Has the stimulus payment worked?

Debate will no doubt rage for years to come whether the “Kev 07” stimulus package worked for Australia. I must admit that I queried the benefit of it when it was announced on 3 February. I struggle to find the benefit of giving someone $900 if they are at risk of losing their $50,000 job.

The same arguments about the baby bonus & plasma TVs are also being raised about the stimulus payment. Foreigners & the dead got the cash. Yet those that needed the government handout the most seemed to have been the ones that didn’t earn enough as they weren’t technically a “taxpayer”.

There have been complaints, quite justifiable, for some accounting firms charging $60 handling fees. National credit card debt continues to rise with it now around $45 billion. And we had announced in the Federal Budget in May that we have a record budget deficit.

Yes Australia avoided a technical recession when the March GDP figures were released but really what impact did the stimulus payment make to the bottom line. And is it inevitable that we will fall into recession anyway in 6 months time?

National unemployment continues to rise with 1 million expected to be without a job in the next few years.

Business confidence has risen in recent months & I can personally tell you that virtually everyone of my clients were very happy to be getting $900 on 4 February.

So I ask again has the stimulus payment worked? I don’t think we really know the answer to that one.

But what I do know is that the nation’s tax compliance has improved for individuals anyway. About 4 weeks ago, the ATO had estimated that there were approximately 800,000 people (almost 10% of taxpayers) that were eligible for the tax bonus but had yet to lodge their 2008 tax return. 2 weeks ago that figure was 500,000. Last week it dropped by to 280,000 (or $252M in payments!). My office had its busiest June ever as people came out of the woodworks to get their $900. As I told them, if you saw it on the ground you would pick it up ... so why not bend your back.

Since 3 February, there have been over 2.2 million tax returns lodged. This is a 20% increase for the same period in prior years. Over 318,000 returns for prior years have been lodged as well. And there have been alot of real slackos as well. More than 2,000 people have since come clean & lodged 9 or more years of tax returns.

Happy New Financial Year everyone! May the new year bring prosperity to your business & the economy.

Do you think the stimulus payment has worked? Has your business noticed a pick up in activity since 3 February?

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Money is NOT important and most things are NOT urgent

It may seem strange that an accountant would say that money is not important. But I was lucky in that I was never brought up to be materialistic. My parents arrived in Australia in 1971 from Ireland with one suitcase, $20 in their pocket and within a few weeks mum was pregnant. If I ever tried to get ahead of myself then my dad would always bring me down to earth … sometimes with a thud. For a man that never had a chance of secondary school education, he was well trained in the “University of Life” and I consider him to be one of the smartest people that I have ever had the pleasure in meeting. Tragically he died a few years ago at the age of 59. Another good life cut short. But an eventful one. He never made a million dollars as a bricklayer but he took time to experience many things in life and provided a great life for his family.

His death was a timely reminder to me that life is way too short … so why work so many long hours? After all, when you are 80 & looking back on life are you going to reminder those great times in the office late at night? Or great times with family & friends?

If you saw my blog last week you will know that the one thing that really, really, really irks me is when someone calls or emails me and says that something it is URGENT! When in reality it is not. Let me tell you what the definition of urgent is.

Imagine that your pregnant wife goes into labour and you are on cloud nine, about to be a parent for the first time. But then you see the fear in the doctors eyes & you are quickly told that there are complications. Within an hour you are holding the warm, yet limp, body of your daughter as you were told that she was born sleeping. And that your wife is having emergency surgery to save her life in what is now a 50/50 situation. She is then whisked away to intensive care. During that time you get harassed by a client for something because it is “urgent” … but it can really wait another month. What do you think is urgent? Yes looking after a client’s needs is important but it is not urgent. Of course being with your wife is what is urgent & in fact the only thing that matters in the world at that time. World War III could break & you wouldn’t care.

Sadly this exact situation happened to me last December. Most people dream about angels, but I got to hold one in my arms. ~Sophie Cleo~ we love you.

People are saying that times are tough at the moment – but trust me they can get so much tougher. As the saying goes … when the going gets tough, the tough gets going.

We are getting close to the end of the financial year. A lot of you are doing some tax planning and taking advantage of my great tax tips. But one tip that I didn’t put down is making a donation to charity and perhaps that you should think about putting something back to the community. Make a real difference in your life.

I am determined to make a real difference. Back in December, we were hoping to walk out of that hospital a healthy baby girl, but instead walked out empty handed. Gut wrenching. An extremely tough period in our lives. But the ladies at Bears of Hope were tremendous and provided amazing support to us. With 1 in 4 pregnancies in Australia end in sadness & empty hands, we want to help other families during their tough times as well. As a result I am running the Sydney marathon in September dressed in a leprechaun outfit to help raise funds and awareness for Bears of Hope. Yes 42.2km of pleasure. It is not pain … I know what real pain is. I appreciate your support.

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Those annoying banks & their meaningless letters

Can’t help myself with this but I need to have a go at all banks today.

Here are multi-billion companies, with all the latest technology, smartest people, etc in the world. Yet when it comes to approving a piddly little loan, of say $10,000, for a good customer (with a great credit history and track record) that they can’t make a decision themselves UNLESS they have a letter from the customer’s accountant saying what the purpose of the loan is.

Today I got another URGENT email from a client wanting this type of letter, coupled with a few phone calls following up the matter. The loan is for $12,000 against a home valued at $532,000 with only $223,000 currently outstanding. The couple are both working at the same employer for the past 10 years, earning about $120,000 combined.

“The loan won’t be approved unless you get this letter from your accountant” the email from the bank employee states.

“We need it urgently!” it goes on.

Come on Mr Banker! Accountants have enough work on their plate as there is already without having to regularly meet URGENT demands of their time to do a stupid, meaningless letter to satisfy your loan files. The banks will say its required for compliance purposes. But if you need compliance then why don’t they simply ask the client to sign a statutory declaration of the loan purpose.

Accountants do not charge (well I don’t anyway) for this type of letter nor do we get any of the trailing commission associated with it either. Yet we need to drop all over client matters to appease the bank.

But what does the letter mean anyway? Here is a example which will knock the socks off you.

I was asked a few weeks ago by a bank to give a reference to a former client of mine that re-appeared on the scene after 7 years away. In that time, he went bankrupt, he changed his name, his companies were de-registered by ASIC and had not lodged a tax return or Business Activity Statement in the past 6 years. He wanted me to write a letter saying that he was earning $100k per annum from one of his de-registered companies. Of course, I told the truth and provided the name change, non-lodgments, deregistrations & bankruptcy details. I suggested the bank do their own checks first on public available data rather than hassling someone like me.

But that was not enough.

Not ONE but TWO separate bank representatives called me asking for confirmation of his income. I asked if they got my fax which both said yes. I then asked them what more do they want from me? Blind Freddy would tell you that the loan should not be approved. But what happens? They approve the loan! No wonder the global financial crisis has come about with stupid decisions by banks like these!

There are a million other things that annoy me with the bank. Don’t get me started on their credit card interest rates & the correlation to their profits and the national credit card debt.

What has a bank done that has annoyed you?

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Mr Taxman's Top Twenty Tax Tips for 2009 - Nos 1-10

Times are tough so every dollar saved counts. Last week I provided the first ten of my top twenty tax tips for this financial year. This week I now provide you with my Top Ten Tax Tips for 2009. Remember that tax planning should be 365 days per year not just one month. These strategies are just as useful on 1 July.

10. Tax effective investments - These investments have copped a lot of bad press in recent weeks thanks to Timbercorp & Great Southern debacles, but you shouldn’t assume all are guilty by association. They generally have 100% tax deductibility (look for ATO Product Ruling). Unlike investments in shares or properties, if you invest say $50,000 in these types of investments you will get a tax deduction for $50,000. Will help with levelling out the tax on any capital gains made. Returns in this sector over the past decade have been better than other asset classes and would sit nicely in any diversified portfolio.

9. Education Tax Refund -Don’t miss out on this new tax rebate which gives a 50% refund on certain education expenses up to $750 expenditure for each primary school child and $1,500 for each secondary school student.

8. Realise capital losses - With the slump in the stock market this year, it is an opportunity to reduce the tax on gains made earlier in the year by selling a few non-performing shares. ATO was warned against "wash sales" where you sell shares & buy them back straight away. For those with self managed super funds (SMSFs) it is a great chance to transfer these shares into a lower taxed environment & potentially only pay 10% tax on future gains.

7. Keep your receipts - With the ATO increasing their audit activity this year yet again it is important that you keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!

6. Prepay interest - Prepaying interest 12 months in advance before year end on your rental property or margin loan is an excellent strategy for those that will have a lower income next year due to factors such as maternity leave or redundancy.

5. Salary sacrifice/contribute into super - For those under 50 years of age you can contribute up to $50,000 per year into super & only pay 15% tax. This figure increases to $100,000 if you are over 50. Ultimately it is your money and you can build up your net wealth quicker instead of paying up to 46.5%. A great tax deduction for those in business.

4. Car log book - If you use your car for work purposes, then the best method to claim for it is the log book method. Purchase a log book from the newsagent, fill it out for 12 weeks & keep all costs associated with the running of your car including petrol, rego, insurances, servicing, repairs, lease payments, batteries, tyres, etc. You can start your log book now and roll it over into the next tax year. The hard work is worth it as deductions can be in the thousands and you only need to do a new log book every five years unless you change your job or car.

3. 30%/50% investment allowance - If your business needs to get some new equipment then take advantage of this great tax break of an extra 50% deduction for small business (or 30% for large businesses). Be careful that this is not a 50% cash rebate. You need to multiply the deduction by your marginal tax rate to get the cash flow benefit. Beware of potential FBT for cars purchased via companies and don’t just spend or get into further debt for the sake of a tax deduction. Also note that even if you order & pay for it this year, you only get the tax deduction in the financial year that you first get use of the new asset. Eg if delivery is on 1 July then tax deduction is in 2009/10 year not 2008/09.

2. Super co-contribution - If your (or your spouse’s) income is under $30,342 and you contribute $1,000 post tax into your super fund the government will match it with a further $1,500. It amazes me how few people actually take advantage of this great benefit. Free money!

1. Action - Ok you have got some great tax strategies, now it is time to take action. I get frustrated when people say “oh yeah, I remember you telling me that but I just didn’t get around to it” or “I forgot”. Wrong answer. Use the Nike Principle and just do it! You will be surprised how many slackos there are that simply miss out on easy money despite how simple these strategies are.

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