Year-End Preparation Kit

We are entering the final days of the 2012 financial year and there are a number of key areas where careful consideration and planning can assist in managing year-end tax obligations and providing you with information, checklists and tips you need to start the new financial year in the best possible shape. Now is an opportunity for business owners to review the current financial year and proactively approach the next.

Those who take action now to review their systems, processes and software are more prepared to hit the ground running on 1 July, placing their business ahead of its competition.

1.    EOFY Tips and Information

2.    Payroll Year-End Checklist

3.    EOFY Checklist

  1.    EOFY Tips & Information

·       Keep you financial records up to date. Identifying errors is much easier over a short time period than after 12 months’ time has passed, so perhaps review your books every week or month rather than every quarter. Mistakes can be picked up sooner, potentially saving you money in the long term. If you don’t have the time to do this and would rather invest time in working on your business rather than in your business, hire a professional bookkeeper. This ensures less stress and time to prepare your accounts, reducing costs of administrative tasks that your accountant may have had to do at a higher rate. Therefore saving you time and money.

·       Timing issues. The benefits of deferring assessable income or bringing forward deductions will depend on the circumstances of each business and their overall anticipated tax position in the current and future income years. The following are common deductions that can be brought forward:

ü  Interest

ü  Bonuses

ü  Directors Fees

ü  Training

ü  Development

ü  FBT June quarter installment

ü  Superannuation (must be paid before 30 June not merely incurred)

Please consider your cash flow position before any expenditure is brought forward or income deferred.

·       Write off bad debts before 30 June.

     Write off any outstanding debts that are 12 months or older and/or are considered non-  recoverable. Remember to claim back any GST.  

·       Trading Stock.

An accurate stock take must be undertaken at the end of the financial year. Any obsolete or damaged stock is able to be written off. 

·       Plant & equipment

Review the depreciation schedule and match to plant and equipment on hand. Account for additional depreciation deductions or write off assets that are obsolete or have been disposed of. This should be undertaken at the end of the financial year in conjunction with the stock take. Consider holding off buying business assets until the new financial year, because the instant asset write-off increases from $1,000 to $6,500 from 1 July 2012.  

·       Ensure your BAS and superannuation guarantee charge statements are lodged and paid by 28 July. Make sure to pay your superannuation guarantee contributions for the fourth quarter of 2012 by 28 July 2012. If you or you miss this deadline, you must submit a Superannuation Guarantee charge statement to the ATO. 

The following checklists are mainly based on the use of MYOB software but most of these would still apply to any business. 

   2.    Payroll Year-End Checklist

 

¨  Ensure that you have entered all wages to 30 June 2012

¨  Print key payroll reports

¨  Reconcile PAYG withholdings by comparing the total payments made to the ATO with the total PAYG figures appearing on the Payroll reports.

¨  Check that the superannuation amounts have been paid for the 3 quarters to date and reconciles for the year to date.

¨  Print or prepare Payment Summaries for your employees. Before you begin, make sure all of the employees you are preparing payment summaries for have an address (including town and postcode) and a tax file number recorded in their card. You will also need details of any fringe benefit amounts and reportable superannuation amounts for your employees.

¨  Backup

¨  Start new payroll year

¨  Load payroll tax tables before you enter pays in the new year

 

   3.    EOFY Checklist

¨  Record all transactions for the current financial year up to 30 June 2012 and clear the suspense account

¨  If you have inventory, you need to do a stocktake on 30 June 2012

¨  Reconcile all bank accounts, credit cards, bank loans, barter cards.

¨  Reconcile Accounts Receivable

¨  Reconcile Accounts Payable

¨  Reconcile Inventory – write off obsolete or damaged stock

¨  Reconcile Owner/Directors Loan Accounts & Inter Company Loans

¨  Reconcile GST Control Accounts

¨  Review Fixed Assets – new, sold, write offs

¨  Print Financial reports, review and compare to previous year

¨  Backup and send data file to your Accountant

¨  Enter adjusting journals provided by your Accountant and compare final P&L and Balance Sheet to the Accountant’s Financials

¨  Backup and store safely

¨  Start new financial year (keep prior year data).

 

by Antonette, ACK Bookkeeping Services.

FEDERAL BUDGET TAX CHANGES 2012/13

The following is a summary of the major tax changes announced in the 2012 budget that has an impact on individuals and businesses starting 1 July 2012.

Tax Changes for individuals:

The Flood Levy that was applied to payments made from 1st July 2011 to 30 June 2012 will be abolished from the 1st of July 2012. The flood levy was designed to assist affected communities recover from the recent floods by providing additional funding to rebuild essential infrastructure.
The tax-free threshold of $6000 will increase to $18,200. The maximum value of the low-income tax offset (LITO) reduces from $1,500 to $445.
The first marginal tax rate of 15% increases to 19% on taxable income that exceeds $18,200 but not $37,000.
The second marginal tax rate increases from 30% to 32.5% on taxable income that exceeds $37,000 but not $80,000.
There will no longer be a separate tax scale for employees entitled to leave loading. These employees will no longer have higher withholding from every pay during their time at work. Employees will therefore be taxed more accurately when the leave loading is paid. Employers making leave loading payments as a lump sum will need to use the marginal tax rate for back payments, commissions, bonuses and similar payments.
Around 60% of taxpayers receive a minimum tax cut of $300 and no one will be required to pay more income tax.
Individuals can now earn up to $20,542 from 2012-13 without paying any net income tax.
One million low-income earners won't need to lodge a tax return from 2012/13.

Changes that impact businesses:

• From 1 July 2012, the small business instant asset write-off threshold has been increased from $1,000 to $6,500 GST exclusive and the depreciation rate for assets costing $6,500 or more GST exclusive included in the asset pool will be 30% (15% for the first year) even for assets with an effective life of 25 years or more. Some may advise to acquire an asset in July 2012 rather than June 2012 to take advantage of this accelerated up-front deduction.
• From 1 July 2012 and for cars only, where the cost is $6,500 or more GST exclusive, an immediate deduction can be claimed by small businesses for both the first $5,000 plus 15% of the cost less $5,000. The balance of the purchase price is depreciated as part of the asset pool at a rate of 30% in the second and subsequent years.
• From 1 July 2012, businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year. These payments need to be reported to the ATO via a taxable payments annual report.
• There is no reduction in company tax rate. The company tax rate only cuts to 29%. The 28% have been shelved, including the small business tax rate reduction to 29% that was due to start from 1 July 2012.
• Tax loss carry-back concession - From 1 July 2012, companies can carry back tax losses so they get a refund against tax paid in the previous year, providing a tax benefit of up to $300,000 per year. This loss concession is limited to $1.0m of company income/revenue losses, incurred from the 2012-13 income year, and may be carried-back only to receive a refund of income tax paid, in the previous one or two years as the case may be, that is represented by franking credits remaining in the a company’s franking account. The tax benefit is limited up to $300,000 per year. The tax benefit will not be received by a company until it has lodged its income tax return for the year it incurs the tax loss.
• Super Guarantee Increase Confirmed From 1 July 2013 - The Government confirmed the progressive increase of the super guarantee rate to 12% in this budget. The increase is due to start from 1 July 2013, starting at 9.5%, and progresses to 20% from 1 July 2019.

Please consult your accountant should you have any questions or need more information relating to any income tax matters.

Common GST mistakes

Here is a checklist of some common GST mistakes that are made by small businesses, and how to correct and minimise these errors in future. 

Common GST Mistakes

- Not using the correct accounting method. If the business is using the cash accounting method for GST, but not for income tax purposes, and the turnover of the business is expected to be $2 million or more, the business needs to change to the accruals or invoice basis.

- Incorrectly claiming a GST credit on the 'total cost' of a business insurance policy. Because there's a stamp duty component in the premium which is not subject to GST, a GST credit cannot be claimed on this portion of the payment. The actual amount of GST payable on an insurance premium is usually stated on the renewal form.

- Incorrectly claiming GST credits on bank fees. Bank fees are treated as 'Input Taxed' meaning that the Bank does not charge GST to the customer. eg monthly and annual fees, cheque book fees and loan establishment fees. Note that GST is charged on credit card merchants fees and therefore a GST credit can be claimed on these.

- Incorrectly claiming GST credits on government charges such as ASIC filing fees, land tax, council rates, water rates, and motor vehicle registration where no GST has been charged. 

- Not remitting GST on some government grants and incentives which are received inclusive of GST

- Not paying/remitting GST on the sale of cars and equipment including the trade of motor vehicles. The sale of a business asset is subject to GST just like any ordinary business transaction unless the going concern exemption applies.

- Incorrectly claiming GST credits on GST-free purchases such as basic food items, exports and some health services. Other GST Free items include Milk, tea, coffee, international travel, donations and some first aid supplies.

- Incorrectly claiming GST credits on wages and superannuation payments. 

- Incorrectly claiming the full amount of GST credits on entertainment expenses where the business has elected for fringe benefits tax purposes to use the 50/50 split method, in which case only 50% of the input tax credits can be claimed.

- Sole traders and partnerships are not apportioning input tax credits and making adjustments to expenditure that's partly private and partly business use (eg motor vehicle expenses). To calculate their GST liability small businesses are required to undertake this apportionment each time they prepare their BAS though in practice the actual private use may not be accurately determined until the business is required to complete and lodge its annual income tax return. Sole traders and partnerships with an annual turnover of up to $2 million that pay GST either quarterly or monthly can apply private use apportionment for GST purposes on an annual basis instead of each time the BAS is lodged.

- Claiming the entire GST credits on a car purchased for more than the luxury car limit (The car limit for the 2011-12 financial year is $57,466. This limit is reviewed each financial year and may change) The maximum GST credit that can be claimed is limited to $5,224 ( That is 1/11th of the car limit of $57,466).

- Incorrectly claiming an upfront GST credit on assets financed through a commercial hire purchase (CHP). While an up-front GST credit is available for businesses accounting for GST using the accruals or invoice basis, this isn't available where the business uses the cash basis. When the cash basis applies the GST credit to be claimed is calculated as 1/11th of the 'principal' portion of the total CHP payments made during the relevant month or quarter, (ie the credit is claimed progressively over the term of the CHP loan). In order to claim the total GST credit upfront, businesses operating on a cash basis would need to consider financing the asset by way of a chattel mortgage.

- Incorrectly claiming GST credits on payments for Yellow Pages advertising. If the business chooses to pay for the cost of advertising by instalments, the entire GST is charged up-front. Businesses that account for GST on an accruals or invoice basis can claim this amount in their next BAS whereas businesses that use the cash basis can only claim a GST credit equivalent to 1/11th of each instalment.

- Interest Income should have ITS (Input Taxed Sale) as the code.

- Claiming a GST credit when the business does not have a valid tax invoice at the time of lodging the BAS. Businesses in this situation should contact the supplier for a duplicate tax invoice or to have the tax invoice re-issued with the correct information. If you have been unsuccessful in obtaining a valid tax invoice contact the ATO for permission to claim the GST credit.

Without an invoice or Tax invoice you will need to withhold 46.5% from any payment over $75 and pay it to the ATO. If the supply/service is made as part of a private recreational pursuit or hobby, you would need an invoice but not a TAX invoice, since the supplier may not be registered for GST. A tax invoice implies GST registration. It should be clearly stated on the invoice that there's no GST included in the amount. Therefore an invoice should be issued when a supplier doesn’t have an ABN and not GST registered. The invoice should have the following information:

1. Supplier's name,address and contact details
2. Description of the supply or service
3. Statement that the supply is either: private or domestic, or part of a hobby or private recreational pursuit (and, therefore, the supplier doesn't need to quote an ABN and you do not need to withhold from your payment to them), or not GST registered.
4. Amount, and statement that no GST is included in the amount.
5. Supplier's signature.

Correcting GST mistakes

If a business has made a clerical error or omitted a transaction on an earlier period BAS, there are two things to concider before correcting this error. That is the 'time' and 'dollar' thresholds. A business can make the change in the 'current' BAS if they meet all of the following conditions:

1. The turnover of the business is less than $20 million; and
2. The 'net' effect of the errors and omissions from the earlier BAS periods is less than $5,000 in GST credits; and
3. The original transactions occurred within 18 months of the end of the current BAS period.
   If the 'net' effect of the errors or omissions from previous BAS periods occurs outside the relevant time and dollar limits, the business must revise each of the original BAS periods where the errors or omissions occurred. This may lead to a general interest charge if the revision results in additional GST payable.

For more information please contact the ATO or follow this link to the ATO website – refer to points 1, 2 and 20 to 22: 

http://www.ato.gov.au/businesses/content.aspx?doc=/content/19178.htm 

ACK Bookkeeping provide bookkeeping services in the Gold Coast and South Brisbane, Australia. If you would like to talk to us about bookkeeping services please contact us by email ackbookkeeping@bigpond.com.

ACK Bookkeeping services

 
ACK Bookkeeping provides bookkeeping services tailored to your business needs, without the employment related obligations or the higher fees of traditional accounting firms. We provide you with honest and practical advice to reduce any stress around record keeping.

Our bookkeeping services are flexible to accommodate your business needs and include the following services options:

1. Attending your office on a weekly, monthly or quarterly basis.

2. Off-site bookkeeping services on a weekly, monthly or quarterly basis. We provide you with a filing folder. Place your source documents like your receipts, invoices and bank statements in the folder for us to collect and process. We deliver your empty filing folder back to you ready to be filled for the next period.

Depending on your bookkeeping requirements, services may include:

. Processing source documents into MYOB or your accounting system,
  from bank transactions, receipts, invoices, etc. through to trial balance.
· Bank reconciliations
· Payroll & Supperannuation
· Accounts receivable - data processing, reconciliations and reports.
· Accounts payable - data processing, reconciliations and reports.
· General office administration and filing.
· P&L and Balance Sheet Reports
· Liaise with the ATO and your Chartered Accountant
· Year End accounts ready for your accountant to prepare your Income Tax

At the end of the financial year your accounts will be ready for your Chartered Accountant to review your accounts and prepare your income tax returns. Therefore reducing the stress and cost of administrative tasks. Saving you time and money.

Contact Antonette today for a friendly chat about your business.
Mobile: 0414 401 456
Phone: (07) 5665 9678
e-mail: ackbookkeeping@bigpond.com

Small Business and Cash Flow

According to the Australian Bureau of Statistics 42% of small businesses fail in the first four years. So, for a small business to keep afloat, one of the things you need to keep a close eye on is your cash flow. Here are a few tips on doing just that.

Set up a cash flow budget. Your cash flow projection represents likely income and outgoings over the period of time you have selected. There are some budgeting and cash flow software around, like MYOB, but you can also set up your own program in Excel. If you’re not familiar with Excel, ask your accountant or bookkeeper for help to set it up properly initially. They can also help you select suitable cash flow software.

Cash flow budgets are the best way of preparing for cash shortages that may arise. A sudden growth in sales often leads to low stock on hand and/or debtors not being tracked or followed up when they go overdue. Strong sales one month may also often lead to a cash shortage the next month due to replenishment of inventory levels while sales are down to normal. By monitoring your business’ cash status you may want to arrange credit from banks and suppliers to cover the temporary shortfalls. As you would know, these arrangements take time to set up so it is best to be prepared in advance.

Don't ignore your balance sheet. This may sound obvious, but many owners don't know how cash flow works and focus on the profit and loss statement alone. Healthy profits doesn't necessarily mean a healthy cash flow. Some cash flow information is also contained in the balance sheet, for example loan repayments, debtors and creditors payments, inventory, etc.
  
Review & update cash flow budgets regularly. You may choose to review your cash flow budget weekly, monthly, or even quarterly. This depends on the predictability of your business' cash flow. Generally the the greater the cash flow uncertainty, the more often a new cash flow budget should be prepared.

If cash is really tight, you may want to move to weekly projections to best manage your cash flow. Watch your bank balance, follow up on accounts receivable as soon as possible, decide which invoices to pay now and which one's to delay, and make sure all cash and cheques are deposited as quickly as possible. This is time consuming, but you won’t be the first business that has had to do that from time to time.

Credit Terms & Timely Payments.
Master the art of debtor management. Set clear limits to your terms of credit and follow up on overdue accounts as soon as possible. Offer small discounts for early payment as an incentive.

Pay creditors strategically.
Wages, taxes and direct debits are at the top of the list for on-time payment.

Take advantage of credit terms and prioritise payments according to the consequences involved in going overdue. Key suppliers may be prepared to wait a while to keep your business. Don’t be afraid to negotiate discounts on timely or early payments to creditors.

Plan for low cash flow periods. Be aware of when low cash flow patches are coming up and plan accordingly. Avoid funding major purchases from your business’ working capital unless you are sure you have the cash to cover it.

Arrange finance products to use to your advantage. Overdrafts, lease facilities and cash flow funding products can all be excellent tools to help with cash supply for planned outlays. Even the business credit card can be a good way to ease the squeeze as long as you are sure the debt can be paid before interest kicks in.

Avoid incurring tax and other statutory penalties. You may want to set up a savings account with a high interest rate and put away some extra money for GST/BAS payments and any other taxes.

Cash Drawings. Make sure to keep personal cash drawings to a minimum and according to the cash flow forecast.