Learn how to talk to small business clients about tax compliance in a way that clicks - how to explain tax in layman's terms, how to make tax simple for your clients, particularly for non-accountants such as business owners.

Remember clients love you for making things simple not for looking smart.

Tax Snap is included in Resources tab. Bring it to your next Business Development meeting.

PS this is an intro to our bookkeeping and automation series. Because good compliance starts with good bookkeeping.

Date published: 14 July 2021

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TRANSCRIPT

So you meet this guy, Steve, at a barbecue. And he tells you that he's just opened a new cafe. But he doesn't know anything about tax compliance and he hasn't found an accountant yet. And so you go, Hmm... here is a potential customer right here in front of you. And the next thing you know, is that he starts asking you, Hey, you're an accountant, right? Can you explain all of this stuff in English for me, please?

And you go, all right, Steve. You want a five minute snapshot of tax compliance? Here we go.

So Steve, the first thing you need to understand about tax compliance is that it is made up of two things. Payments and reporting. So payments is about paying the right amount of tax to the government by the due date, of course. And reporting is about lodging the right forms with the right numbers, by the right due date, to support that you're paying the right amount of tax.

The typical financial use starts on one July and ends on 30 June. There's five or six different types of tax compliance obligations, like income tax, GST, payroll tax, et cetera. And I'll take you through each of them briefly.

It might seem like there's a lot of work to do, but if you invest in a good cloud software with automation, most of the hard work is already taken care of.

Income tax - 1:23

So let's start with income tax. Yeah. So this is tax on your profit. Then you ask Steve a bunch of questions, like what's his expected profit in the first month or the first year. Uh, his revenue expenses, salary and wages, et cetera. It's a two-way conversation, right? And it sounds like if it all goes, according to plan, his cafe will make a $100,000 in revenue in its first year, salary and wages expense will be $50,0000 all other cafe expense will be around $40,000. So his net profit will be around $10,000.

So if your company makes a profit of $10,000 in its first year, you need to pay $2,500 to the tax office. And that's a corporate tax rate of 25% for financial year 2022. And of course he's told you that he's running his cafe through a company. You have to lodge an income tax return and you have to declare how much revenue you've actually made, how much expenses you've incurred, et cetera. And the return is usually due 10 and a half months after year end. So year-end is usually 30 June. And so your tax return would only be due on the 15th of May, of the following year. And payments and lodgements are usually due on the same day.

After you've lodged your first tax return though, and say you're profitable, and so you have to pay tax, you will need to start paying tax usually on a quarterly basis. This is similar to like PAYG withholding on salary for employees, except that it's called PAYG installment. So the ATO has this formula which estimates how much tax you need to pay every quarter based on your turnover. And you need to lodge this through a business activity statement, or what we call a BAS to declare how much turnover you've made in each quarter.

GST - 3:18

Next is GST. See, when you sell coffee, you have to charge your customers GST, right? So you are basically collecting that GST on behalf of the tax office, yeah. This is not your money because you need to pay the tax office after every quarter, usually. But before you give that over to the tax office, you can reduce that by any GST claims that you have. So when you have paid GST on your business expenses, like coffee, beans, and your coffee cups, et cetera, that should reduce your GST payable to the ATO.

So let's say you sell coffee for $110, and so you have to give $10 to the ATO. But let's say you buy coffee beans and coffee cups, and it costs you around $66. And so you can claim GST of $6 from the ATO. Actually coffee beans are GST free. And so you can't claim GST on that because you know, you didn't pay GST on it. Because coffee beans is like raw food, whereas when you sell a cup of coffee, that's for direct consumption, and that's why it's subject to GST and you have to charge GST when you sell coffee in a cup. So let's reduce that to say $4. And so your net GST payable is $6. And you would need to pay that to the ATO, usually on a quarterly basis and lodge a business activity statement.

Employee obligations - 4:46

Next is all the compliance stuff to do with your employees. Now you've mentioned that you have two full-time employees and a couple of casual staff.

PAYG Withholding - 4:56

So, first of all, there is PAYG withholding. So when you pay your staff, their wages, you have to withhold the tax on this and pay it to the ATO on their behalf. Also through a quarterly business activity statement.

Superannuation - 5:11

Next is super. So your employees are entitled to 10% of super on top of their normal wages. And it just went up from 9.5% to 10% on one July 2021, by the way. So you pay your employees on a fortnightly basis, yeah. So every fortnight you would have to calculate how much super they're entitled to. Then you report this via Single Touch Payroll every time you pay them. And I'll explain Single Touch Payroll in a bit. But then at the end of every quarter, you also have to report this amount per employee to a superannuation clearing house, which then pays the super to the employees choice fund.

So Single Touch Payroll is basically a reporting requirement only, where you're supposed to use, cloud software to report all your payments to your employees as part of your payroll system. It gives information directly to the ATO of everything that goes into your employees payslip like wages, PAYG withholding, super et cetera. And then at the end of the year, you need to lodge a report called a Single Touch Payroll finalization. And that needs to be done on the 14th of July every year.

WorkCover - 6:29

Next is Work Cover. This is a compulsory worker's insurance that every employee needs to have to cover your cost in case your employee gets hurt while they work for you. So you have to lodge a report to WorkSafe Victoria once a year at the start of the year , disclosing your industry, your estimated wages, et cetera, you know, information that will help work safe estimate and calculate what your work cover insurance bills should be. And you can choose to pay it either quarterly or annually.

Payroll tax - 0:70

Then there's payroll tax, but I think it's unlikely to apply to you because it's only for employers who have employee wages of more than $650,000 per year. But if it does apply to you that you need to pay and report payroll tax to the State Revenue Office every month. And then at the end of the year, you're supposed to lodge a reconciliation report, which matches everything in the last 12 months.

Bookkeeping and Automation - 7:24

So there you go, Steve. Five minutes snapshot of everything you need to know about tax compliance. I know it sounds overwhelming, but the key is to set up automation for all of this via a cloud software, like Xero, QuickBooks and MYOB, and perhaps a few other integrated apps, but it will be so much easier. It all boils down to having a good bookkeeping system, and a bit of discipline. And when you have all these things set up, you can manage your tax compliance within a few clicks every fortnight.

And the best thing about automation is that you can see how your business is tracking in real time. You don't have to rely on a bookkeeper and wait for them to update your accounts before deciding like, if you should buy a new coffee machine or whether you can afford to hire a new staff.

So I can help you set all of this up so that you can even do your own bookkeeping. So let me show you how I automate all this stuff. When are you free? Let's pencil in a time on say Monday the 19th?

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