Posts Categorized: Tips of the week

Be careful when claiming bad debts

A bad debt can be claimed as a tax deduction. And with the end of financial year rapidly approaching, now is the time to determine what can be written off.

Probably the more important discussion is how to avoid bad debts in the first place. That will be left to a future post.

To claim a bad debt, it must have already been reported as income. That means those who report their income for tax purposes on a cash basis can’t claim a bad debt.

So for those who recognise income on an accruals basis – meaning income is recognised when the invoice is raised – they must have reached a position where all reasonable attempts to collect have failed. It must therefore be more than doubtful.

You then need to make an entry into your accounting system. Those who are using a cloud file must process the bad debt in June. Don’t fall for the trap of ding it later as cloud systems time date entries.

But what if I collect the money later?

There are genuine cases where this happens. The customer could come into money through an inheritance or windfall and do the right thing and pay back their creditors. In that case, you re-recognise the income as a bad debt recovered.

Beware of schemes of arrangement

Sometimes a business may not write off a debt but later accept so many cents in the dollar from a liquidator’s offer. The problem here that accepting say 40 cents in the dollar does not entitle you to claim the other 60% as a bad debt. So keep on top of your customers and ensure you write off bad debts as soon as you can.

Tip

It is always a good idea to document the attempts you have made. That way you will have some contemporaneous evidence as to your decision if the ATO start asking questions.

As I already said, the real question is what can you do to prevent bad debts in the first place – we welcome that discussion with you.

Instant asset write-off warning

The Instant Asset Write-Off is a great way to reduce both your 2021 tax liability and your 2021/22 PAYG Instalments. And you won’t drain you cash flow if you finance the asset purchased.

But beware!

To be able to claim the write off in the 2021 tax year, you must have the asset installed and/or ready for sue before July.

If the car you ordered is not delivered until July then you won’t be able to claim until next tax year.

And as a footnote to the above, financing a lease will not able you to claim the write-off. Under a lease, you are not the owner until you pay the final instalment. This is just another trap.

If you want to know more then call us.

A quick lockdown update

So back into lockdown we go!

We are most sympathetic to those businesses that will suffer financially from this latest lockdown, particularly those in entertainment and hospitality.

The Maggs Reid team is now all back at home but thankfully due to modern technology, will be able to operate almost normally. We do ask that you contact us by e-mail during this time.

Financial assistance

The state government is yet to announce any financial assistance to small businesses. Please be assured that we will update you as soon as details are announced – but judging by one minister’s comments this morning, that, for unknown reasons that surprise me, won’t be until next week.

Compulsory QR codes

As a generalisation, businesses that deal with the public are now required to track visitors to their business electronically by using the government’s free QR service. Such businesses could use other QR services from 30^th April, but as of today, must use the government QR service. You can read more at – https://www.coronavirus.vic.gov.au/about-victorian-government-qr-code-service. Although we are not one stated industries that must use a QR system, we have adopted one as of yesterday as we believe it is a better system than manual sheets.

Survive and Thrive webinar

I take this opportunity to remind you that the next Survive and Thrive webinar will be held on Wednesday 9^th June at 5:30 PM. This month, we will address tax planning actions required before the end of the year. And I’m sure all business owners will be interested in our guest speakers presentation on three legal common traps for small business owners. You can book your place at – https://us02web.zoom.us/webinar/register/WN_l5ZhIapvTTqDqoKSSKStxg

Tax lodgements

Like all accountants, the demands of JobKeeper, rent relief applications, Land Tax applications, JobMaker, cash flow preparations to support loan applications and so on have meant that we are still to finalise and lodge a number of 2020 Tax Returns. In fact that my accounting discussion group meeting on Wednesday night, no accountant, not one, managed to meet the required 85% lodgement deadline of last week. Please do not be concerned as the ATO are tolerant and are rubber stamping all extension requests. In managing our lodgement listing, we are cognisant of people’s positions and are prioritising those matters that require early retention. We do appreciate your ongoing patience in he most unusual period.

Portal improvement

I should again state that we have been preparing 2020 Tax Returns using new software; software that talks to other programs. As part of this process we have been able to adopt better client portal and digital signing software. What this also means is that the existing portal will be inaccessible after 30^th June. We assure you that we of course have copies of everything we have dropped into your portal. We have also saved copies of any documents that you have dropped into your portal. You may though wish to retrieve any document you want at your electronic finger tips.

Stay safe and we look forward to seeing you soon.

What’s in the Budget for you?

Probably significantly more than you think.

As what is now unfortunately the norm, there were plenty of pre-announcements before Budget night. But there is much more to the Budget that was announced on Budget night or leading up to it.

In addition to some key business announcements (extension of loss carry back company rules and instant asset write-off) there were very welcome announcements to being able to getting more money into super. Welcome I say as how can one provide for retirement with a contribution cap – which currently sists at $25,000 before being eroded by 15% tax, life insurance premiums and for some an extra 15% tax).

Also of note were the proposed changes to personal and self managed super fund residency rules. I say welcome as the existing rules are quiet archaic in context of how people today live, work and travel – mind you we still aren’t going anywhere for a while with covid.

We will explore some of the key measures in our next survive and thrive webinar. It will beheld at 5.30pm on Wednesday 2^nd June and you can book here – https://tinyurl.com/reg0206

We will also flesh out some opportunities in upcoming blogs.

But having said all that, please keep in mind that:-

A Budget is only ever a series of announcements,
They still have to be legislated,
They may be changed slightly and
Many have start dates form July 2021 – and we may have a change of government before then.

Please though don’t hesitate to call us if you any questions.

Is your business required to have a QR code system in place?

Is your business required to have a QR code system in place? With so much going on and such little information distributed by the state government about covid requirements, it is understandable you may not know.

The answer is it depends what your business does.

All prescribed businesses must have a QR code system in place by Friday 30^th April. The amnesty period, which has already been extended once, will come to an end this Friday.

A QR code system will not cost you anything other than your time if you use the Victorian Government QR code service.

So is your business one that must have a QR code in place by Friday?

You can check by clicking on the following link here.

And please remember if your business is not required to have a QR system in place, it will still have to record all visitors to your business premises. So may be you are better off moving from the existing paper sign in register to a QR code system.

You can access the paper log by clicking here.

You can access the posters required to be shown in your workplace by clicking here.

Survive & thrive webinar

As we head into a brave new post-JobKeeper world, there is much to keep abreast of.

So our Survive & Thrive webinars are back!

About the Webinar

In our next 25 minute webinar we will

Update you on actions required in May (including new rules for those who employ casuals).
With a hot property market, our guest speaker Martin Ryan will explain recent property loan developments.
And our case study will explore the peril of selling to customers who may not be able to pay you. This has never been so important now that so many business don’t have the JobKeeper financial safety net.

We will also feature special client offerings – and one will of great interest to many.

The webinar will run from 5.30pm, so grab a cup of tea (or beer) and tune in.

And if you away from your home or office, you can still watch it on your phone.

You can register by clicking here

We do hope you can join us on Wednesday, 5th May at 5.30 pm

Entertainment can be taxing

Entertainment can be taxing. That’s an understatement as there are 3 aspects – tax deductibility, GST and Fringe Benefits Tax (FBT). There are 38 outcomes depending on who does with whom where and why. It therefore requires careful analysis

No wonder the ATO has such a great strike right in FBT audits on entertainment.

But that’s not all that has to be considered. For FBT purposes, an employer has to determine which of three methods produces the best result. Although that said, the actual method for quantifying the FBT taxable value of entertainment is usually best for small employers (but not always!).

You can read more on the following factsheet – FBT Flyer – Meal Entertainment Factsheet

Confused or concerned? That’s understandable. We would be happy to discuss your situation.

We take this opportunity to state that the prudent action is to lodge an FBT Tax Return – even if nothing is payable (which is usually the case for small businesses). This extra step is not a waste of time nor money as it starts the audit clock ticking – after 3 years the ATO can’t go back and audit you; don’t lodge an FBT Tax Return and the ATO can go back as far as they like.

Urgent SG super reminder

Wednesday 28^th April is the end date for satisfying Super Guarantee (SG) super obligations for the March 2021 quarter.

But beware as some of the clearing houses have a submission and payment deadline well before then. May be even today!

SG super is payable on all forms of remuneration including:-

Commissions
Bonuses (but see below)
Directors’ fees and all other forms of remuneration to directors
Allowances (except where fully expended)
Contractors paid mainly for their labour

But excluding the following remuneration:-

Overtime
Reimbursements
Unused annual leave on termination
Remuneration of less than $450 in a month
Bonuses that are only in respect of overtime
Bonuses that are ex-gratia but have nothing to do with hours worked; which is harder to satisfy than what you might think
In respect of employees younger than 18
Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies)
On quarterly remuneration greater than $57,090
Non-residents performing work for an Australian business outside Australia

If your payroll system has been set up correctly then it will perform these calculations for you. We would welcome the opportunity to assist you with this and if need be refer you to a good book-keeper.

SG super should never be paid late as late payments attract substantial interest and penalties. Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SG rate remains at 9.50%.

So if you haven’t paid your employer super obligations already, we recommend doing so today!

Do I have to pay FBT on my workhorse vehicle?

Do I have to pay FBT on my workhorse vehicle (think utes, vans and taxis)?

Well it depends.

There has and still is an exemption for private use that is minor, infrequent and irregular.

The problem is the ATO recently announced safe harbour provisions. And those safe harbour provisions are probably more restrictive than what most people think.

These provisions also dictate record keeping that wasn’t required previously.

Want to know more – then click on the following link.

FBT Flyer – Workhorse Vehicles and new safe harbour provisions

Why is this important?

Well if any private use doesn’t satisfy the safe harbour tests to minor, infrequent and irregular travel then the business is subject to Fringe Benefits Tax.

And this leads to the next point of how important it is to lodge an FBT Return (even if no FBT is payable). Lodging and FBT Return starts the audit clock ticking. When three years have passed, the ATO can’t go back and audit that year. Don’t lodge a FBT Return and they can go back as far as they like.

Not sure about your exposure? Don’t want to risk not complying and paying FBT 9and penalties and interest)? Then call us.

How are your customers affected by JobKeeper?

There has been much press about the ending of JobKeeper and what it means. The press has largely focused on the most exposed industries such as cafes and restaurants, particularly those in the CBD.

So the question is how exposed is your business if your customers are at risk?

At worst, it may be best to not sell to someone who is at risk of falling over.

So, if

it costs you $600 to service a $1,000 sale and
they go down owing you $2,000

Then you will need sell someone else another $5,000 just to cover that loss. It’s a tough assignment at any time let alone in today’s market for many business owners.

The sad reality is that most accountants don’t ensure their clients accurately record and report on the trust cost of servicing the sale of a good or service. It’s really really important to know this so for so many reasons – but in context to the discussion here, knowing what is at stake when making a sale that may not be collectable.

So think about whether you should continue to sell to existing customers. Another option is to ask for payment up front.

And now would be a good time to review your terms of trade. And with that, you should consider whether it is worth protecting your interest under the Personal Property Securities Act (PPSA) – the modern form of Romalpa clauses. It’s a measure of last resort but can save your bacon. It’s beyond the scope of a blog to explain how you can use PPSA but we would be happy to explain it to you and refer you to a qualified solicitor to attend to the necessary paperwork.

So in these difficult and unusual times:-

Don’t sell to anyone without evaluating their ability to pay.
Put the proper protection mechanisms in place.
Be crystal clear on what it costs you to sell your goods and/or services.

Want to better understand your situation? Then ask us as we have decades upon decades of experiences gained from a range of clients operating in an array of industries.