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Tuesday 25 November 2014

Donating cultural gifts

Gifts made to deductible gift recipients under the Cultural Gifts Program may be tax deductible. However, gifts made under a will are not deductible.
The Cultural Gifts Program aims to encourage the donation of culturally significant items to public art galleries, museums and libraries.
Eligible taxpayers will be able to claim a tax deduction for the gift or property donated at its market value.
Property donated under the program will also be exempt from capital gains tax. The deduction may be spread over a period of up to 5 years.
Some examples of property available for donation include:
  • Indigenous arts;
  • Cultural artefacts;
  • Natural & scientific materials;
  • Paintings;
  • Manuscripts; and
  • Books
For more information click here.

Tuesday 18 November 2014

Employment termination payments – lifetime cap

Generally, an employer is required to pay an ETP to an employee upon termination of their employment.

The taxation of an ETP will depend on the type of payment, the employee’s age and length of employment.

All ETPs are subject to an annually indexed cap which is a lifetime cap.

Concessional tax treatment is applied to the portion of the ETP that does not exceed the lifetime cap. Any amount over the lifetime cap will be taxed at the highest marginal tax rate.

For the 2014/15 income year, the lifetime ETP cap is $185,000.

Where an ETP cap is wholly or partially used up in a particular year, the unused or nil balance will increase each year by the yearly cap increment.

For example, consider a taxpayer who has depleted their ETP cap of $180,000 in the 2013/14 income year and receives another ETP payment in a future year, where the cap is $200,000. The first $20,000 of the new ETP will be eligible for the concessional tax treatment before the highest marginal tax rate is applied to the remaining payment.

For more information, click here.

Tuesday 11 November 2014

Payroll and FairWork Information Requirements

There are many legal obligations that an employer is bound by. As soon as you engage employees, you will most likely have tax and superannuation obligations at the least, and there are many more issues to consider when employing people.

It is the legal responsibility of the employer to pay the correct rate of pay, superannuation, taxes, and entitlements, and to abide by all the relevant employment related laws, including FairWork.

Employer Obligations Checklist
  • Modern Awards: These are industry or occupation-based minimum employment standards which apply in addition to the National Employment Standards (NES). They were created to establish one set of minimum conditions for employers and employees across Australia who work in the same industries and occupations. Almost every worker in Australia is covered by a Modern Award. While there are still some State-based awards in operation, these do not apply to employers and employees covered by the Fair Work Act 2009.
  • National Employment Standards: The NES contain 10 minimum workplace entitlements which have applied to all employers and employees in the national workplace relations system since 1 January 2010, (however only certain entitlements apply to casual employees). These are legally-enforceable minimum employment terms and conditions.
  • Fair Work Information Statement: All employers covered by the national workplace relations system have an obligation to give each new employee a Fair Work Information Statement before, or as soon as possible after, the employee starts employment.
  • Fair Work Compliance: It is unlawful to ask people to work on unpaid trials, pay in goods rather than money, pressure employees into agreements, coerce employees or third parties to not exercise their rights, discriminate, terminate unfairly, and engage in ‘sham contracting’ arrangements. Heavy penalties apply for breaches of these laws.
  • Dispute Resolution: Modern awards generally impose a process to assist in the resolution of disputes that arise about matters under the award or in relation to the NES. If the dispute can’t be resolved at the workplace level, the matter can generally be referred to the Fair Work Commission.
  • Record-Keeping: According to the Fair Work Ombudsman (FWO), records need to be kept for 7 years, while the ATO says 5 years. Err on the side of caution and keep ALL payroll related records for 7 years.
  • Superannuation Choice Form: An employer must provide a Superannuation Choice Form to all employees on commencement of employment and you must abide by that choice. If the employee does not make a specific choice, you must pay superannuation into a default superannuation fund.
Other Employment Obligations
Being an employer means more than simply paying your employees. There are various government bodies that you must report to. There are also various laws that govern your responsibilities as an employer.
FairWork governs many areas related to employment, for example:
Employee entitlements such as: annual leave, hours of work, flexibility arrangements, anti-bullying laws, penalty rates, working on public holidays and much more.
Examples of other areas covered are employment contracts, unfair dismissal, termination of employment, change of business ownership and record keeping obligations.

You May Need to Pay All or Some of These Taxes and Expenses:
PAYG Withholding to the ATO
Superannuation to a Clearing House or Superannuation Fund
Fringe Benefits Tax to the ATO
Payroll Tax to the State Revenue Office
Workers Compensation Insurance
You May be Governed by All or Some of These Laws:
FairWork Act 2009
Pay As You Go Act 1999
Superannuation Guarantee Act 1992
Workplace Health and Safety State laws
Payroll tax State laws
Long Service Leave State laws
Workplace Relations Act 1996
Privacy Act 1988
Freedom of Information Act 1982
Independent Contractors Act 2006
Anti-Discrimination Act 1977
Workplace Gender Equality Act 2012
Child Support Act 1989
Paid Parental Leave Act 2012
…And there may be other laws, relevant to your state or industry, that are applicable to you.

Further Advice, Information and Templates
Department of Human Services
Australian Taxation Office
Guide to Employing People

For Professional Assistance ICB recommends
Workforce Guardian
The Association for Payroll Specialists

Tuesday 4 November 2014

Debunking Myths About Fixed Fees

Value Based Pricing - Explaining what it really is….
There are many reasons that the fixed fee argument is being thrown at the bookkeeping and accounting market.

The reason today is that the software companies are automating what they perceive to be the bulk of what accountants and bookkeepers do, so they are trying to give these professionals a way to keep their fees up at the same level they were before.
The theory:
  • You used to take this long to do something and therefore you used to bill a certain amount for doing that work.
  • The previous bill amount is now to be the “fixed fee” or the “value” that you will bill from now on.
  • Now use the latest greatest technology and pay the software company for that technology, (and probably on-sell the software to your clients).
  • Because you are using the latest greatest technology, you will do the work in less time.
  • You spend less time on it but the output to the client is the same so therefore they should pay the same “fixed fee” or “value”.
There is absolute validity to this position!

When a bookkeeper or accountant first starts doing their thing with a new client, they are not as quick, probably not as thorough nor as good as they will be the second or third time they do things. As you work with more clients or the same client more times you get quicker and better at providing your service. The client should not be the only one who wins out of that equation.

The concept of billing to the value provided is not new.

Currently and in the past: bills were calculated from timesheets that recorded how much time it took; hours were then billed at an agreed charge rate to work out the invoice amount. The scenario within the accounting or bookkeeping firm was that as someone got quicker, or better, or more qualified, their charge rate would go up! Also the person is likely to be being paid more so the costs are up, therefore the revenue needs to go up. As the speed of delivery improved, the charge rate also went up and the client in theory pays the same, whether a slow low-charge person did the job, or a quick high-charge person.
As a person’s knowledge increased, skill increased or expertise in a particular area increased, or became more specialised, the charge rate increased.

Fixed Fee by another name?
A normal concept in manufacturing, or in fact in some service delivery professions is a concept of “Standard Costing”.

This is where it is decided that a particular product will cost $X to manufacture. These costs may include parts and labour but someone has worked out all the components and costed them. The cost of production is calculated accordingly to a “standard cost”. They apply the required profit margin and the result is a “standard sale price”. I am tempted to call it a “fixed fee” or a “value based” billing method.

In a service firm, a person looks at the service (maybe a “standard service”) and estimates how much time it will take and how much the person costs to deliver that service. So wages, (or fee expected), plus on-costs, plus travel time, plus down time, plus margin required. This amounts to how much the “standard service” would be billed at. This sounds very much like a fixed fee type calculation.

What happens when too much time is spent?
In the standard costing arena or when say a construction contract has been signed for a fixed fee/quoted amount, the arrangement typically then allows for “variations”. When the material costs more, the job took longer than it should, it rained, the supplier puts in a variation claim and the fixed fee changes.

In our world this could happen when the amount of work changes, the scope of work changes or something unexpected happened or was found and it required you to spend more time or incur more costs; therefore you communicate this with the client and charge more as agreed.

Fixed Fees is a valid billing technique!

How do you know if Fixed Fee billing is working?
Standard costing techniques are used to streamline costing and allocation procedures. If you like, to simplify the allocation of costs to each output and help work out whether that output is contributing to the profit of the business.

A business using standard costing will look at how many units of something it produced, and based on the standard costs, calculate how much it should have cost to produce those outputs. That standard costing is compared to how much was actually spent and if the actual expenditure is more than “standard” then the “standard” is reviewed and a new standard price calculated for the next set of costings and price setting.

How does a professional bookkeeping service firm, using fixed fees, know if the fixed fee is working for them?
You would review how much revenue had come in from your Fixed Fees.
Compare that to the costs of operating the business; rent, people, software, insurance, registrations, etc.

If you made enough money then the fixed fee would be working for you.
If not, then you need to up the fees.

How do you set your fixed fee?
Think of a routine period of time. For a bookkeeper you may need to break this down into how many of each activity you will do over a year.
How many end of year payroll?
How many TPAR?
How many activity statements will you lodge?
How many weekly reporting jobs will you do?
How many other activities?

It may be useful to allocate a weighting or percentage to each activity to assist in working out how to charge. For example, 40% of time is spent on general bookkeeping, 5% on TPAR, 10% on EOY payroll, 40% on activity statements, 5% on other.
Then you can average out costs based on what percentage of your time an activity would usually take.

Then add an amount in excess of your direct costs, which will go towards covering the rest of the operating costs.

Accountants have always adjusted fees to a commercial value. Bookkeepers can do the same. Keep abreast of industry norms by talking to your peers and staying up-to-date with trends.

See this ICB resource for more thoughts about Moving to Fixed Fees