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 have any concerns on any aspects of your taxation affairs, please don't hesitate to contact us.
| Cashflow Monitoring is Vital for Success
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. Please do not hesitate to contact us.
| Tax Facts- Pay As You Go (PAYG)
Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards your expected tax liability on your business and investment income. Your actual tax liability is worked out at the end of the income year when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.
The ATO will contact companies required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the company's last assessed income tax return.
PAYG instalments are generally paid quarterly, however some taxpayers pay two instalments a year and some have an annual instalment option. The annual instalment is a single, lump sum payment of your PAYG liability for the year. For more information see the PAYG Annual Instalment Fact Sheet. If your company is not eligible to pay an annual instalment, you can pay PAYG instalments quarterly. Each quarter the ATO will send you an activity statement. The due date for lodging this and paying any amounts due will be printed on the statement. This is also the case if you choose the 2-instalment option, which applies to some primary and special professionals (eg sports professionals and authors).
Some companies pay an instalment amount calculated by the ATO, but most companies work out their own instalment amount based on their instalment rate multiplied by their business and investment income. The main advantage of working out your own instalment amount is that your instalments are based on your income as you earn it, instead of a projection based on your previous tax situation.