in tax returns. So you’ve just got to be conscious that you might get a letter, and as you recall, I think the letter said it’s all fine, there’s nothing to communicate, it’s all about voluntary disclosure, you don’t do anything, just move on, and obviously in your situation, that’ll be disclosed as income and tax will be paid on it accordingly. So there’s really nothing to be concerned about, just something to be conscious of. Yes, they are watching, it is Big Brother and they are watching, and significant transactions are being tracked and today’s environment, it’s all electronic – most of it’s electronic – and they’ll see everything that’s going through everyone’s bank accounts and they’ll ask questions where they think it’s warranted.

Fiona: I actually don’t have a problem with that. I think if you’re running your business – as you say, if you’re structured right and your business is working, or you’re working to make it work – then why would that be a problem?

Phil: I guess it’s not a problem, as long as it doesn’t become too overbearing. Then it just becomes another thing you’ve got deal with which really gets in the way of you dealing with what’s important, which is running your business.

Fiona: Thank you for your time today, Phil.

Phil: Pleasure. Thanks, Fiona.

Fiona: I’ve been speaking to Phil Grant who is managing partner at Nexia ASR, a boutique accounting firm in Melbourne.

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