Tax Talk

by synergyJanuary 15, 2021 Tax Talk0 comments

What is a Financial Audit and When Do You Need One?

Synergy Accountants and Estate Planners are excited to announce that from mid-February 2021 we will have a fulltime licenced auditor, Shane Brewer, working in our Mackay-based office. Shane hails from the Gold Coast and has over 25 years’ experience in accounting and business auditing. We are looking to build Shane a portfolio of clients so that he can hit the ground running when he arrives. So, let’s look at what business auditing is and why your business may need Shane’s skills.

What is a business audit?

A financial audit, also known as a business audit, evaluates a company’s financials. When Shane carries out your company audit, you can expect him to review your current financial statements and then highlight any discrepancies and identify your business’ current financial standing.

The financial audit results will be compiled in a written audit report with all the information clearly identified. The financial audit report’s beauty is that Shane can recommend cash flow improvements for your business.

Are there different types of financial audits?

Yes, there are three types of audits:

Internal audits – These are carried out by employees of the company. Internal audits are primarily prepared for the management or business stakeholders’ benefit and are designed to improve decision-making within the company.

External audits – Performed by third parties, such as us, these audits are unbiased opinions which can identify misstatements in a company’s financials. External audits are generally seen as more honest than internal audits, as the external auditor doesn’t have a stake in the company and will therefore be less inclined to misrepresent the figures. External audits allow for more comprehensive decision making by business stakeholders.

Government audits – From time-to-time, the Australian Taxation Office may order a comprehensive audit of a business’ books. The nature of the examination is determined by the reason the books were flagged in the first place, i.e. whether the ATO suspects fraud or evasion, or whether they just want a more in-depth look at certain transactions. The ATO conducts these reviews themselves.

When should my business have a financial audit?

The most common reason you obtain a financial audit is if you are planning to sell your business. Most buyers will want to see your financial data to have peace-of-mind that they are making a solid investment. In this instance, having pre-audited financials ready to handover to potential purchasers may add credibility and value to your business.

Other instances where you may require a business audit include:

Requisite annual audits for medium to large-sized charities or medium to large proprietary companies;
If your business is applying for finance;

If you are planning on restructuring your business or are wanting to review your business plan;
If you suspect errors or missing information in your financial statements.

Why should my business voluntarily submit for auditing?

Even if you don’t have one of the above reasons for a financial audit, you may still benefit from one because:

auditing helps identify risks and procedures necessary to manage the risks; and
auditing evaluates the internal controls, identifies weaknesses and formulates procedures to reduce risks to an acceptable low level.

What documents are required for Shane to do my business audit?

If your business has never had a financial audit, then Shane will require a lot of information, starting with:

General Ledger: This can be generated in your bookkeeping software and exported to Excel.
Trial Balance: This is a crucial document for any auditor. Again, this can be generated in your bookkeeping software.
Listings of all bank accounts, including bank names and authorised signatories.
Copies of any loans, leases or asset contracts, including balance statements.

Invoices for any new asset purchases.
Stock subscriptions and stock option agreements.
Depreciation schedule (if applicable).
Board of Directors meeting minutes (if applicable).
Payroll reports (if applicable).

To make things a little easier for you, you can generate a backup copy of your entire software data, which you can then provide to Shane. Or simply provide him with your login details and he can pull most of the required information directly.

Once you have had the initial audit, the next and subsequent audits will be easier as the auditor can use the initial audited financials as a baseline.

Start the new with peace-of-mind

Running a business is stressful enough without worrying about your company financials. An audit report can eliminate part of that stress as you will learn your areas for improvement, which can help with your business decisions.

Don’t miss out on the benefit of Shane’s 25+ years as a financial auditor. Book your February appointment with him now, by contacting Synergy Accountants and Estate Planners.

by synergyNovember 30, 2020 Tax Talk0 comments

2 Ways Negative Gearing Can Work for You.

‘Negative Gearing’ is a very common tax–time discussion topic in Australia. The term, coined by middle to high-income earners, essentially describes financial situations where the expenses associated with an asset are greater than the income earned. Some people may question whether the tax write-offs are actually worth the benefit. In some cases, we believe it is, which is why we have outlined two ways negatively gearing can work for you.

But First … A little more about what is negative gearing

Negative gearing can apply to any asset or investment, not just housing.

The Australian Treasury best describes it:

“Individuals who are negatively geared can deduct their loss against other income, such as salary and wages. This is consistent with the broader operation of Australia’s personal income tax system. 

Australia’s tax system operates on the principle that people pay tax on their personal income, less any expenses (called deductions) in generating that income. This is similar to how business profits (that is, income less expenses) are taxed, i.e. tax is levied on the net profit of a business, not its gross revenue. 

Deductions for costs incurred in producing income recognise that different people have different costs in producing income.”

#1. Property

Negatively gearing and rental property is a common word association in Australia. Of course, most people get into the property market to make money, but because of its volatility, it is never a sure thing. Yes, you earn income from the rent, but because of the upkeep and expenses of the property, sometimes the rental will run at a loss.

Under Australian legislation, an investor is allowed to claim certain losses from their investment properties against their taxable income. Here is an example of how it is calculated:

Yearly rental income: $30,000

Less yearly expenses: $36,500

Landlord insurance: $1,500

Mortgage interest: $25,000

Repairs and maintenance: $5,000

Property manager: $5000

Taxable loss or write off $6,500.

This $6,500 expense will reduce your total taxable salary.

These are just some of the expenses which you can claim. There are others such as body corporate levies, land tax, rates and water etc. For a full list, please visit the ATO website or talk to your accountant.

#2. Shares

If you borrow money to invest in shares and the dividends from the shares are less than the interest on the loan, then you can claim that as a write-off.

For example, if you purchase EFT Shares which provide a return of $9,000, but the interest on your purchase loan equates to $10,000 per year, then you will have a loss of $1,000.

Risks Associated with Negative Gearing

While the above examples may sound great, you need to be aware of the potential pitfalls.

The first is that certain expenses are capped, meaning not all losses are going be claimable. Therefore, any surplus which can’t be claimed will come out of your back pocket.

The same can be said of the rental market. What happens if you can’t fill a vacancy? You cannot claim for a property which isn’t earning rental income.

Finally, you need to weigh the risk against the reward. Can you afford to maintain these tax write-offs? Negatively gearing only makes sense in the short term, as you will want an eventual gain, and you may even want that gain to be greater than the losses incurred while holding the asset.

Understanding what you can claim, and what you cannot, can get very confusing. And, when you get it wrong, it can lead to headaches and possible penalties with the Australian Tax Office. To avoid these extra stressors, we always recommend you seek expert advice. At Synergy Accountants and Estate Planners, we stay up-to-date with all the latest legislation and offer stress-free solutions to our clients.

To find out more, please book an appointment.

*Disclaimer* The abovementioned advice is true and correct as at the date of publication. The information contained in this blog is to be considered a guide only and is not intended to be used in lieu of advice received from your registered accountant or tax agent.   

by synergyNovember 18, 2020 Tax Talk0 comments

How to Minimise your Business Tax Debt

At the end of 2019, the Australian Tax Office registered almost $15billion worth of debt owed to them by small business owners. That’s a staggering number; particularly when you consider that most small business owners are mum and dad operations juggling their cash flow. And, many of these business owners would say that that money is better off in their pockets than with the Government. So, if you are one of these small business owners, then you are probably wondering how you can minimise your business tax debt.

What is a claimable deduction?

The Australian Tax Office (ATO) has a relatively diverse list of what is and is not a claimable business expense. The questions which business owners need to ask themselves are:

Was the expense for business use – as opposed to private use?
If the expense has been split for both business and private use (i.e. home internet) then can you easily calculate the portion used by your business?
Do you have accurate records to verify the expense?

If you answered yes to these questions, then you can lodge them as a business tax deduction.

What sort of records need to be kept?

If you are claiming business deductions, you must keep a substantial record. The records can be kept in either paper form or electronically (i.e. an emailed receipt), and they must be in English or able to be easily converted to English.

Examples of the records you should be keeping include:

Asset acquisition such as tools needed for your business or vehicles or stationery and incidentals; and
Tax-deductible gifts, donations or contributions

The Australian Tax Office law is that these records are to be kept for five (5) years after claiming, just in case you are ever called upon to produce these records to the ATO.

What about GST?

GST is a little trickier because it cannot be claimed as a tax deduction if you have claimed it as a credit on your Business Activity Statement (BAS).

Also, if your business is not registered for GST, the full amount of the expense can be claimed as a tax deduction.

Offsets and rebates for your business

Small businesses are also entitled to tax offsets and rebates, which can reduce the amount of tax a small business pays by $1,000 each year.

The eligibility for the concession changes regularly and is calculated using your tax return. For more information, or to work out your offset, visit the ATO website.

What isn’t a claimable business tax deduction?

Again, the ATO has kindly provided a list of non-claimable deductions, including:

Entertainment expenses
Traffic fines including parking fines
Domestic expenses such as childcare fees or general clothes (excluding work uniforms)
Expenses incurred for a hobby business

What about travel expenses

One of the most frequently asked questions for business owners is about the use of motor vehicles. As a business owner, you can claim a tax deduction for a vehicle which was used in the running of your business.

More information regarding the use of your vehicle for tax expenses can be found in this handy printable flyer.

If you do get into trouble with repaying your business tax debt

We understand that sometimes things happen and cashflow is tight. Despite public opinion, the tax office can be reasonably easy to deal with, and they are willing to enter into payment arrangements. Your first step should always be to contact the ATO because they cannot help you if they don’t know what is happening.

If your debt is $100,000 or less, you can propose a payment plan online through the business portal, or via your registered tax or BAS agent. Alternatively, you can contact the ATO on 13 72 26, 24 hours a day, 7 days a week.

Businesses with a debt greater than $100,000 can contact the ATO on 13 11 42, Monday to Friday between 8am to 6pm.

When it all gets too much

Tax time is confusing and often frustrating for many business owners. If you find yourself flustered by your tax time obligations, the team at Synergy Accountants and Estate Planners are here to help.

*Disclaimer* The abovementioned advice is true and correct as at the date of publication. The information contained in this blog is to be considered a guide only and is not intended to be used in lieu of advice received from your registered accountant or tax agent.   