Why bookkeeping is important? – by Brenda

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What is bookkeeping?

Bookkeeping is the process of recording, organising and reporting financial transactions of an organisation on a daily basis. It may be your least favourite business matter to handle, however, it plays an important role. It is the initial step in alleviating the growth of your business by showing your business performance and financial status.

The Importance

1. Financial Management & Analysis

Good bookkeeping ensures that you able to manage and evaluate your cash flow through an organised system. It also allows you to keep track on invoices owed to you and make timely payments. Delaying your invoices or payments may lead to business failure thus proper bookkeeping is necessary for the smooth running of the business.

2. Tax Obligations

You can easily file your tax returns if you do proper bookkeeping. You do not need to go through the trouble of looking for bills and documents of expenses because they are properly recorded in the financial statement. When you visit your tax advisor next time, you can use the time to obtain better tax advice instead of fixing the incorrect entries in your financial statements.

3. Easier Reporting to Investors

In order to attract more investment into your business, you need to attract the investors. You can present to the investors the development your business and its current and prospective position by accurate bookkeeping. Infographics, charts and graphs can be easily presented by obtaining all information from the book of accounts. The investors are able to able to understand your plans and increase the likelihood of receiving more investment by clearly stating where expenses are required to boost the business. Bookkeeping also helps ease your annual report to current business investors.

4. Business Planning

The Balance Sheet and Profit & Loss statements keeps your business’s finance in check that it is on the right track so that business planning is easier and more effective. Based on evaluation of your business’s current position, you can make sound decisions for your business’s future. It helps the business secure funds and save it from unexpected circumstances such as heavy tax payment or future investments.

5. Audit Protection

Bookkeeping helps you keep track on your business financial transactions. You can easily retrieve information easily during auditing with a well organised system. Moreover, the Australian Government requires you to keep proper records to ensure that everyone is honest.

6. Saves Time and Money

Proper bookkeeping allows you to easily identify the expenses that the business has been spent on. When doing your tax return, you can avoid the hassle and easily claim the amount you are entitled to. Consequently, you will save time and money to help your business grow.

Therefore, bookkeeping helps in leading the success and smooth running of your business.  Proper bookkeeping saves your time and money by easing your way through tasks such as reporting to investors, business planning, filing your tax return and providing evidence during auditing.

If you require any advice or need to hire an accountant, don’t hesitate to contact us at Simpro Taxation Services.

If I just started a new business, do I need a software to keep track of records? – by Brenda

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Generally, it is not a must to use a software for record keeping. In the following text, the importance on record keeping and features of record keeping manually and electronically will be discussed.

Importance of Record Keeping

According to the Australian taxation ruling, your business records must be kept or you can incur penalties. They must:

  • be kept for a minimum of five years or longer.
  • be in English or in a form that can be easily translated.

Some other advantages of good record keeping includes:

  • being able to analyse your business and make good business decisions;
  • providing information for future business planning;
  • demonstrate the financial position of your business to banks, lenders, and potential buyers;
  • protect your business from disputes or any legal issues;
  • to complete and lodge your tax returns;
  • keeping up with tax and legal compliances.

Tips on Record Keeping

  1. Gather all your receipts and bills.
  2. Sort and group into types of expenses.
  3. File them according to the order of paid date.
  4. Separate the paid and unpaid bills.
  5. Keep these records in proper folders. If you want to store them electronically, scan the bill or receipt and arrange them by year, then by alphabets.
  6. Ensure the tax invoices contain all the information required by ATO.
  7. Cross reference your records by noting down invoice number on cheques and vice versa or the date and method of payment for electronic payments.

Record Keeping by Paper

These records can be kept on paper so it is not necessary to have a software to store them. Paper or hard copies of records are often the original copies which are used as evidence to support electronic records when a legal matter arises.

Business owners often opt for manually keeping records as it:

  • saves cost;
  • avoids problems such as having multiple copies of the same records;
  • is easier to handle documents as you do not require knowledge on software.

The drawbacks of manually keeping records are that they:

  • are often misfiled;
  • are often damaged to exposure to water or sunlight;
  • require a lot space to store these paper records.

Electronic Storage of Records

However, it is definitely more beneficial to store them electronically. The right software will be able to help you ease your tasks by:

  • making calculations and tally amounts automatically;
  • producing necessary reports, invoices and summaries for taxing purposes;
  • serving as back-up in case of flood, fire or theft;
  • saving physical storage space;
  • allowing easy duplication, organisation and search of files;
  • linking to lodgement systems to save time when reporting to ATO.

The disadvantages are:

  • the possibility of losing data or data corruption if the records are stored in a hard drive or USB device.
  • requiring additional security to ensure all information are protected from computer viruses or unauthorised access.

If you require any advice about the setting up or finding a system that best suits you, don’t hesitate to contact our accountants at Simpro Taxation Services.

Why we need financial statement? – by Brenda

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What is a financial statement?

Financial statement is a collection of documents and reports which accounts for the financial status and activities of an individual or a business. It shows where the money is from, where it went and where it is now.

The financial statement consists of:

  1. Balance sheet
    – Shows the company’s financial status at the end of specified date and the company’s assets, liabilities and shareholder’s equity.
  1. Income statement
    – Shows the revenues, expenses and profits of a company over a specific time period.
  1. Cash-flow statement
    – Shows the company’s cash inflow and outflow during a period of time.

 

The purpose

The general purpose of the entire set of financial statement is:

  • To determine the ability of a business to generate cash, and business transactions such as the sources and expenses.
  • To determine the business’s capability to pay back debts.
  • To determine the trends in the finance results of company operations.
  • To evaluate financial ratios from the statements to understand the business performance.

The financial statement provides important details of a company’s financial position, profitability and activities (involving its finance, operation, investment). The shareholders, investors, banks or vendors use it to analyse a company for the following purpose:

  1. Investors
    – To decide whether to invest, and to determine the price per share to invest.
  1. Lenders
    – To determine whether to loan to a business, or restrict the amount already loaned.
  1. Government entities
    – To tax the business.
  1. Acquirer
    – To determine the price to offer to buy the business.

Beware Cash Income on ATO’s radar – by Brenda

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Cash payment is preferred by most customers and businesses for small transactions to avoid card and electronic payment fees. However, some businesses overlook on the fact that they have to disclose their cash earnings. Cash is hard to trace when not banked in, so this attracts attention from the ATO. Some people of the cash economy deliberately want to avoid tax obligations and breach employment laws. Therefore, the ATO has come up with third-party data and risk analysis to track down undeclared income costs.

Who?
The ATO is now targeting small service sector businesses that receive cash payments. These include businesses such as:

• Cafes and restaurants,
• Butchers,
• Convenience store owners,
• Hair, beauty and nail salons,
• Carpentry and electrical services,
• Building trades,
• Road freight businesses,
• Waste skip operators, and
• Cleaners.

How to safeguard?
For employees:
Your employer may pay you in cash, rather than into your bank account. It is legal and more convenient but some businesses deliberately pay their employees by cash to avoid meeting tax and employee obligations.

If you are being paid cash, you:

• must declare the cash as income when you lodge your tax return.
• should receive a pay slip showing all your earnings and the amount of tax taken out.
• should receive a payment summary at the end of the year which shows your full annual earnings
and the amount of tax deducted.
• should check that your employer is making super contributions on your behalf.
• must declare tips on your tax return – regardless of how you receive them (tips from your
employer or directly from customers)

For businesses:
In order to protect your business from being targeted:

• Deposit all cash payments into bank accounts;
• Keep evidence to support your income, expenses and lifestyles;
• Ensure you can account for stock used for private purposes; and
• Analyse the performance of business in comparison to other similar businesses in the same
industry by using ATO small business benchmark tool.

If you need help with documenting your business income, expenses and stock, calculating whether your business is performing within the small business benchmarks or require more advice on how to keep your business out of the ATO firing line, contact or visit us today at Simpro Taxation Services.

How ATO tracks?
The ATO collects information from various sources including banks, employers, merchants and government departments and compares this information with your income tax return. At great lengths, the ATO may obtain information about your business from suppliers, to calculate your turnover should be. The ATO can find inconsistencies by matching the calculated turnover with your actual based on your income tax and GST reporting.

If the ATO identifies discrepancies, you may be examined by the ATO and formally audited. For example, there is inconsistency with cash received in your bank account or expenses and your income as declared in tax returns.

The ATO collects information of every business in Australia to create profiles of businesses based on their different characteristics. This is to benchmark and compare its income, costs profit margins and profitability.

For example, if most of your business income is from selling goods but the business also renders services. When the tax return is done, the business code chosen is for the service industry where most of your income does not come from. This will cause the ATO to compare your business with businesses of a completely different industry. This will then lead them to think your business has fallen outside the industry benchmarks. So, if your business’s figures falls outside the small business benchmark figures when compared to other businesses similar to yours in your area, the ATO will be interested to find out why.

You may be audited even if you have a good reason for falling outside the ATO benchmarks and haven’t done anything wrong. Hence, it is important to ensure your accountant checks that you are within the benchmarks for your industry and choose the correct industry code to avoid being audited or out of the ATO’s radar.

Why should I care?
If the ATO concludes that a taxpayer has undeclared income, he/she is generally liable for tax on the undeclared income plus interest charges and penalties. Penalties can include fines and, in the case of criminal prosecutions, imprisonment.

Key Implications about TAX on CRYPTOCURRENCY – Part 1 By Jenny

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A. What is Cryptocurrency?

  • A new electronic payment system – ‘virtual currency’ provides an alternative cash system. 2 parties can directly transact without need of 3rd party (bank). It can be managed by network of computer users and is not tied to any country.
  • Acquiring Cryptocurrency – Cryptocurrency can be bought or sold through a Cryptocurrency ‘exchange’ by using different currencies.
  • Digital wallets – Cryptocurrency is stored in digital wallet which has public addresses and PIN number.
  • Cryptocurrencys can be used as an exchange which is similar to money. For example, customers can use Cryptocurrency to buy a meal in a restaurant that accepts Cryptocurrency.
  • Price of Cryptocurrencys is unpredictable and volatile and is determined by supply and demand.

 

B. Tax treatment of Cryptocurrency on key scenarios

  1. Taxpayer sells Cryptocurrencys held as trading stock
  • Cost of buying Cryptocurrency: is deductible in tax calculation. Adjustment must be made at year-end. If value of opening stock exceeds closing stock, the excess is assessable, but, if value of opening stock is less than closing stock, then the difference is deductible.
  • Proceeds from sale of Cryptocurrency: is assessable as ordinary income. Disposal of Cryptocurrency will not result in a CGT liability.
  • The purchase and selling costs of Cryptocurrency are deductible in the year they incurred (e.g. brokerage fees)
  • A Cryptocurrency trader would generally be entitled to a deduction for following expenses: Interest, computer, software costs (i.e. annual licence fees), and running and occupancy expenses (i.e. mortgage costs and rates)
  • No GST liability arises on the disposal.

 

  1. Business taxpayer accepts Cryptocurrency as payment
  • The fair market value of Cryptocurrencys, in AUD, must be included in the assessable income of taxpayer as business proceeds
  • From the time Cryptocurrency is received as payment to the time Cryptocurrency is disposed, some further tax consequences could arise which depend on whether the Cryptocurrency was later held as trading stock, or investment purpose, etc.
  • If a taxpayer accepts Cryptocurrency as payment for taxable supply, the business is required to remit 1/11th of the amount as GST to the ATO. The amount of GST must be reported on activity statemen as an amount of money in AUD.

 

  1. Business taxpayer uses Cryptocurrency to make acquisitions
  • The business is entitled to claim a deduction based on the fair market value of the item acquired (in AUD)
  • A GST-registered business that involved Cryptocurrency denominated supplies, is able to claim ITCs for GST included the price of its acquisitions

 

  1. Taxpayer sells Cryptocurrency held for investment purposes
  • Disposal of Cryptocurrency held for investment purposes (i.e. a gain is not assessed as income on revenue account) could be advantageous because of potential availability of 50% CGT discount
  • Capital gain on disposal will arise if capital proceeds from disposal of Cryptocurrency exceed its cost base (and a capital loss arises if the reduced cost base exceeds capital proceeds)
  • Interest expense incurred on funds borrowed to acquire Cryptocurrency for investment purpose is not deductible
  • No GST liability arises on the disposal

 

  1. Taxpayer uses Cryptocurrency to acquire personal items
  • Any capital gain arising on disposal is disregarded if the Cryptocurrency was held as a personal use asset and the first element of its cost base is $10,000 or less.
  • No GST liability arises on the disposal

 

  1. Cryptocurrency sold as part of isolated profit-making transaction
  • The net profit can still be taxed as ordinary income of transaction constitutes an isolated transaction.
  • Any expenditures associated with the transaction are quarantined and are not deductible but are taken into account as part of net profit
  • The transaction is also dealt with under CGT regime. There is an ‘anti-overlap provision’ that ensures the same amount is not taxed twice
  • No GST liability arises on the disposal

 

To be continued…

6 IMPORTANT Tax Differences Between a Sole Trader and a Company by YS

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If you are thinking to start a new business, you will need to decide on structure. Will you operate as a sole trader or will you establish a company?

Below is a summary of some common queries regarding the differences between operating as a Sole Trader or a Company.

This information is taken from the www.business.gov.au website and is current as of 24 May 2018.

For more information, please feel free to contact us on 0481 309 696 or email: admin@simprotax.com.au .

Tax differences between a sole trader and a company

Question Sole Trader Company
What is the tax-free threshold?

 

 · $18,200 for sole traders (individuals) in the 2016-17 income year.

· It changes from time to time so check the individual income rates.

 ·  There is no tax-free threshold for companies in the 2016-17 income year.
What are the tax rates for income? ·  Sole traders pay tax at the individual income rate.

· Tax-free threshold is $18,200.

 

 · The company tax rate is currently 30%. From 1 July 2016, the company tax rate for small businesses with an aggregate turnover of less than $10 million is 27.5%.

 

· No tax-free threshold for small business and companies.
What small business concessions are available? · discount on Capital Gains Tax (CGT)

· income tax concessions

· GST and excise concessions

· Pay As You Go (PAYG) instalment concession

· fringe benefits tax (FBT) concessions

 · no discount on Capital Gains Tax (CGT)

· income tax concessions

· GST and excise concessions

· Pay As You Go (PAYG) instalment concession

· fringe benefits tax (FBT) concessions
What type of tax returns need to be lodged? · Individual tax return  needs to be lodged each year.

· Business income and expenses go in your individual tax return using a separate business schedule – you do not need to lodge a separate return for your business.

 

 · Separate company tax return needs to be lodged.

· You must also lodge your own personal return as an individual for income you earn via wages, shares, dividends or loans received from the company or any other sources of income.

· If you are a director of a company or trust, benefits you receive may be subject to FBT. You must lodge an FBT return if you have a liability during an FBT year (1 April to 31 March).

· Must also lodge return of any associated company trusts.
What business taxes and superannuation will I need to pay and report? Business taxes and superannuation are not based on your business structure, but the activities of the business.

You may need to register for taxes such as:

  • Goods and services tax (GST)
  • Pay As You Go (PAYG) instalments

If you have employees you will also need to:

  • Make Pay As You Go (PAYG) withholding payments 
  • Make Super Guarantee (SG) contributions 

Consider if you need to pay fringe benefits tax (FBT) instalments. This is only required if employees receive a fringe benefit.  Check out the Australian Taxation Office’s (ATO) website for more on the types of payments that incur FBT.

 
When do I have to pay Goods and Services Tax (GST)? · For both a company and a sole trader, you must register for GST if your turnover is $75,000 or more.

 

If it is below this amount it is optional to register.
When do I have to pay payroll tax? Payroll tax is regulated by the state governments and therefore each state is different.

 

Single Touch Payroll – By Grace Teyo

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Single Touch Payroll or STP is a reporting change for employers. It is a new and simpler way to report employee’s payroll information.

STP is mandatory from 1st July 2018 for employers with 20 or more employees. It will be expanded to all other employers with 19 or less employees from 1st July 2019. In which, subject to legislation being passed in parliament.

To work out whether businesses need to be STP-ready, employers will need to conduct a headcount of employees back to 1st April 2018. However, it will be voluntary for employers with 19 or less employees to adopt a STP solution at this time.

Employee headcount includes:

  • Full time employees
  • Part time employees
  • Casual employees
  • Seasonal employees
  • Overseas based employees

Doesn’t include:

  • Employees who ceased work before 1st April 18
  • Independent contractors
  • Staff employed under a third-party labour hire agreement
  • Company directors *
  • Office holders *

Religious practitioners *

*Company directors, office holders and religious practitioners should not be included when determining the number of employees. However, when reporting started, their payment information will need to be reported.
As a result of Single Touch Payroll or STP, employers will no longer be required to complete payment summaries at the end of the financial year as it will have already been done and available to employees through MyGov / ATO Pre-filing report.

How to report?

  • Report from using existing payroll solution that is STP-ready
  • Report from new payroll solution that is STP-ready
  • Ask a third party (registered tax agent or payroll services provider) to submit on your behalf.

For more information / software installation in regards to single touch payroll, please contact our office for more information.

9 main reasons you should use Simpro Taxation Services as your tax agent!

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Save time

With a minimum fee of $75, your tax return can be done as quickly as within 30 minutes to one hour. Doing it yourself may take a few hours or more.

Affordable fees
At Simpro Taxation Services, we offer tax payers a reasonable, affordable fee without compromising the quality of service. With a minimum fee of $75, you will get a professional, yet a simple process for preparing your tax return.

Stress free/ peace of mind

Not sure you are eligible to claim expenses or not? Or worry that you may overlook deductions or tick the wrong boxes? Hand it over to the professional, make it simple and get it done quickly.

Deductions that you might not be aware of

At Simpro Taxation Services, we will make sure we never miss a claim that is eligible to you. As we promise, we will “maximise your tax return legally”.

Avoid trouble

The last thing we want is the ATO chasing you up due to providing wrong / incorrect information. A professional registered tax agent will make sure that your tax return is compliant with the laws and maximize your refund legally.

Let the professional speak to ATO

At Simpro Taxation Services, we can also represent our clients when dealing with the ATO. Simply let the professional speak to the tax man, easy!

More time to lodge

The 31st October submission deadline does not apply to a person who is using tax agent services from Simpro Taxation Services. It means more time to prepare, better cash flow planning and the best part is … no late penalty from the ATO for failure to lodge before 31th October.

Build a good relationship

Seeing the same tax agent every year will enable the tax agent to have a thorough understanding of your financial situation and can provide the best tax advice tailored to you. Last but not least, it is always good to have a friend who is a tax accountant.

Up-to-date with the latest tax laws

Not sure whether the latest tax ruling or tax law apply to you? With extensive tax knowledge, Simpro Taxation Services will keep you up-to-date with the latest tax ruling and tax law that are relevant to you.