Welcome to April 2012, I trust you will have an enjoyable Easter because before you know it, here is May, then June and tax time. It is now time to start thinking about the year-end tax exercise. Will you get a refund this year or will you owe?

Over the next few weeks I will give a bit of advice on how to maximize that refund without undue stress being placed on you. I believe that tax deductions are over rated and spending money just to get a refund is a silly idea. The best bet is to try and make that spending tax deductible, so please ensure that all work related receipts are kept, this is the easy way to maximize your deductions..  First off we have a couple of suggestions that apply to someone who does not have a job.

There is an easy tax refund available to a select few. If your partner, Spouse, better half, etc does not have a full time job or is a stay at home type and earns less than $10,800 then a contribution of $3,000 to their Superannuation fund may entitle you to a refund of $540.00. The Tax Act allows for a tax offset, that is a reduction in tax payable, for superannuation contributions made to a complying superannuation fund for a low income or non-working spouse. The maximum rebate is $540.00, based on 18% of maximum rebateable contributions of $3,000. So a contribution of $1,000 gets a rebate of $180.00. The maximum contribution reduces by $1.00 for every $1.00 the spouses income is above $10,800. The rebate reduces to NIL for incomes of $13,800 and above. The beauty of this contribution is that the amount paid to the Super fund is not taxed in the fund, either on the way in or on the way out. The rebate is a tax free ‘gift’ for trying to do the right thing by your spouse.  It should be noted that the spouse’s income is assessable income plus reportable fringe benefits.

 The other Superannuation benefit is the co-contribution. I have been spruiking this for years but it has not been grabbed with the vigor it should have been.  Well it is probably too late to decide on that now as this Labor Government has opted in for another tax increase and virtually abolished the co-contribution system. If you work and your income is less than $32,000 then for every after tax dollar you put into Super, the taxpayer will stump up another dollar for you to a maximum of $500.00 so get in for your share before it all ceases.

 The other good tax planning strategy for the stay at home Mum (now that may be politically incorrect but it will do for today), applies to the families that have children at school and receive Centrelink benefit part A. Please ensure that you keep a record of all you spend on exercise books, text books, pens, pencils, computer stationery, printer cartridges, internet connection costs, new computers and educational computer software and School Uniforms. The taxpayer will give you “cash back” of up to half the amount you spend. The refund can be up to $390.00 for a primary school student and $779 for a secondary school student, and you do not have to have paid any tax to get the money. So start looking for those receipts now, the cash can be in your account by the end of July if you get in early.

Choosing which accounting software package is right for your business can be a very hard decision to make. Not only do you have to choose between the many different packages available usually with their own unique set of features you also have to employ a bit of crystal ball thinking on what features you may need in the future. For the micro business the choice is usually between MYOB and Quickbooks.

The best method for choosing the right package is to sit down and write out what it is that you need from your new accounting software package. This is vitally important as it is very easy to get caught up in the sales hype and a spur of the moment purchase may see you spending too much on a package that is way over the top for your business’s needs.

Once you have a ‘core’ set of functions that the software must be able to handle, e.g. the features that are needed now for the daily running of your business, it is also important to look at possible features that you may need in the future. For example if your business is a small operation with a minimum of payroll entries there may be room for expansion down the track and this may mean having to upgrade your accounting software to suit. If there is no room to upgrade the software you will have to start the process all over again and spend more hard earned dollars.

Once you have a list of functions or features that you are specifically looking for you can get down to the serious business of finding the best package. With the advent of the internet shopping for these types of things has become a lot easier and doing a simple search of available programs or packages should help you narrow it down to a few different possibilities and it is then that you can source a local reseller and discuss your needs further.

Something that can either make or break a good accounting software program is the reseller’s commitment to after sales service and support in getting your system up and running and fully functional. This needs to be kept in mind as some of these packages can be notoriously time consuming and involved to get set up and if you are basically left to fend for yourself it sours the feeling you have of what could otherwise be a really good package.

It is advisable to talk to some previous clients of the reseller of your chosen package to see if they are doing what they can to help implement the software after the sale. There are many horror stories posted around the internet from individuals that have had a very hard time coming to terms with their new software and it is vital to get all the help you can to avoid these situations. It is also advisable to talk tom your accountant to find out what software he prefers his clients to use. This gives you an important ally if you have problems with your system. The Accountant should be able to offer training and support for the software recommended and if he does not, then change Accountants.

Our Practice supports and recommends MYOB but we do have clients using Quickbooks and they are more then satisfied. It is your choice but you should ensure the support you get understands you software package.

Ps: Sometimes a 9 column workbook is the best option.

There are many checks and balances that must be carried out in any business to ensure that nothing untoward is happening. 

Every now and then we read in the papers about an employee taking tens or hundreds of thousands of dollars of their employer’s money, and you ask yourself “How could they get away with that for so long before being found out?” Well it still goes on and it is only the ones that get caught that you hear about.

As a small business owner, or big business owner for that matter, how can you reduce the risk associated with this type of activity? Well, by monitoring your accounts you can significantly reduce this risk. It has been proven that if you have an employee in an important role, such as the paymaster or cashier and they are reluctant to take time off, then there may be a problem. Ensure that your staff always take their full entitlement of annual leave every year end that somebody new does their job whilst they are away. This gives you a chance to audit their work. If the person looking after the banking has a messy desk, cannot seem to find certain papers etc, then maybe they are trying to hide something.

One of several ways to check up on what is happening is through account reconciliations. This is the checking of account balances against a control figure. The bank reconciliation for example checks the balance of your bank account according to the Bank with the balance of your bank account according to your records. Some people find this exercise daunting but with Accounting software such as MYOB, the task is simplified. If you can get the hang of it then understanding what is being presented to you may make more sense.

Basically the exercise is to get the balance of your ledger to equal the bank.

This is done by setting down on paper a summary which shows:

Balance as per Bank Account                                                                               $

Plus Deposits in my ledger but not on bank statement                                 $

Less: Deposits on the bank statement not in my ledger                                $  usually interest earned

Less Cheques written not received by bank (the cheque’s in the mail)   $

Plus payment made by the bank not in my ledger                                          $__Usually bank fees__                   

Equals Balance as per Bank Statement                                                             $

By doing this exercise you can see if payments have been deducted from the bank account for which no authority has been given. 

The bank reconciliation is not reserved for only bank accounts, you can utilize this function to reconcile your credit card statements, payroll accounts, superannuation liability etc, which you should do. With your credit cards, by recording all credit card payments and ticking them back to your card statement you can easily verify if there is something wrong.

It is always a worry when there are a lot of transactions being processed through a bank account

or credit card so it helps if the checking process, ie reconciliation, can be broken down into smaller components. This can be done by using clearing accounts such as payroll clearing or undeposited funds account.  The account reconciliations can then be managed more easily.

If you have any questions, please send an email.

Over the past few weeks we have covered what is required to substantiate tax deductions. This week we will look at one specific occupation, cleaners. This newsletter explains the claims that you can and cannot make by looking at some of the common expenses that might be incurred as a cleaning employee.

If you incur an expense for both work and private purposes you can claim a deduction only for the work related portion of your expense.

Car expenses relating to your work as an employee?

You can claim the cost of:

Transporting bulky tools between home and work; Direct travel between two differing locations of employment; Travel from your normal workplace to an alternative workplace and back to your normal workplace and directly home; Travel from your home to an alternative workplace and then to your normal workplace or directly home; Automobile Association or club fees and car wash expenses – these may be deductible depending upon the calculation method used to value car expenses.

You cannot claim:

• Travel between home and work
• Motor vehicle costs if the vehicle is provided by your employer or any other person who pays for the running costs

What about travel expenses relating to your work as an employee?

• Most expenses are allowable however, the cost of meals incurred that do not involve overnight stay are not deductible.

• If you travel in the course of your work and take a relative with you, you can claim a deduction only for your own expenses.

What about a uniform, occupation specific clothing, protective clothing, laundry or dry cleaning expenses that relate to your work as an employee?

Clothing Expenses You Can Claim

You can claim a deduction for the cost of buying, renting or repairing and cleaning any of the following:

• Occupation specific clothing; Protective Clothing; Compulsory Uniforms – Single Items of Compulsory Clothing; Non Compulsory Uniform or Wardrobe ; laundry and Dry Cleaning Expenses; and shoes, socks and stockings under limited circumstances.

With Laundry expenses costing less than $150 – no written evidence is required. However if the expenses exceed $150 then written evidence is required for all expenses.

Clothing Expenses You Cannot Claim

• A plain uniform; Ordinary clothing; Jeans or heavy duty clothing to protect you from the natural elements such as raincoats; everyday footwear such as dress, casual, running or sports shoes; laundry expenses for a plain uniform or everyday clothing; stockings and please note, you cannot claim a deduction for maintaining or repairing any of the above items.

Self education expenses relating to your work as an employee

If your course satisfies the criteria of a self education course then such expenses will include:

• Textbooks; stationery; student union fees; course fees; certain travel expenses; and the depreciation of equipment to the extent it is used for self education expenses.

Any other expenses relating to your work as an employee.

The expense must have a direct relationship to your employment. The cost must be apportioned for any private usage with only the work related usage being deductible. This usually applies to tools of trade and as an employee if you are required to bring your own mop, then you have a tax deduction.

The words used here are extracted from Tax Office publications and if we were to substitute the occupation above for Office Worker or Labourer then the deductions would be the same provided they were job specific.