December Tax Update

Entertainment and FBT update

With the holiday period well upon us, many forms of entertainment including client lunches, Christmas parties and staff and client gifts become common. There can be significant FBT ramifications on some of these activities, as you may or may not be aware.

It’s an incredibly disputed and ‘hot’ tax topic. The Interactive Accounting team have previously covered this topic in-depth. Check out our blog on this here.

If you are unsure on anything you have done for your staff and/or clients, give your account manager or one of the Interactive Accounting team a call and we'll be sure to point you in the right direction.

Changes to Thin Capitalisation Rules

Legislation has been given royal assent that dramatically changes the thin capitalisation rules. Put simply, the Thin Capitalisation rules apply to Australian entities investing overseas, and foreign entities investing in Australia.

The goal of these rules is to limit the amount of debt used to fund these operations and the interest deductions that arise from it.

Previously, the threshold in which an entity could ignore these rules (known as the de minimis rule) was an annual deduction amount of $250,000, meaning that many small and medium enterprises (SMEs) could potentially be affected by these, causing significant headaches in compliance.

Backdated to commence 1 July 2014, this limit has now been raised to $2 million, meaning that for most small businesses, these rules will not apply. Should your debt deductions be above this level and you need further clarification, don't hesitate to contact us.

Tax Debts will not be released on hardship grounds

The ATO and related tribunals have handed down a number of rulings in the past few months denying taxpayers release of tax debts, general interest charges and late lodgement penalties on the grounds of financial hardship.

What this essentially means for all taxpayers is that you can’t rely on using the argument that paying tax debts will place the business in serious financial hardship. Treating the ATO as a creditor that does not require payment or can be extended out through numerous payment arrangements is not a good way to do business and is not considered a valid reason to be released from debt.

As always, if you are concerned that some of these changes may affect you and you wish for further advice, don't hesitate to contact the Interactive Accounting team.

Interactive Team Monday, December 29, 2014
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Small Business Painkillers: Expense Claims


Welcome to the first blog of the Small Business Painkillers Series!

At Interactive Accounting, we are proud to be working with passionate and talented business owners. We know how hard you work and we want to share some practical tips that will save you a bit of time in your busy day.

For our first article, we decided to go with a pain that is familiar to majority of businesses we work with. In one form or another most businesses need to process expense claims. For some they are infrequent, only when director needs to buy something with a personal card because the business card was left at the office (we've all been there). For other businesses  expense claims are an inherent feature of how they work, with employees routinely using their personal funds and expecting reimbursement. In fact there are so many possibilities, we have summarised them into a table below to help you decide where your business falls.

Of course there are a lot of other factors to consider as well. Some businesses have highly mobile employees that do not sit together in an office and in this case collecting paper receipts can be a pain. Other businesses already have an established paper based process and prefer to alter it as little as possible. Regardless of the minor tweaks to the process, there are three options for how expense claims can be processed in Xero: as a Bill, in Xero as an Expense Claim or through Receipt Bank. Now lets look at each in a bit more detail.

Expense Claims as Bills

Managing expense claims as bills is perhaps the easiest option which is familiar to many from their regular Xero session. It's a simple, free and quick solution for low volume expense claims processing. Once the need for an expense claim has been identified, (usually an employee who spent their own money for a business purpose and would like to get it back) we can enter it. First, we should get a receipt from them to confirm how much they spent and secondly enter this receipt as a bill in Xero. The supplier name would be set as employee's name. Here's an example:

Now to pay back the money we can simply transfer the amount to this employee and match the bill to the payment. We can also process this expense claim as part of a pay run. The process takes slightly more involvement, but the employee's payslip will have a "Reimbursement" line to it which is pretty cool. If you are interested, let us know and we can show you how to do it. Simple and easy, but it becomes quite difficult and tiresome if you have a lot of expense claims to process. Here is where the second option comes it.

Xero Expense Claims Module

We all see it, it sits quietly on your dashboard and looks something like this:

Now the process workflow built into Xero Expense Claims is not the most intuitive and has been known to cause confusion. If you are not comfortable with using it, it's better to try Receipt Bank or Xero bills.

The workflow is as follows:

  1. Employees need to be set as a payroll employee and have draft purchase invoice permission

  2. Employees enter expense claims via desktop or using their phones with the help of Xero Touch app

Common point of confusion: Employees have to select an expense account and set a GST code for this expense. They do not always know which account to select and what GST code to set. It’s very important to train employees before this feature is used. Accounts available under Xero expense claims can be adjusted in your chart of accounts.

  1. Employees must submit expense claim for approval

Common point of confusion: Employees enter receipts for an expense claim, but forget to submit this expense claim for approval. As a business owner you are not able to see the claim until it was submitted for approval.

  1. Approver/business owner approves the claim

Common point of confusion: After an expense claim is approved, it needs to be authorised

  1. Business owner authorises the expense claim

Common point of confusion: After an expense claim is authorised it needs to be marked as paid (and payment needs to be made from your bank account).

  1. Expense claim is paid

Phew! That was a lot of work for an expense claim! You are quite right if you think it is a rigid process and subject to data entry errors. If only there was a way to combine the simplicity of Xero bills with advantages of having a phone app, while minimising data entry. well there is, lets look at Receipt Bank!

Receipt Bank - Expense Claims

Receipt Bank is useful not only for expense claims, it is actually designed to process bills/receipts and invoices. The software extracts information from images and pushes the information into your Xero file as Xero bills. The expense claim functionality is quite handy and allows you to group receipts submitted and import them as a single Xero bill, from then on the process is the same as for Xero bills.

There are several ways to set Receipt Bank up and Interactive Accounting is happy to set it up for you if you need a hand, but a common workflow for expense claims is:

  1. Each employee receives login details that they can use for their iPhone or Android phone.

  2. They snap pictures of the receipts with the app and send them to Receipt Bank

  3. Business owner logs into Receipt Bank

  4. All receipts clearly indicate who submitted them and information is already pre filled by the software. Receipts are coded to the right accounts (manually at first but Receipt Bank learns and will start coding receipts from the same suppliers to the right accounts)

  5. All receipts from a single employee are combined to form an expense claim

  6. Expense claim is pushed into Xero as a bill

  7. Paid immediately or as a part of upcoming payroll

There is a dark side to expense claims. We heard awful stories of  people consumed by the the administrative process: having to spend time chasing employees for receipts, dealing with lost receipts, spending additional time entering information into an accounting software, and some more time spent shuffling receipts around trying to store them or find a particular historical one. This is the stuff nightmares are made of!

We hope that whichever process from the above you select it will help you leverage three principles of cloud accounting:

  1. Location does not matter - enter the information from anywhere, using any device

  2. Data entry is for the computer to do - lets face it, it's getting pretty good at it.

  3. Access is 24/7 - once in the cloud, access and search you data from anywhere using any device

As always, Interactive Accounting is here if you have any questions. If you have a business pain that you would like us to cover in a blog or a helpful tip to share with other Interactive Accounting clients please let us know.

Interactive Team Wednesday, November 12, 2014
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Tax Update for November

There has been significant movements in the past month on both a legislative and federal government policy position. Some big changes are on the horizon…

Legislative changes

The Federal Parliament has been back in session after it’s winter recess and as a result, there has been a raft of legislation pushed through following the May 2014 Budget. Some of the big changes include:

  • Confirmation of the reduction in the R&D Tax Incentive from the current 45% refundable tax offset, to 43.5% for the 2015 financial year (for businesses with annual turnover less than $20 million).

  • Official wind-back of the $6,500 instant asset write-off and upfront $5,000 motor vehicle depreciation for small businesses, effective from 1 January 2014.

  • Abolition of the mineral resource rent tax (also known as the mining tax), from 1 October 2014.

Employee Share Schemes

After much talk in the preceding months, the federal government has released it’s Industry Innovation and Competitiveness Agenda containing a large number of initiatives (or ambitions as they were named) to help boost Australia’s business competitiveness in the global market.

One key initiative listed was significant reforms to the Employee Share Scheme taxation rules. Under the current scheme that commenced in 2009, tax was forced to be paid upfront in most instances when shares were granted to employees. This policy, when compared to other developed nations is extremely disadvantageous to the startup community in Australia.

Under the proposed changes, the changes made in 2009 will be reversed. This means the following:

  • Options that are issued at a discount will generally only be taxed when they are exercised and converted into shares.

  • Tax will still be payable on any discount the employee receives on options or shares, as it still pertains to a benefit received as a result of employment. However, it can be deferred until the employee has the cash to pay the tax as a result of selling the shares.

The government has also proposed that the maximum deferral period be extended from the current seven years, to fifteen years in order to give startup companies more time to succeed.

Eligible startup companies will be defined as a company that:

  • Is unlisted

  • Has turnover of less than $50m, and

  • Has been incorporated for less than ten years

The proposed start date for these changes will be 1 July 2015.
As always, if you are concerned that some of these changes may affect you and you wish for further advice, don't hesitate to contact the Interactive Accounting team.
Interactive Team Monday, November 03, 2014
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What Effect can Cloud Systems Have on a Business?

About eighteen months ago Tanner Plumbing were losing money. They were struggling with their workload and had no visibility over their financial situation. Fast forward a year and a half and they had just won a contract to rebuild Parkes Hospital in New South Wales. Additionally, they are projecting a growth in revenue of over 50% this financial year. So, how did they achieve this massive turn around?

Eighteen months ago, a friend of Gareth’s referred Tanner Plumbing to Interactive Accounting as they had been through some bad experiences with old school accountants and their business was struggling. The great thing about Tanner Plumbing is they came to us knowing they needed to change their business processes. The management and the staff had such willingness to work with us to change them and implement new solutions into the business.

We conducted an evaluation of the business from end to end. The two areas we noticed that vast improvements could be made was with their accounting systems and processes and also their job and workflow management systems and processes. We set up Xero for them and trained them on how to use Xero for their business. They also sought out and implemented SimPro software which integrates with Xero to manage their workflow and jobs. Tanner Plumbing reengineered and streamlined their processes around their accounting and job management software.

The transition period to get them fully functional on Xero took three months. The first couple of months lots of support and training was conducted with the team to get them comfortable using the new systems.  

The turnaround in the business was evident very early on and there was significant growth in the business. The growth in revenue from the 2013 financial year to the 2014 financial year was in excess of 60%. They turned a significant loss position into a steady profit in the space of twelve months. Their projected income for the 2015 year compared to 2013 when they came across shows a growth well in excess of 100%.

The implementation of their cloud systems has also allowed them to grow their staff numbers  from 17, in 2013 to 28 in 2014. The breakdown of these new hires, was ten revenue earning staff on the tools and only one administration person who was actually only to replace an existing staff member. With the new systems in place a much better ratio between administration and revenue generating staff was achieved, allowing Tanner Plumbing to scale leanly while reducing the double handling and sometimes loss of crucial job information.

The transparency that Xero gives them and how closely we work with them provided the foundation for them to grow. They are currently on our Live Package, but with the implementations and training complete they are able to have accurate and real time financial and job data, giving them the confidence to make any business decisions and planning they may need to.

Does any of this sound all too familiar to you? We’d be happy to have a chat about evaluating your business too. Feel free to get in contact here.

Interactive Team Monday, October 27, 2014
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Tax Update for October

1. Mining Tax Repeal

Just days after releasing our September tax update, the Australian Federal Parliament passed a series of acts to repeal the Minerals Resource Rent Tax (Mining Tax). Of particular note to small business taxpayers is the flow-on effects which include the repeal of the Simplified Depreciation rules.

2. Changes in Instant Low Value Asset Rules

From 1 January 2014, any asset purchased with a value of $1,000 or higher will need to be depreciated. The $6,500 instant asset write-off and upfront $5,000 claim on motor vehicles purchased are now no longer in effect.

3. Crackdown on Dividend Washing arrangements

The ATO have recently issued a media release announcing that it is accelerating its program targeting Dividend Washing. This will include direct contact with up to 2,000 taxpayers who they believe to be involved in dividend washing transactions. 
A dividend washing arrangement involves a taxpayer selling shares in a company on the ordinary market after a franked dividend has been announced (ex-dividend) and shortly thereafter buying back a similar parcel of shares cum dividend so as to entitle them to another franked dividend.

4. ATO Taxpayer Alert on Property Development Trusts

On 28 July 2014, the Commissioner issued TA 2014/1, which describes arrangements where property developers use special purpose trusts to carry out property development activities and return the proceeds as capital gains (reduced by the 50 per cent general discount) instead of ordinary income under s. 6-5 of the ITAA 1997.

The ATO is concerned that the:

  • Underlying property is trading stock for the purposes of s. 70-10 of the ITAA 1997;

  • Gross proceeds from the sale of the property constitutes ordinary income under s. 6-5 of the ITAA 1997; and

  • Net profit from the sale of the property is ordinary income under s. 6-5.

The ATO has commenced auditing property developers who are carrying out activities that conflict with their stated purpose of capital investment.

5. Victorian Stamp Duty - First home buyer concession

The Victorian State Revenue Office (SRO) had advised that the last phase of the Victorian Government's 50% duty reduction for first home buyers commenced on 1 September 2014. This means that from 1 September 2014, eligible first home buyers will receive a 50% discount on their stamp duty. The duty reduction applies to eligible first home buyers who purchased a home valued at or under $600,000 and where the settlement date was after 1 July 2011. Eligible first home owners will save up to $15,535 in stamp duty on dwellings valued up to $600,000. Further details are available on the SRO website.

As always, if you are concerned that some of these changes may affect you and you wish for further advice, don't hesitate to contact the Interactive Accounting team.
Interactive Team Wednesday, October 01, 2014
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