Pro Money Management

There is a LOT of detail with this one! The attached pdf is an extract of the notes from NTAA relating to the education tax refund, including worked examples and step by step guidelines on claiming the refund.

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This is a common question that comes up after people have received their tax assessments – with a ‘bonus’ letter attached from the ATO. The PAYG system – or Pay As You Go is designed to ensure that people who receive income from sources other than regular salary payments (which are taxed ‘as you go’ in each pay cycle) pay their tax obligations in regular instalments, rather than at the end of the year – and often up to 18 months after the income has been received. It usually occurs where you receive income from the following sources: 1. Interest from bank accounts 2. Rental property income 3. Trust distributions (both investments such as managed funds or trading / family trusts) 4. Dividends – from public or family companies 5. Small business activities (especially for self employed taxpayers) It is calculated on the basis that the tax that you pay on your salary income is not enough to cover the income earned from these areas, and so you need to pay ‘extra’ tax to cover your earnings from these areas. This is usually done on either an annual instalment basis (i.e. all in one hit) or on a quarterly basis. However, you may have the situation where the ATO ‘catches up’ with instalments that are due – and you end up paying one very large instalment, with a series of smaller instalments following, depending on the time in the tax year that the ATO first notify you of the need to pay the instalments. Do I have to pay and can I change the amount that I have to pay? That depends on whether or not your circumstances have changed. The most common situation is where for e.g. in the 2007 tax year a person has not worked, and received a distribution from a family trust, but then in 2008, they have recommenced work and receiving a taxed salary, and the distribution from the trust is likely to change – or not occur at all. At the time of issuing the PAYG instalment notice – the ATO do not know of your changes – so they assume that 2008 will be the same as 2007 – you will get a distribution from the trust, the tax will be payable at the same or similar rate, and so they will tax you accordingly. And of course they want you to pay the tax evenly throughout the year, rather than waiting until the end of the year. For you to change the instalment you need to know the following things: 1. How much am I likely to earn from salary for the year – and how much tax will be deducted in that period? 2. Am I likely to get a distribution from the trust – and if so, how much? 3. Are there any other income amounts that I am likely to receive (interest, dividends, rentals, etc) that may affect my taxable income for the year? Same goes for deductions that may reduce my taxable income. 4. Will these changes increase or decrease the amount of tax that needs to be paid on my ‘non-salary’ earnings? If it increases the tax, then it is best to leave the instalments as they are. If it reduces the tax payable, then how much should I reduce the instalments by? Of course, if you are not going to earn non-salary income for the year, you can apply to have the PAYG instalments eliminated altogether. If the tax on salary is high enough to cover your tax payments for the year, the same thing will apply – you can eliminate the PAYG instalments, saving you having to pay the tax through the year – but you need to be sure that you have your calculations reasonably accurate – as the Tax Office can and does impose penalties if you reduce your PAYG instalments – and then you have to pay additional tax at the end of the year. So, once you have these calculations, you need to work out : 1. How much tax will I have to pay on all of my income (less deductions) for the year; 2. How much tax will I have paid on my salary through the year – and is this enough to cover the total tax payable; 3. If there is a shortfall – I have to pay PAYG instalments. Is this amount more or less than the amount the ATO have asked me to pay? 4. If it is more – leave the PAYG instalments as they are – you can pay the shortfall at the end of the year when you lodge your tax return. (The ATO are happy to accept a lower instalment amount if THEY have made that calculation) 5. If the amount is less than the ATO have asked for, you can consider reducing the amount of the instalment(s) payable for the resat of the year. This can be done via the PAYG instalment statement that you will) receive from the ATO. 6. Make sure you lodge any variation BEFORE the due dater of the instalment – otherwise the ATO will reject the variation, and expect you to pay the full amount of the instalment. For further information, please contact us at Pro money management, and we can determine which is the best way to record and report your business activities for you.

Many people in small business face having to understand what the term “accrual accounting” means and does it – or should it – apply to them. Let’s put this simply. We all understand what cash accounting means. Basically it means that we recognise or record the income we earn or generate from our business activities when the money has actually hit the bank (or the cash has been out into the till or into our pockets). On the expenditure side – same thing – on a cash basis you record the expenditure when you have actually made the payments – either by cheque, BPay, direct transfer, credit card or cash payment. Now, this can be a significant period of time after the effort or activity that lead to the payment (in or out) has actually happened. E.g. you complete a job for one of your clients, give them an invoice before, during, or on completion of the job, but they don’t actually get around to paying you for 60 or 90 days. In this situation, the income is recorded in your accounts when you actually receive the money. All very simple. So what’s the difference with Accrual accounting? You record the income as being earned (or the expense as being incurred) when you actually raise the invoice – or receive your suppliers bill. i.e. in the example above, when you complete the job, and give your client the invoice for services rendered, you record the income as being earned in your accounting system. Of course at that point you have not been paid, so you keep track of the money owing to you in a debtors or Accounts Receivable account or register. With the bills you receive, the same process happens – you record the bill in your accounting system when you have received it, and as you have not ‘paid’ it at that time, it is recorded in your Accounts Payable or Creditors register or account. Most Accounting systems such as QuickBooks, MYOB, HandiLedger, etc are set up to manage this process, so you can quickly see how much you have earned, how much you have spent (or incurred) what is owing to you and what you owe at any time. Most times, your accountant will prepare your financial reports for your business on an accrual basis – as this shows the ‘true’ position of your business – i.e. it is not a question of when you pay your bills or receive your money, but rather the income earned during a particular period of time and what it has cost you to make that income that matters. Where cash accounting or reporting often comes into play is with your tax returns – both income tax and GST / BAS returns. Most businesses have the choice to report their GST obligations on a ‘cash basis’ – so they only pay GST on what they have received and spent, rather than what has been raised but not yet paid for (again most accounting systems are able to handle this difference and report your results appropriately). This will mean that, where for example you raise an invoice say on the 25 of March for $10,000 plus $1,000 GST, but you don’t get paid the money until the 15th of April, you do NOT have to include this invoice in your GST reports until the quarter in which it has been received – so you don’t pay the GST on this invoice until the end of the June quarter. On the same basis of course, if you have a bill for $11,000 (including $1,000 GST) that you receive in March, but you don’t pay your supplier until April, you cannot claim the GST credit until it has been paid – which means you claim that in the June quarter BAS as well. Check your BAS forms, or speak to your accountant to see which method you are in for BAS reporting, and whether or not you need to change the method by which your GST is calculated. With your income tax returns, the same thing can apply. There is a “small business reporting system” whereby you can select to lodge your tax return on a cash basis, so the income that you have earned but not yet been paid for can be ignored for the current year’s tax return. Of course it will be included in the year in which it IS paid – so in most cases you are able to defer tax on this income – but not eliminate it altogether! For further information please contact us at Pro Money Management and we can determine which is the best way to record and report your business activities for you.

Tax appointments can be made by either calling 03 96828966 between the business hours of 9-5pm. Mon to Fri. Or alternatively via email to

Our latest appointments have a finish time of 7pm. So depending on whether you are a couple and need a longer appointment, the latest start times are around 5:30pm-6pm, on selected nights. Please call us for more details.

Its best that you provide the originals for your payment summaries or group certificate. Most things can be photocopied and sent to us, or provided upon request.Any documents that are sent to the office will be forwarded back to you once the return is complete.

7-10 days usually, but anywhere up to two weeks depending on the ATO office processing, audit checks, and any other outstanding matters you may have with the ATO or another government department.

Our accountants, as experienced as they are, can only calculate these estimates on the information that is provided.If the return Is not what was first estimated, its most likely that there are outstanding debts with the ATO. These debts will affect your return regardless of the financial year. In some cases, the ATO will re-assess your tax return, if you provide them with the correct information or documents.

Depending on which credit card provider you use (eg. amex, visa, mastercard), the CCV which is the last 3 digits located on the back of the credit card, is sometimes required for security purposes. Giving your bank the authority to make the purchase.

If any given employee earns over $450.00 per month, the minimum contribution is 9% of their gross wage.

TAX RATES Taxable Income Tax Payable for the 2007/08 year Tax rates 2008-09 Taxable income Tax on this income $0 – $6,000 Nil $6,001 – $34,000 15c for each $1 over $6,000 $34,001 – $80,000 $4,200 plus 30c for each $1 over $34,000 $80,001 – $180,000 $18,000 plus 40c for each $1 over $80,000 $180,001 and over $58,000 plus 45c for each $1 over $180,000 The above rates do not include the Medicare levy of 1.5%

No. A tax deduction is simply a reduction in assessable income. Any tax payable is then calculated on the taxpayer’s total assessable income. The net affect of any deduction results in a decrease in tax payable at the taxpayer’s marginal tax rate. Example: John has a group certificate for $50,000.00 with tax paid of $10,000.00. If John had no deductions at all, the tax payable on the $50,000.00 would be $9,600.00, which would mean he would only receive a $400.00 refund. However, if John has deductions of $1,000.00 John’s taxable income would be $49,000.00, and pay tax on this amount. Tax on $49,000.00 equates to $9,300.00. Having paid $10,000.00 already John would receive a refund of $700.00. Therefore, the effect on the $1000.00 deduction is in fact $300.00. This is the marginal tax rate (30%) the taxpayer in our example would have been on.

In most cases, you cannot claim for the cost of travelling to work from home, and back to home. The circumstances where you can make a claim for home to work travel are: Where you care carrying tools, equipment, etc that are of a bulky or heavy nature (i.e. where it would be impractical to carry the items on public transport) Where the tools or equipment you are using need to be transported to a number of different locations, OR where there is no regular storage facilities at your work location Where the nature of your job means that you are regularly travelling to two or more work sites on that day (and spending 4 hours or less at any location) Where you are regularly working at different worksites or employers each day (such as teachers who work at two or three different schools each week) Ideally, you keep a log book detailing all the work related travel for each car you use. For more information, please contact our office and arrange a time to speak with one of our accountants.

While you cannot claim a tax deduction for your medical expenses, a Rebate of tax is available when your total medical expenses for the financial year exceed $1,500. For 2007/08 the rebate is 20% of the excess over $1,500. To qualify for the rebate, the medical expenses must be paid by you for medical treatment for yourself or for a dependant, but the payments do not have to be made to an Australian medical practitioner, so the expenses can include the cost of any medical treatment that you incur while on an overseas trip. "Medical expenses" is defined to cover payments to doctors, nurses, chemists, dentists, opticians, and optometrists. It also includes payments for therapeutic treatment and for medical or surgical appliances, remuneration paid to an attendant of an incapacitated person and payments for maintenance of a guide dog. If you have made a claim from Medicare and/or a private health benefits organisation for reimbursement of your medical costs, the portion not refunded (commonly referred to as the "gap" payment), is the amount that you can claim. Also included in medical expenses are payments made for therapeutic treatment provided the treatment is administered by direction of a doctor. As such, claims for special dietary foods, or the cost of vitamins or other supplements will not be allowed, unless such items are prescribed by a medical practitioner, and the items are purchased from a chemist. (This allows the item to be claimed on the basis that it is being used to overcome an "illness"). The same items purchased from a health food shop or wholesale drug houses are not claimable! Payments made to an optometrist or to an eye specialist for eye tests, and the cost of purchasing prescribed spectacles or contact lenses are also claimable (as is the cost of solutions to maintain your glasses and lenses). For more information, please contact our office and arrange a time to speak with one of our accountants.