Category: Bookkeeping

November 24, 2021 Accounts, BAS, Bookkeeping

Single Touch Payroll Phase 2 Starts in 2022

All employers have to report payments made to employees and closely held payees to the ATO using Single Touch Payroll reporting from July 2021.

Single Touch Payroll (STP) Phase 2 was initially planned for 1 July 2021 to align with the mandatory reporting for all employers, but it has been postponed to 1 January 2022. The ATO will allow employers until 31 March 2022 to start reporting if they don’t have an STP reporting solution in place yet. Some payroll software providers already have deferrals in place to allow a longer time for the transition to Phase 2 reporting.

The planned STP expansion has been extended because of COVID-19 impacts on business and accounting and payroll software providers.

STP Phase 2 will require additional information to be reported with each STP pay event.

Accounting and payroll software products will be upgraded to include broader reporting parameters and categories in line with the ATO requirements for Phase 2.

The Phase 2 expansion will allow employers to report information to multiple government agencies in the STP report. Standardised categorisation of income components will make it easier for employees to interact with Services Australia.

The changes will also include detailed income types, lump-sum payments, itemised allowances, child support and the ability to lodge tax file number declarations from within STP reporting. Employment separation certificates upon the termination of employment will no longer be needed, as Phase 2 reporting will include the reason an employee ceased employment.

If you’d like to review your payroll software and systems before STP Phase 2 starts, talk to us today.

Otherwise, there is nothing you need to change right now – we’ll keep you updated when the implementation is closer.

November 10, 2021 Accounts, Bookkeeping

How to Claim for Working from Home Expenses

Working from home is becoming the norm for many businesses, either due to lockdowns or greater employee flexibility. It’s important to think about the deductible expenses that you may be able to claim when working from home and make sure you include them in your tax return.

There are three ways of calculating your working from home expenses.

ATO Shortcut Method for Working from Home Expenses

For part of the 2020 financial year and all of the 2021 and 2022 financial years, there is a shortcut calculation for people who have had to work from home due to COVID-19 temporarily. This allows for a flat rate of 80 cents per hour for employed working time. The shortcut simplifies the calculation but doesn’t allow for any additional expense claims.

To use the shortcut method, you must keep a record of actual hours worked from home. The hours should align with timesheet records submitted to an employer. You don’t need to keep records of actual expenses for things like power or the internet.

To continue to claim deductions for working from home expenses in future financial years, you will need to use one of the established ATO methods of either fixed rate or actual costs.

ATO Home Office Fixed Rate Method

To use the fixed rate, you must have a dedicated work area or separate room used as an office and incur extra costs due to working from home. You will also need records of other expenses not covered by the fixed rate and the number of hours spent working for the whole financial year.

The fixed rate is 52 cents per working hour and includes running expenses for the decline in value of office furniture, electricity and gas, and cleaning. You can claim on top of the fixed rate for other work-related costs such as telephone, internet and office equipment.

You must keep records of hours worked and work-related expenses and a diary to show work usage for the internet and assets. You’ll also need to work out the percentage of floor space for your office against the entire dwelling.

ATO Home Office Actual Cost Method

To use the actual cost method, you must incur extra costs as a result of working from home and have records to prove work-related use of expenses and assets. As with the other methods, you’ll need to record the number of hours worked from home. You’ll also need bills showing actual amounts paid for expenses.

ATO Home Office Online Calculator

Use the ATO home office expenses calculator to check the allowable deductions. The online calculator allows you to choose either the fixed cost or the actual cost method. Once you have the deduction amount from the calculator, enter this on your tax return or give it to us to include. Keep the printout of the calculator result and remember to keep documents for all expenses.

Talk to us to make sure you’re claiming all the allowable working from home deductions to maximise your tax return.

November 4, 2021 Accounts, Bookkeeping, Planning, Software

Do You Have Direct Debits and Online Payments Set Up for Your Business?

Do you have direct debits and online payments set up for your business? Making it easy for your customers to pay you is vital to business success. Getting direct debits and alternative payment methods linked to your business is so easy these days there’s no excuse not to give your customers multiple ways of making payment.

Many service-based businesses choose direct debit arrangements with their clients to avoid late payment. If you’re often chasing overdue payments, consider implementing direct debit arrangements to reduce your administration time.

If you’re already using online accounting software, check the add-on solutions and choose one that integrates with your accounts. This means that the payment platform information feeds directly into your accounting software to be easily matched to customer transactions.

Make it Easy

You probably already have bank transfer information set up, but adding several other methods such as PayPal, debit cards and credit cards allows customers to choose the method most convenient for them at the time. Many customers appreciate the automation and simplicity of direct debits. Make sure your payment terms and conditions are clear on your website and invoices and don’t forget to include all your chosen payment methods for customers.

Worried About Costly Fees?

You have the option to choose whether you will absorb the cost of the payment gateway processing fees or whether you will add the cost to your invoice and charge the clients extra. Your accounting software will then allocate the funds accordingly to invoice payment and fees received.

Better Transaction Recording

When you integrate direct debits and online payment methods with your accounting system, you dramatically reduce errors in recording customer payments – which means less time spent on your accounts.

Not Sure Where to Start?

If you’d like to make it easier for customers to pay you, talk to us about which solutions are best for your business. We can discuss which platforms have the best and most secure integrations with the accounting software you use. We’ll help streamline your payment systems.

October 29, 2021 Accounts, Bookkeeping, Planning

Understanding the Basics of Capital Gains Tax

A capital gain (or loss) occurs when an asset is sold. The difference between the purchase price and the sale price is the gain or loss. Capital gains tax (CGT) applies to money you have made from selling an eligible asset.

Capital gains tax events occur when an asset is sold or other triggers arise, such as the loss, theft or destruction of an asset or creating contractual or other rights to an asset.

Not all assets are subject to CGT. Common exemptions include the main residence or family home, granny flats, cars and motorcycles, personal use assets such as boats, furniture, household items or loans to family and friends. Many types of lump sum payments are also not subject to CGT, and business sales may also be exempt depending on the circumstances.

Most property is subject to CGT including land, commercial premises, rental properties, holiday houses and hobby farms. CGT also applies to shares, investments, cryptocurrency, many collectables, foreign currency and intangible assets.

Visit the ATO for a list of CGT assets and exemptions here.

There are special rules for some specific situations, for example, inheriting assets, relationship breakdown, foreign residents, insurance or compensation payments.

How is the Tax Calculated?

Tax is calculated on the net gain of an asset sale. Tax is payable on the difference between the purchase price and sale price, less any discount allowed.

The type of CGT event affects how and when capital gains tax is calculated. For example, if an asset is destroyed in an accident, the CGT event occurs when the insurance payout is received.

Good record keeping is key to working out capital gains tax accurately. Make sure you keep all documents related to asset purchases, including contracts, expenses valuations and disposal.

CGT is calculated at the time of completing your individual, business or self-managed super fund tax return and is included in the income tax assessment.

Talk to us to ensure you’re claiming all you’re entitled to and not paying more tax than you should. We’ll make sure you’re receiving any exemptions, discounts or small business concessions allowed.

September 9, 2021 BAS, Bookkeeping, Planning

What is Personal Services Income?

Personal services income (“PSI”) is income received as payment for individual personal efforts and skills. It applies to many contractors who provide services as their means of earning an income. PSI rules can apply to individual sole traders and other types of business entities, but not employees. If PSI rules apply, the entity is called a personal services entity (PSE).

The PSI rules ensure the income is attributed to the individual who performed the services and not apportioned across other entities.

There are several tests to work out if your income is PSI or if you are instead conducting a personal services business (PSB), which means the PSI rules don’t apply. If a personal services entity qualifies as a PSB, the ordinary tax rules apply for that financial year.

At least one of these four tests must be satisfied for an entity to be classified as a PSB.

  • Results test: the individual must be paid to produce a result, is required to supply their own equipment and tools to produce that result and is liable for the cost of rectifying defects in the work.
  • Unrelated clients test: the sole trader or entity must be engaged by unrelated clients and services must be advertised to the public.
  • Employment test: in general, a sole trader or other entity must engage one or more entities to perform at least 20% of the sole trader’s principal work. Entities other than individuals must not be associated with the sole trader.
  • Business premises test: the entity must maintain and use business premises to conduct personal services. The business premises must be exclusively used by the PSE and physically separate from private premises and customers.

If more than 80% of income in a financial year is derived from one customer, the PSE must satisfy the results test to be classified as a PSB.

If none of the four tests are met, the income is classified as personal services income, and the PSI taxation rules apply. PSI rules restrict the type of allowable tax deductions made in relation to personal services income-earning activities.

If you’d like to know more about PSI, talk to us to see if the services you provide meet the tests for conducting a personal services business. We’ll make sure you are claiming the maximum allowable deductions and being taxed correctly.

June 3, 2021 Accounts, Bookkeeping, Planning

Six Reasons To Look at Your Financial Reports

Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, either because you’re too busy or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are six reasons we recommend that you should start to.

  1. Understand your business better – by looking at your Profit and Loss (“P&L”) report monthly you will get a good picture of how your business is performing month by month and it will provide a better understanding of what makes up your profit.  Looking at revenue and expenses clearly on one page in a monthly P&L or comparing periods, this will help to identify trends in your data and may also help to highlight anomalies in coding/categorising.
  2. Accurate information for lending purposes – if you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
  3. Get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
  4. Better relationships with your suppliers – assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
  5. Better cashflow – having an accurate understanding of how much money the business is owed and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
  6. Better business decision making – your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.

Depending on the complexity of your business, at a bare minimum you should be looking at the following reports:

  • The Statement of Financial Performance, also known as the Profit and Loss report (P&L) or the Income Statement.  As the name suggests, it’s how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
  • The Statement of Financial Position, also known as the Balance Sheet.  This shows the value of the business’s Assets, Liabilities and Equity.
    • Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
    • Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
    • Equity is the difference between your Assets and Liabilities and includes Retained Earnings and Owner Funds Introduced
  • Accounts Receivable Ageing report (Aged Receivables) shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are or sometimes by how far past the invoice date they are. Generally you will have Current, 30, 60 and 90 days columns.
  • Accounts Payable Ageing Report (Aged Payables) shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.

So why bother?

If you would like to know which reports are relevant to your business and you want to better understand what’s going on in your business, then get in touch so we can make a time to go through them with you.

Your business success is important to us and we are here to help you.

April 7, 2021 Accounts, Bookkeeping, End of Financial Year, Superannuation

Super Guarantee Rate is Set to Rise from July – Are You Prepared?

The superannuation guarantee statutory rate has remained at 9.5% since July 2014. However, plans have been in place for some years now to increase the rate to 12% incrementally.

In July 2021, the rate will rise to 10%. From then on the rate will increase by 0.5% each year until July 2025 when it will reach the legislated 12%.

Prior to the delayed 2020 federal budget there was discussion about the possibility of deferring the rate rise because of COVID-19. However, the rate rise had been postponed from 2018 to 2021, so the plans to start increasing the rate each year remain in place – at least for now.

Prepare Now for the July Rate Rise

  • Review your current superannuation costs for all employees, both hourly and salaried.
  • Review any salary packaging arrangements. Is the agreement inclusive of superannuation or is super paid on top of the agreed salary?
  • For salary packages inclusive of super, you will need to check the contract’s wording to make sure you apply the changes correctly. This change may also impact annualised salary arrangements.
  • Calculate your revised payroll costs from July, showing the current wages and superannuation expense compared to the new rate from July 2021. Highlight the increased amount per month or quarter, so you know precisely what the impact will be.
  • Discuss the super rate increase with your employees now. Let them know that this is the first year since 2014 that the rate has risen and that unless the law changes, there will be an increase of 0.5% each year from now until July 2025 when the statutory rate will reach 12%.
  • Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July, so you don’t get caught short.

If you’d like help reviewing payroll costs and employee agreements, talk to us now, and we’ll make sure you have accurate reports to make planning for the rate rise easy. Getting organised now means that you’ll be well prepared for your business’s increased costs when the first payment is due later this year.

March 18, 2021 Accounts, BAS, Bookkeeping

Can Your Business Claim the Loss Carry Back Tax Offset?

As part of the Federal Budget 2020-21 the government announced a loss carry back measure to encourage new investment and work with the temporary asset expensing measures also announced at the budget.

The new law started on 1 January 2021.

Eligible corporate entities that previously had an income tax liability in a relevant year and have subsequent losses can claim a refundable tax offset up to the amount of their previous liability.

The measure allows significant tax losses which may then be carried back to generate cash refunds for eligible businesses.

Who is Eligible?

  • Your business must be a company, corporate limited partnership or a public trading trust in the income year you want to claim the offset.
  • The business must have had an aggregated turnover of less than $5 billion.
  • The entity had an income tax liability for financial years 2019, 2020 or 2021.
  • The entity subsequently made a loss in financial years 2020, 2021 or 2022.
  • Your business is up to date with tax return lodgement obligations for the last five years.

There are specific guidelines about eligibility, integrity and tax offset calculation. We can talk to you about whether you can use the loss carry back measure to benefit your business.

You can only claim the tax loss once in either the 2021 or 2022 financial year so it’s important to get advice about how and when to apply this measure for your business. To claim the tax offset the ATO must be notified before lodging the company tax return that year.

November 24, 2020 Accounts, Bookkeeping

Christmas Parties and Presents – and Tax!

Christmas gathering

Christmas is a great time to acknowledge and reward your employees and other associates by celebrating and giving gifts. But don’t get caught out by entertainment rules! Claiming entertainment and gifts as business expenses is not always straight-forward, as there are implications for GST, income tax and fringe benefits tax (FBT).

Is it Entertainment?

Entertainment is generally not a deductible business expense. Entertainment rules can be tricky, but in general, the more lavish the meal or event, the more costly, the later in the day and if alcohol is involved then it will generally be called entertainment.

Fringe benefits tax may apply to entertainment benefits provided to employees, and if an event or gift is considered to be entertainment then you cannot claim a business deduction or GST.

A Christmas party for employees, spouses, suppliers and customers may or may not be classed as entertainment. Check with us to see if any of the party costs can be claimed.

Keep it Free From FBT

  • If you give gifts to your employees keep them under $300 each. Benefits provided which have a value of less than $300 are exempt from FBT.
  • Give gifts to employees that they otherwise would have claimed as a tax deduction. For example, you could pay for a professional development course or give new tools.
  • Give gift cards or vouchers up to the value of $300. (Vouchers are not considered to be entertainment).
  • Avoid giving ‘entertainment’ gifts over $300, such as membership to clubs, tickets to events or travel.
  • Pay a Christmas bonus. Process through payroll like any other wage payment and withhold tax. Remember that superannuation applies to bonus wages.

Enjoy the Party

Talk to us when planning your Christmas gifts and events to check how much may be claimed as business expenses. Once you know the costs of throwing a party and giving gifts and bonuses, you can put your feet up and enjoy your own party!

November 3, 2020 Accounts, Bookkeeping, Planning

Top Eight Things To Outsource In Your Business

A man is pointing his finger on the word outsource

If you’re looking to scale your business, you’ll need to spend more time working on it than in it. Finding ways to leverage your time is critical, and outsourcing your least favourite tasks is a great way to do this.

Things you should consider outsourcing in your business:

  1. Digital marketing.
    From your content strategy to your social media accounts, if this is not a strength of yours, outsource it! There are many freelancers who have multiple clients at this level, who’ll likely be more knowledgeable regarding SEO and much more effective and efficient in general.
  2. Graphic design.
    Your brand is a key reflection of your product offering. If you don’t have the skill, software and time to do this well, you’ll potentially damage your brand.
  3. Scheduling and administrative tasks.
    A Virtual Assistant can help you manage anything from your appointments to flights, emails and beyond (virtually anything admin). At a lower level, consider adopting software that’ll automate or minimise processes, such as self-booking appointment apps where your clients can schedule a meeting with you, e.g. Calendly.
  4. Customer feedback.
    Many businesses miss this valuable opportunity to connect with customers and improve their experience. A Virtual Assistant can help, but there are also apps (such as Ask Nicely) that automate the process of asking for feedback; directing happy responses to leave you Google reviews and negative responses back to you to quickly resolve!
  5. Inventory management.
    Too much stock can cause cashflow issues and affect sales price (due to resulting discounting), but not enough equals lost sales. Outsourcing inventory management can help you minimise stock-carrying costs and allow you to focus on more important things.
  6. Payroll.
    This task is best left to the professionals. Outsourcing payroll will minimise the risk of inadvertently getting it wrong, while saving you time and, most likely, reducing the cost of this task. Utilising a payroll product is another great option.
  7. Bookkeeping.
    Do bookkeeping tasks often infiltrate your evenings or weekends? Does the stress of these tasks piling up occupy your mind? Outsourcing these tasks (and the stress) to someone else can be liberating and cost-effective.
  8. Virtual CFO.
    If you find budgeting and forecasting a struggle, a virtual CFO can wear this important hat for you. They’ll monitor the financial health of your business and provide a fresh perspective which will help you make better strategic decisions and improve your results.

Tempted to start outsourcing some of your tasks to free up your time? We can help by taking the last three roles off your hands! We work with a number of our clients in this way, allowing them to focus on what they do best.

While outsourcing takes a little bit of setting up, it’s worth the short-lived pain for massive gain. We don’t have to be jacks of all trades. In fact, this thinking often leads to begrudgingly doing many things poorly rather than doing a few things really well – and enjoying doing them.

Work to your strengths, outsource the rest! Need help? Get in touch.

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