Dendra Accounting Group

August Tax Update

 

A Personal Note From George

If you are a client, you would have hopefully now received your personalised tax calendar. The response from clients has so far been great as it now provides you with a specific date that certain tax compliance work is due. If you have any questions with your specific calendar or have not received it, please contact us.

The feedback from many business clients is that it seems that trading activity has slowed down due to the global uncertainty. It is now more important than ever to ensure that you are maximising your cash flow. I have included an article below regarding increasing your cash flow which most businesses will find useful.

Do You Have a Cash Flow Strategy

Events in the past week in the USA and Europe have highlighted the necessity for small/medium enterprises to continue to monitor their cashflow very closely.

When you read about a major American bank losing 20% of its share value overnight, you realise the magnitude of the problem that is facing the world;  there is high unemployment in the United States and there are real problems in Europe, particularly with countries such as Spain and Italy, who are now being talked about in the same context as Greece, Ireland and Portugal.  All of this could lead to a tightening in the lending position of Australian banks because of the Australian banking systems' reliance on borrowing money from overseas.  The Reserve Bank has left the prime bank rate at 4.75% and Dun and Bradstreet has indicated that debtors' days outstanding is now approximately 54 days.  Even though this has reduced slightly, it is still well above traditional 30 day payment terms with which many businesses try to operate. 

Now is the time to closely monitor the key components of cashflow control.  These are:

• Debtors - you need to ensure that the administration for the opening of accounts for new customers in your business is being closely supervised to ensure you're not just attracting someone else's problem customers. 
• Have you considered ways of reducing your debtors' days outstanding?  Have you considered outsourcing debt collection?  
• Inventory - how much money do you have tied up in your inventory system?  What is your stockturn rate?  Could it be improved?  What do you need to do to reduce your investment in inventory?  Are you building up old and damaged stock?  Should you be liquidating that stock as soon as possible so as to return the cash to the business? 
• Work in Progress - are you closely examining to ensure that jobs are being finalised and invoiced out of work in progress as soon as possible?
• Creditors - whilst the prime concentration on cashflow management will always be on debtors, stock and work in progress, it is a good idea to also check creditors.  What is the creditors' days outstanding?  Are you taking longer to pay than what your major creditors have stipulated?  If so, what would be the position if your creditors demanded payments to be made in accordance with their stipulated trading terms?  What would be the position if they refused to continue to deal with you?  This is happening in more and more cases around Australia at present. 

The analysis of your cashflow position may indicate that you do require additional funding.  If this is the case, the quicker you determine whether you're able to introduce additional funding from private resources or need to have a discussion with your bank, the better.  We can assist you in these reviews.

Carbon Tax Grant


The government has announced some grants to SMEs as part of the carbon tax:

• The motor vehicle write-off for businesses with turnovers under $2M will be $6,500 on motor vehicles purchased after 1st July 2012.
• Manufacturers can apply for grants of up to $25,000 to help reduce their energy use.  The grants will be on a 1/3 government contribution basis.
• Grants will be available for food manufacturers and metal foundries.

     

ATO Audit Targets


The Australian Taxation Office has announced its targets for 2011/12.  This summary relates to the Taxation Office's indicated targets for individuals, micro-businesses (turnover up to $2M), small/medium enterprises (turnover $2M to $250M).  The key areas that the ATO are closely examining are:

• work-related expenses - this includes claims for home office expenses, internet connection, mobile telephone costs
• overseas income - remember the ATO has very sophisticated systems to track money moving overseas
• split loans (business and private loans are attracting greater attention)
• correct PAYG Withholding Tax deducted from wages
• superannuation payments made
• "sham" contracting - i.e. if someone is working for your business fulltime, it's very difficult to establish that they're a bona fide contractor
• internet trading
• cash businesses; and
• in all cases, the ATO is comparing micro and SME businesses to the benchmarks that they've established for the various industries.  
• The ATO is also very concerned about Phoenix Company activities where a company is liquidated and then basically commences business under a new name the next day.  
• The ATO is also monitoring shareholders' loans and small business capital gains tax concessions.

 If you feel that any of the above are a concern for you or you would like to enquire about our tax audit insurance policies available to our clients, please contact us.


Parental Leave - Mandatory from 1st July 2011


The Australian government's Parental Leave Scheme, which has been operational since the 1st January 2011, becomes mandatory for all employers of eligible employees from the 1st July 2011.

The Australian government will fund eligible employees for parental leave (calculated at 18 weeks of the federal minimal wage which is currently approximately $550 per week) for paid parental leave. The payment amount will be indexed from time to time.

The Federal government will pay the employer and the employer will be responsible for making the payments to the eligible employee.

Employers do not have to concern themselves with an employee's eligibility. An employee wishing to claim parental leave has to contact the Family Assistance Office (FAO) who will review the employees' eligibility by utilising tests, including citizenship and work tests. The FAO may make some enquiries about the employee to the employer.

The employer can elect to be paid by the Australian government either on a fortnightly basis or in three payments equivalent to six weekly instalments.
 
The employer is responsible for making the payments to the employee, on the same basis that the employee is normally paid e.g. if the employee is paid weekly, the employer would have to pay the parental leave amount on a weekly basis.
If you have any concerns about the operation of the parental leave payments please do not hesitate to contact us.
       

The information contained in this Update will apply differently to every individual and business. You should contact Dendra to discuss how any of the above strategies may apply to your particular circumstances.