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?
Monday, June 29, 2009
Has the stimulus payment worked?
Saturday, June 13, 2009
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.
Friday, June 5, 2009
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?
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.
Monday, May 25, 2009
Mr Taxman's Top Twenty Tax Tips for 2009 - Nos 11-20
I always get asked for a tip or two, particularly around tax time each year. So over the next 2 weeks I will provide my top twenty tax tips for 2009. Please note that not all of the tips will be applicable to you or your business and you should consult your own adviser/s to assess your own particular needs before implementing any of them. Remember that effective tax planning should be over 365 days per year, not merely the few weeks before 30 June.
20. Private health care – if you are single & earn over $70,000 (or a couple earning over $140,000) then you should know by now that for 99.7% of us it is probably cheaper to get basic hospital cover to avoid the 1% Medicare levy surcharge. Note that you do not need to get ancillary cover (ie dental, physio, acupuncture, chiro, etc) although I reckon that this is where all the value is with private cover these days.
19. Travel diaries – if you travel more than 5 days interstate or do any overseas travel for business then you need maintain a travel diary to substantiate your claim. The diary must be quite detailed and record dates, places, times and duration of activities and travel. Keep business cards of who you see & if possible, make a presentation/report to your work.
18. Get a great accountant – Great accountants are like quantity surveyors ... they know where the boundaries are. By not using an accountant, you could be paying too much in tax or you could be leaving yourself open to a visit from the ATO auditors. And their fees are tax deductible! If you are looking for one then drop me a line.
17. Medical expenses – there is a rebate for out of pocket medical expenses (ie the gap) over $1,500 – they must be provided by a registered medical practitioner (ie a doctor & not physio or chiro unless referred by them) & also includes prescriptions. In tough times, people generally get sick so if you are close to the $1,500 threshold you may want to bring forward some costs (such as new glasses, visit to the dentist) before 30 June & get an effective 20% discount from the taxman. It may even be worthwhile to register for the Medicare Safety Net.
16. Depreciation schedule – if you have bought a rental property this tax year, and it was built after 1985, then it is definitely worthwhile organizing a depreciation schedule from a quantity surveyor now. It takes about 3-4 weeks to organize & costs around $500-600 but you get the benefits back tenfold with tax savings via increased depreciation claims.
15. Scrap obsolete stock & plant – got some old plant or stock that your business simply can’t sell? Then physically write it off before 30 June & get a tax deduction for it this year.
14. Income splitting – it amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see rich businessman with high income taxed at 46.5% also paying 46.5% tax on interest or dividend income which could be in put in their lower taxed spouse (0% or 16.5%) or company (30%).
13. Write-off bad debts – like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write off to be allowed.
12. Defer income & bring forward expenses – it is always a good idea to try & defer your taxable income to next financial year. If you have expenses such as professional membership subscriptions due on 1 July, pay them before 30 June to reduce this year's tax. For those in business you may want to defer your invoicing til next tax year.
11. Don’t spend purely for a tax deduction – there are so people that get caught out at this time of the year in spending money purely to get a tax deduction. Remember that it is a play on marginal tax rates. If you are running a business via a company then you are only getting 30% back. If you want a $100,000 tax deduction before 30 June my accounting practice will gladly invoice you & accept payment. But you will only get $30,000 tax benefit & the transaction has cost the business $70,000. So don’t get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto … Absolute Bloomin’ Cash.
Does your business do any tax planning?
Monday, May 18, 2009
When your business shouldn't bother with the 50% Bonus Deduction
Well the Federal Budget came out last week and most pundits labeled it as a pretty tame affair particularly with respect to businesses. I have to agree.
There was no change for large business and the only significant change for small business was the extension & increase of the Small Business Tax Break – from 30% to 50% bonus deduction to small businesses (ie turnover under $2M) for assets acquired between 13 December 2008 to 31 December 2009.
The media have been raving about how great this measure is for small business. 50% extra deduction. Sounds great doesn’t it? Well I am not that excited for quite a few reasons as outlined below:
1. To enjoy the bonus deduction your business has to outlay extra cash to buy the assets. With times being tough, cash is king. Don’t forget my A-B-C motto of money matters – Absolutely Bloomin’ Cash – a business with poor cashflow is going to struggle in the coming months and years. Why put pressure on your cashflow if you don’t need to? I am predicting alot of businesses will get their cashflow requirements wrong & get into strife, thus putting more pressure on the economy if businesses fail.
2. So let’s say that you want to preserve your cash. And that you want to finance the purchase instead. If you need to finance then you are merely putting more pressure on the business’ balance sheet and future cashflow commitments. And business finance is not cheap these days either despite the RBA reducing the benchmark interest rate significantly in the last year. Haven’t we learnt any lessons from the global financial crisis?
3. Most businesses operate as a company. And the company tax rate is 30%. This means that you are only truly saving 15% (being 50% of 30%) on the ticketed price of an eligible asset purchase. Not 50% that some business people believe. It is only 9% for large businesses as they are only getting a 30% bonus deduction. If my business needs an asset then I am going to look at second hand first because you are saving alot more than 15% from the cost of a brand new asset. You can probably negotiate a discount of that size as well anyway!
4. The industry that is heavily promoting the 50% tax break is the car industry. God knows that this ailing industry needs a helping hand & the 50% deduction will definitely give them more customers in coming months. But remember that you need any car purchase registered in the same entity as your ABN. For small businesses this is a company structure. And we know that when companies have cars owned by them and provided for the benefit of employees and their associates that Fringe Benefits Tax may apply. If the car is hardly used – that is, less than 15,000 kilometres travelled per year – then the FBT rate is 26% of the original cost of the car … every year as well before reducing by 1/3 in the fourth year and beyond that you have the car. Yes the taxman giveth … but the taxman can taketh away too!
By all means if your business desperately needs to buy an asset then by all means go out & take advantage of this great Tax Break. But don’t go out of your way for a 50% tax deduction because it really isn’t as attractive as what you may think!
Is your business going to take advantage of the 50% Tax Break?
Monday, May 11, 2009
$260,000 Jobs - Where Do I Apply?
Last week we saw the announcement of winner of “the best job in the world” up in Queensland. What a great job. $150,000 for six months “work” telling the world how beautiful it is staying on those beautiful tropical islands. What a lucky “you-know-what.”
That was one of the great marketing campaigns. The whole world found out what a lucky country we are living in. But I have found out some info to truly knock your socks off & realize just how lucky.
How would you like a $260,000 job? Don’t think you have a chance? Don’t worry there are 200,000 of them. Got your interest yet? Where do you apply?
Well looking at the reports on the impact of the Federal Government’s stimulus package, that is exactly what has happened in Australia in the past year.
The Prime Minister yesterday announced that an estimated 200,000 jobs have been saved as a result of the two stimulus packages in the past year. Great news headline. When I heard that it sounded great but hang on a minute. I worked out that given the cost of the packages totaled $52 billion, that equates to $260,000 per job potentially saved.
The headline doesn’t look so attractive now, does it? Imagine the cost per job if we find out that only 100,000 jobs have been saved.
With record deficit budgets, perhaps the Government would have been better off doing nothing at all. Instead wait and see if there would have been an 200,000 extra on the unemployment line this time next year and provide extra Centrelink benefits to those people then. Based on current Centrelink rates, the extra unemployment could be carried for more than a decade for the same cost.
Perhaps it would have been better for businesses to have been the direct benefactors of the stimulus packages. After all they are the ones that need to incentivized, via grants or lower taxes, to create more jobs and kick-start the economy again. If you can’t make a decent profit when you run a business, why take the risk in the first place?
As I say there is no point paying someone $900, if they are going to lose their $50,000 job.
What do you think the Government should have done last year? Should they have tried to stimulate the economy?
Monday, May 4, 2009
You may change the tax rules, but we will still find the loopholes!
Aaahh … Federal Budget week. It always brings so much joy to accountants throughout Australia. Why? Because you matter who is in Government & no matter how long they have been in power, they always feel that there is a need to tinker with the tax rules.
FBT, CGT, GST, Simple Super, Simplified Tax System, Consolidation, Personal Services Income, Investment Allowances, Senior Australians Tax Offsets, highest marginal rates, rebates … the list seems to go on & on.
And when they tinker with the tax rules, there is always one common denominator and that is that these changes always bring more work to accountants around Australia.
Legislation changes also seem to provide an opportunity for the “boring number crunchers” to show their “creative flair” to try and create a loophole to get around the tax change. Every year the government changes the tax system and every year there is a new strategy that comes into play to combat. Make no mistake, the rich – or rather their accountants’ - will always find a way to pay as little tax as possible.
Even the $900 stimulus payment has strategies like co-contributing into super to make it worth $2,250. Something simple as a handout has a loophole to make it more attractive and against the grain of its original purpose.
I am seeing a number of accountants about town with a bit of a smirk this week. This is because they have heard all the whispers and leaks of dramatic changes in next Tuesday’s budget by Mr Swan. Changes to marginal tax rates, super surcharges, stopping of imputation credits, and the like. I am not really sure if it will make a lot of difference at the end of the day.
The real winner? Not the Government. Not the poor. Not even the rich. But the accountants’ bank account of course because they get to charge more and more fees as the rich still find a way to pay the same amount as before.
Why does the Government still persist in changing the laws all the time? I don’t know but I reckon they will lose some voters next Tuesday night.
If you want to see accountants cry foul at the budget … and I mean really cry foul & not pretend that they do … make tax returns no longer compulsory and give taxpayers a cheque automatically from the Government based on an estimate of their income and expenses. A budget that takes business away from accountants … I’d like to see that!
Wednesday, April 29, 2009
Accountants charging "handling fees"? What a joke!
I almost choked on my dinner last night when I heard that there are accounting firms out there charging a $45 “handling fee” for their part in forwarding on the $900 stimulus payment. What on earth are they thinking?
I have been involved in accounting firms for the past 20 years & I have always hated when firms tried charging clients a “handling fee” when they get tax assessments and the like from the tax office. As the assessment goes from the ATO to the accountant’s mailbox to reception to partner back to reception & then eventually out to client, the process will take 3 to 4 days. Accountants will defend themselves and say that the ATO gets it wrong from time to time so there is a need to check the assessment. Fair enough 20 years ago when calculations were done manually. But in this day & age of computers and self-assessment, I reckon the ATO are correct in 99% of instances. So that is 3 or 4 days wasted that the client waits patiently for that cheque to arrive to pay for their rego, credit card bill or holiday. My firm has always had a simpler process where we show the client’s address as the mailing address for the ATO. We figure that if it was wrong then the client would contact me & we can sort it out then. And they get their refund cheque 4 days earlier.
So when the “Kev 07” stimulus payment got announced a few months ago there were alot of tax agents - who had their business address and trust bank account as the details for all their clients – that jumped up & down about it being wrong and how it would be a waste of administration resources during a busy time of year. So the ATO listened & told them the process to change the default address to the client direct, together with the client’s bank account. I got the notice from the ATO a few times. The ATO even placed adverts in the newspapers telling the public the same. So put simply it is nothing more than poor practice management for accounting firms to get a ream of $900 cheques arriving in their office. Yet they now have the hide to charge $45 for their poor practices??
I have also been wondering how these firms even came to the $45 figure to charge clients as well. It is hardly rocket science work, so you would be paying the pimply faced teenagers in the office to do it. Now I reckon that even an inefficient office clerk – if they are given 1000 cheques - could get a stimulus payment sent to a client, on average, every 3 minutes. So that’s 20 sent out per hour - or a handy $900 hour’s work! Pretty handy profit margin when you are paying that office clerk under $20 per hour isn’t it!!
The whole “handling fee” just reeks of poor client service (and poor understanding of the current economic situation) by these accountants. Their attempted money grab will backfire badly on them and I can assure you that they will lose alot of clients in the coming tax season. Thanks guys for sending customers our way!
What would you do if your accountant tried to pull this stint? Would you simply pay their $45 fee and shut up … or would you walk? I know what I would do!
