3 Things Other Accountants Do Wrong

So often we get new clients coming in the door who have changed accountants, and the first thing we ask them is how they heard about us, and its usually word of mouth…

“Yeah, a mate told me about how awesome you guys are, so I thought I’d give you a shot” – Well, thank you Fredrick!

I paraphrased a bit there, but you get the drift.

The second thing we ask them is for them to show us the last 2 years of their returns, and so often, mistakes are made – silly mistakes that if a little attention was paid, wouldn’t happen – but they do, and as I mentioned, they happen often.

 

Incorrect business structures

This one isn’t really a silly mistake; however, it is something that is usually overlooked year on year, and usually due to not having access to proper financial regularly.

Imagine a husband, Fredrick, and wife, Sally – Fredrickis a self-employed painter, and Sally works as an employee at the Fish and Chip Company – Sally gets pregnant, goes on maternity leave, then, after 2 years, decides she will stop work and stay home to look after the kids while Fredrick still works to support the family.

Fredrick, the husband, just got his tax bill – it was $17,422, he earned $75,000 that year – We know, he was surprised too.

Now Fredrick is a self-employed painter with a van, nothing fancy – why could he not have set up a family trust to run the business to be able to distribute income to his wife if she was no longer working? Was this question even asked? Nope, it wasn’t – if it was, Fredrick would have saved $9,544 that year – An overseas holiday for a week or two with his wife and child.

So why did Fredrick miss out on his holiday? The accountant didn’t ask the question…

Straight from the ATO

There are four commonly used business structures in Australia:

It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • the tax you’re liable to pay
  • asset protection
  • costs.

You’re not locked into any structure and you can change the structure as your business changes or grows.

If you’re unsure which structure to choose, we recommend you talk to your tax, business or legal adviser.

https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/

 

Not Ticking The SBE Box

Small business entities, which are those who turn over less than $10m, are eligible for a reduced tax rate for 28.5% for the 2015-16 year, and 27.5% in the 2016-17 year – Not so many accounts miss the SBE tick box – literally.

It’s at item 15 on the tax return, and it is literally a Yes/No question – most tax systems that accountants use don’t notify you to check this box, so your accountant needs to understand and think “hey, this guys has income of less than $10m, lets tick that box and save him some dough!”.

Just as an example, in Fredricks case above, on a $75,000 income, he would have saved an extra $1,125 on his tax in the 2017 financial year if that box was ticked.

Straight from the ATO

From the 2016–17 income year, the small business company tax rate has been reduced to 27.5%. This lower rate must be applied by small businesses with a turnover (aggregated turnover) less than $10 million that are:

  • companies
  • corporate unit trusts
  • public trading trusts.

The company tax rate will remain at 30% for all other companies that are not small business entities.

For the 2015–16 income year, the small business company tax rate was 28.5% for companies with a turnover less than $2 million and 30% for all other companies. Previous to this, it was 30% for all companies.

https://www.ato.gov.au/Business/Small-business-entity-concessions/Concessions/Income-tax-concessions/Small-business-company-tax-rate/

 

Not using the $20,000 SME deduction

This is another one that is missed a lot of the time – writing off or pooling your assets into the SME deduction pool to get the maximum tax back.

So many times we’ve seen annual returns where new items are just added into the depreciation worksheet as a normal item, where they could have been added to the SME pool or written off completely – granted, there are reasons for this as they may want to carry the deductions over to other years, however it is a case by case basis and, especially in new businesses, the claim will benefit the business if it is made earlier.

Straight from the ATO

This tax time, your small business clients with a turnover of less than $10 million can write off assets costing less than $20,000 each in their 2016-17 return. All simplified depreciation rules will apply to assets when choosing this method.

We have identified some tax agents have under-claimed by not applying all the simplified depreciation rules. To use simplified depreciation rules correctly you must:

  • write off eligible assets costing less than $20,000 each
  • pool most other depreciating assets that cost $20,000 or more
  • write off the small business pool balance if it is less than $20,000 at the end of an income year
  • only claim a deduction for the portion of the asset used for business or other taxable uses.

The $20,000 write-off threshold now applies until 30 June 2018.

https://www.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Applying-the-$20,000-instant-asset-write-off-/

Author: Yianni Tsimopoulos

Yianni Tsimopoulos is passionate and enthusiastic about finance and the advice profession. After having an active personal involvement in the finance industry for several years, he took the opportunity to become the Managing Director of the Nationwide Group of Companies.

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