Buying or selling shares? Remember to include details in your Tax Return

With the increased availability of share trading apps, making it cheaper and easier to buy and sell shares, more people are entering into share trading for the first time.

You must declare all income from investments in your tax return, including dividend payments from shares, whether you have traded through a broker, an online platform or a phone app.

Dividend income could be received as bonus shares instead of cash payment, and some dividends have franking credits attached, which may reduce your tax liability.

All payments and credits for dividends and non-cash dividend payments need to be reported. The ATO matches shares data from your tax return to the shares trading details held by the Australian Securities and Investment Commission.

Records for Your Tax Return

You need to include details of all purchases and sales of shares this financial year – not just payments received.

Each company you buy shares from will issue dividend or distribution statements that provide details of the amount and nature of the payment and whether franking credits apply. If you have not supplied your tax file number to the company, the statement will also show the amount of withholding tax.

Always keep all documents provided by the companies you hold shares with. And remember to keep your shares records for at least five years after you have completed your tax return.

Need Help?

Once you enter the share market, your tax return can become more complex. For example, some shares transactions will result in capital gains tax or a capital loss, affecting your tax return. In addition, certain expenses incurred in earning your dividend income are claimable – but different rules apply to different types of payments and credits.

We’d love to help you streamline your shares information and make sure you are claiming the offsets and expenses you are allowed to claim, to maximise your tax return.


Keeping your cashflow strong in tough times

Small businesses are particularly vulnerable in tough economic times.

When sales are slow, there are still overheads and salaries that need to be sorted. Pre-planning and being proactive can help you weather tighter economic periods and allow you to continue to thrive.

Make sure you have a clear picture of your payroll, and any other planned expenses that will need to be accounted for.

If there’s even a possibility that there could be a shortfall, it’s essential to meet this head-on. Whether this means talking to your supplier or creditors to figure out an arrangement, or compromising on other business outgoings, you must make a plan to ensure that the business, or your staff, won’t suffer.

Minimise the stress of cash-flow

Invoice early - Send any invoices that you can, and in advance if possible. Perhaps consider whether you have any regular clients or customers that you could offer a retainer or similar deal to if they book services or make a purchase from you in advance.

Chase payment - Use this opportunity to chase up any outstanding payments. Strong communication and relationships matter - talk to clients and chase invoices.

Talk to suppliers - A little honesty can go a long way. Perhaps they can extend a line of credit for your payments to them. In most cases, a good supplier would rather offer a little flexibility to keep an ongoing business relationship.

Review Inventory - Can you find a cheaper supplier locally to avoid the shipping costs or discuss alternative products that allow you to reduce expenses?

Review your costs - It’s also a good idea to do a general review of expenses. Business costs can creep up, and it’s a great idea to make a time to check on your expenses regularly, no matter what your financial situation. Review all of your regular payments and subscriptions as well as upcoming costs. There may be travel, functions or purchases which you can decide on an alternative approach to.

Talk to the bank or tax department - If cashflow is tight, make sure you have conversations early so you have everything in place to see you through.

We can help you implement strategies to protect your business for the long terms and help you alleviate cashflow worries.

Contact us today for a free discovery call to see how we can help your business.


tax-tips-for-self-managed-super-funds-solve-accounting

Tax tips for self-managed superannuation funds

Having a self-managed superannuation fund (SMSF) gives you control and flexibility over how you make investments and prepare for retirement.

It’s important to get your deductions and record keeping correct for the SMSF audit process and the tax return, as there are strict laws governing SMSFs.

An SMSF must be set up as a trust and must also have a legal document called a trust deed. A super fund trust is set up for the sole purpose of providing retirement benefits to its beneficiaries. The trust deed governs how the fund is set up and how it will operate and must be used in conjunction with the superannuation laws.

There are many different investment strategies for SMSFs according to the fund’s trust deed and operations.

Common Tax Deductions

Deductible expenses for SMSFs vary according to the nature of investments and the trust deed, however there are some general expenses that apply to most funds.

  • Operating expenses, such as management and administration fees, audit fees and ASIC annual fees.
  • Investment-related expenses, such as interest, investment advice fees, costs of servicing and managing investments, property fees and brokerage fees.
  • Tax-related expenses, such as preparing the SMSF annual return.
  • Legal expenses including amending trust deeds.
  • SMSF statutory fees and levies.
  • Insurance premiums for death, total and permanent disability, terminal illness and income protection.

The rules for tax deductibility for SMSFs are different to those for individuals and business. Many people are used to claiming deductions for certain things in business or property investment and find they don’t apply to SMSF tax returns. We can help clarify what’s deductible and what’s not.

Expenses must relate to the sole purpose of the super fund being to provide retirement benefits to its members. There may be some items you want to query with us for the audit and tax return to see if they meet the sole purpose test, such as investment training courses, collectibles and artwork, travel expenses or personal computers.

SMSF Annual Return and Records

Once the formal audit of the SMSF has been completed, the annual return must be lodged with the ATO. The annual return is not only a tax return but also reports regulatory information and member contributions. You must keep all records relevant to the annual return.

  • Keep all transaction, tax, accounting and financial reporting records for at least five years.
  • Keep all records relating to trustee meetings, minutes, investment strategies and appointments or changes of trustees for at least ten years.

Make Your SMSF Management Easy

SMSF management can be time consuming. We can help with researching and managing investments, checking trust deed compliance, setting investment strategies, keeping records and conducting the audit.

Talk to us now and get ahead for your next annual SMSF return.


reporting-cryptocurrency-transactions-tax-time

Reporting Cryptocurrency Transactions at Tax Time

Have you dived into the world of cryptocurrency exchanges?

Cryptocurrency is used to describe encrypted virtual currencies which exist as digital tokens. This digital currency operates outside of government via decentralised ledgers or digital wallets but can be exchanged for online goods and services.

The ATO treats cryptocurrency as a form of barter exchange. There is no problem with exchanging goods and services so long as the transactions are recorded and valued correctly.

Business or Personal?

Whether it’s business or personal, crypto exchanges (buying, selling or holding crypto assets) are subject to the same income tax and GST treatment as cash or credit transactions.

If you use cryptocurrency in your business, you’ll need to account for cryptocurrency just as you would for other business transactions. If you’ve used it for personal investment, you’ll need to include details in your income tax return.

The ATO uses data supplied by Australian cryptocurrency exchanges, state revenue offices and shares data to cross-reference the crypto gains and losses information in your tax returns.

Crypto Transaction Records

Keep records of all transactions, including dates, AUD value, the nature of the transactions, exchange receipts, legal costs and other parties involved (even a crypto address is enough) in the sale or purchase of cryptocurrency.

Cryptocurrency and the ATO

The ATO has taken a lenient approach to pursue taxation of crypto assets. However, now that cryptocurrency is attracting more mainstream investors and there is a lot more data available, the ATO checks the taxation obligations of individuals and businesses with crypto assets.

There are different rules for using cryptocurrency in business and for personal expenses or investment. Business transactions use the trading stock rules, while private exchanges involve capital gains tax rules.

Talk to us. We’ll check that all your crypto transactions are recorded correctly for your tax return. Don’t get caught out by the ATO spotlight on cryptocurrency at tax time!


tax-tips-for-individuals

Tax Tips for Individuals

Are you making the most of allowable tax deductions? Individuals can claim for general work-related expenses as well as occupation-specific expenses and working from home. Book a time now to prepare your 2021 tax and we’ll help maximise your return.

Get ahead now by preparing all the documents required for your 2021 tax return so you can get your tax done quickly and get any refund due to you in your bank!

Income

The Australian Taxation Office (ATO) automatically receives information from your employers about salary and wages that you have been paid for the financial year. You need to declare all income from other sources on your tax return as well.

  • Wages, salaries, allowances or bonuses from all employers.
  • Pensions, annuities or government payments such as JobSeeker or JobKeeper.
  • Investment income including interest earned and dividends paid.
  • Business income, if you have a business as well as a job.
  • Foreign income.
  • Crowdfunding income.
  • Sharing economy income such as Uber or Airbnb.
  • Income such as hobbies, prize money, compensation or insurance payments may be tax free but check with us.

Even if you have only earned a small amount from one of these sources, it still needs to be declared on the tax return. Gather all your records for anything you have earned apart from salary and wage payments from employers.

You will need:

  • bank statements that show interest income;
  • proof of earnings from other sources such as crowdfunding or share economy platforms;
  • records of business or hobby income;
  • records of government payments received;
  • and records of any other payments received from overseas sources, prize winnings, insurance or investments.

Tax Deductions

Have you captured all your work-related deductible expenses to make the most of your 2021 tax return?

Employees are entitled to claim work-related expenses as a tax deduction. To claim a deduction, you must have spent the money out of your own funds and not have been reimbursed by your employer. The expenses must relate to your earnings as an employee. Make sure you have invoices and receipts as proof of payment for any work-related expenses.

Expenses you may be able to claim

  • Vehicle and travel expenses – use a travel diary to record details of trips taken for your employment.
  • Clothing, laundry and dry-cleaning expenses – you can claim for occupation specific clothing, uniforms and protective gear.
  • Home office expenses – there are special rules this year for employees working from home because of COVID-19. You will need records of the hours you have worked from home to claim the ATO special rate.
  • Self-education expenses – some education expenses that relate to your current employment are claimable.
  • Tools and equipment – if you buy gear to help you in your job, this may be claimable. Small tools of trade, protective items, professional references and laptops are some examples of equipment you may be able to claim.

Occupation and Industry Specific Guidelines

The ATO recognises that some occupations and industries have specific requirements that employees need to pay for.

There are handy ATO fact sheets for many industries, including hairdressers, teachers, performing artists, hospitality workers, lawyers, medical professionals and more.

These guides are a great starting point if you are not sure what you can claim, but we can give you information tailored to your situation when you do your tax return with us.

Superannuation

If you have made personal superannuation contributions separate to your employer’s superannuation guarantee contributions, you may be able to claim this as a tax deduction. You will need to provide a notice of intent to claim form to your super fund and receive acknowledgement from the fund before doing your tax return.

Book a time with us now to prepare for your tax return and we’ll make sure you make the most of all applicable tax deductions this year.


tax-tips-income-splitting

Income Splitting – New Rules from July 2021

Are you interested in learning more about income splitting and how to minimise tax by apportioning income or profit between associated entities?

Professional services firms frequently use income splitting – for example, medical, legal, financial or IT services firms. It’s a good way of reducing tax within the allowable provisions – so long as it is not stepping over the boundary into tax avoidance.

New ATO guidance on this topic means individual professional practitioners (IPP) will need to prove that arrangements are commercially motivated before self-assessing the risk level of current income splitting arrangements.

The new guidelines will apply from 1 July 2021 and are more involved than the guidelines currently used to satisfy the ATO’s requirements.

The ATO will be on the lookout for arrangements that result in payments to an individual that seem to be artificially low due to income splitting in order to avoid tax.

In assessing the risk of tax avoidance, the ATO takes into account several factors:

  • The proportion of profit entitlement from the whole of the firm that is returned to the IPP.
  • The total effective tax rate for income received from the firm by the IPP and associated entities.
  • The remuneration returned to the IPP as a percentage of the commercial benchmark for the services provided to the firm.

Talk to us about income splitting arrangements and how they can benefit you within the rules.

We’ll work through the new guidelines with you to assess the commercial rationale of arrangements and any high-risk features that may trigger an ATO audit. If you’re thinking of restructuring operations, now is the time to review existing arrangements.

Reach out to the team at Solve Accounting today!


nsw-business-grants-support

NSW Government Grants for Businesses

The Prime Minister and NSW Premier has announced an expanded support program for NSW business affected by this current lockdown. This is welcomed as we know many clients and individuals who are struggling financially due to the restrictions.

The package includes a number of support measures, for which businesses will be able to apply from Monday 19 July 2021:

  1. The extension of the existing NSW Business Grants package for a third lockdown week. The NSW Government grants are available for businesses, sole traders and not-for-profit organisations impacted by the restrictions. You can receive a grant of between $7,500 to $15,000 depending on decline in turnover experienced.
  1. cash boost for businesses across NSW with an annual turnover of between $75,000 and $50 million which can demonstrate a 30% reduction in this turnover during lockdown. The cash boost will be 40% of weekly payroll with a payment of between $1,500 to a maximum of $10,000 per week from week 4 of lockdown onwards, provided staffing levels are maintained.
  1. $1,500 fortnightly grants for micro businesses with turnover of between $30,000 and $75,000 which can demonstrate a 30% reduction in turnover where the business is the primary source of income.
  1. payroll tax deferral this quarter for all businesses, and a waiver for this quarter if you can demonstrate a 30% reduction in turnover and you have a payroll of between $1.2 and $10 million.
  1. Increase in the payment amount for stood down workers from $500 to $600 per week for those who lost more than 20 hours, and to $375 for those who lost between 8 and 20 hours, and for it to be available to workers outside of Sydney lockdown areas.
  1. Several provisions around residential, commercial and retail leases, including no lockouts and forced evictions, and those landlords who provide rent relief will be given land tax reduction incentives.

Applications for the “Business Grant” are open today. Applications for “JobSaver” and “Micro Business Grant” are not yet open but should be available within the next week.

Here’s what you can do to prepare for your grant application:

  • Calculate your decline in turnover – you need to compare a 2-week period within 26 June 2021 to 17 July 2021, to the equivalent period in 2019.
  • Confirm your turnover for the year ended 30 June 2020 – the key threshold is whether you are above or below $75,000 (and under $50m).
  • If you are an employer, confirm your employee headcount as at 13 July 2021 (permanent employees and casuals that have been employed for more than 12 months)
  • Create a MyServiceNSW Account for your business (if you do not have one), and ensure your details are up to date.
  • If you meet the eligible criteria as outlined by Service NSW, please apply online and follow the steps.
  • Maintain records of supporting documentation as outlined by Service NSW for each grant application for up to 5 years in the event of an audit.

Please visit https://www.service.nsw.gov.au/campaign/covid-19-help-businesses/grants-loans-and-financial-assistance for more details and information around eligibility and how to make a claim.

Please contact us if you need assistance with your grant applications or to confirm your eligibility. The team at Solve Accounting are here to support you through this challenging period.


tax-strategies-high-income-earners-australia

Advanced tax strategies for high-income earners in Australia

Even with COVID and the incentives provided by the Australian government, there are still genuine concerns from high-income earners and their taxable income, because tax laws make it so that high-income earners get taxed at the highest rates.  

It’s never too late to focus on tax deduction strategies that can result in you paying fewer taxes.

 

Why is Tax Planning Important?

It improves income flow and leads to greater flexibility

When you take the right steps in your tax bracket, you’ll be able to keep more money flowing to your household and lower tax payable to the ATO. This could possibly save you thousands of dollars per year and allow you to focus your finances on other important areas without digging into your savings.

You can take advantage of all the deductions and exemptions

If you’re not well-versed in tax affairs, you might miss out on a few available allowances, deductions, and exemptions. A reliable tax accountant would be up to date with any recent changes, and let you know when and how to take advantage of these concessions when completing your tax refund.

You remain compliant and current

When it comes to tax planning, many individuals like to take the safer course of action as the last thing they want to appear like they are conducting tax evasion or dodgy practices. A tax accountant can look for opportunities within the tax compliance boundaries and provide you with the tax deduction advantages it needs to improve when completing your tax return.

The below tips are ways to reduce your tax, include the general tax tips and more advanced tax return tips that would also cover high net worth individual taxpayers and sophisticated investors.

 

1. Make personal super contributions 

Making personal contributions from free cash flow (salary sacrifice) each year is an effective way to both reduce your tax bill and increase your retirement savings. You are able to contribute up to $25k each year (including contributions made on your behalf by your employer). Individuals with a taxable income of between ~50k and $250k tax brackets gain the most from this strategy due to the super tax rate (15%) versus your marginal tax rate.

2. Main residence 

The main residence capital gains tax concessions are arguably the most valuable tax break in Australia for building personal and family wealth. If you are able to invest in property, ensure you make it your main residence once it’s acquired. If circumstances change you are able to move out and rent the property for up to 6 years whilst continuing to treat it as your main residence for tax purposes. Expats should be aware of recent changes to these rules which make them less tax concessionary for such individuals, however, these risks can be managed.

3. Negative Gearing 

“Negative Gearing” means generating investment losses (generally due to interest costs) which can be written off against your salary/wage income to create a tax refund. Negatively gearing a property or share portfolio is a tax-efficient strategy where you expect the investment to go up in value in the long-term. The long-term gain in value is generally a capital gains tax on future sale (at concessional rates), whilst in the short-term, the tax refunds can assist in funding the losses. Key to negatively gearing is ensuring the investment pays an income stream to make the interest tax deductible. Always obtain advice prior to investing to ensure the interest is deductible!

4. Franking Credits

“franking credits” are attached to most dividends you receive from Australian share investments. Franking credits are unique compared to other “tax offsets” in that they can give rise to a cash refund where they are greater than the amount of tax you owe for the year. The tax benefit of franking credits is magnified in a self-managed super fund environment due to the tax rate in super only being 15%.

5. Home office expenses 

As workplaces become increasingly flexible with WFH arrangements, all eligible individuals should be claiming home office expenses. You have a choice of keeping records and claiming deductions for using your home as an office or “place of convenience” to undertake work. The ATO has provided a “shortcut” method for calculating home office expenses due to COVID-19 for the first half of FY21, so ensure to keep records of hours worked at home for this period.

6. Keep a car logbook 

For anyone who travels for work-related purposes (e.g. to/between clients or workplaces), please keep a 12-week logbook of your most busy travel period. This can then be used to calculate your deductible percentage of your car expenses for the financial year. This can give you a better outcome than the “cents per kilometre” method, which is often the default in the absence of good records. Keeping a logbook during the year gives you the option of a more favourable method to maximise your car deductions at tax time.

Make personal deductible superannuation contributions before (say) 25 June to ensure the cash is received by the fund before 30 June – for tax savings and co-contribution purposes

7. Deferral OR bring forward of bonus income

Ask your payroll manager to pay any bonuses on 1 July instead of before 30 June IF you anticipate less income next financial year & vice versa (pregnant women, women planning pregnancy and taking maternity leave in 2020, returning expats with carried forward losses, taxpayers planning a step-down job switch or a career break in 2021, clients exiting Australia and switching tax residency status in 2021 etc).

8.Deferral OR bring forward of discretionary income

Defer discretionary income until after 30 June IF your circumstances will become favourable in the 2020 FY and vice versa e.g. maternity leave, imminent retirement, changing tax residence out of Australia, triggering capital gains (contract dates on disposal contracts) etc & vice versa

9. Share investors (capital account) – non-discountable capital gains

Consider pre 30 June disposals to book square against non-discountable gains triggered in the current financial year.

10. Share investors (capital account) – general CGT discount

Consider pre 30 June disposals which maximise the general CGT discount.

11. Employees with ESS interests in Australian listed employers

Consider points 10 & 11 above in addition to the 30-day disposal rule. Review your vesting schedules and enter into auto sale facilities with your employer/broker where appropriate.

12. Employees with ESS interests in foreign listed employers

Consider points 10 & 11 above in addition to ensuring that any foreign tax withheld is actually paid as soon as possible for Foreign Income Tax Offset purposes. Note: this one is complex. Please call Chris Bloxham (0414 985 724) to discuss before taking any action.

13. All capital account investors

Consider points 10 & 11 above along with optimal utilisation of carried-forward capital losses.

14. Property investors – interest in advance

Start interest in advance paperwork/authorisations/elections with your mortgagees NOW to make sure all payments are irrevocably committed before 30 June.

15. Property investors – ghost town Division 43 deals 

The approach promoted by ‘ghost town’ Division 43 deals with caution. Please call Chris Bloxham (0414 985 724) or seek the opinion of a quantity surveyor before signing contracts.

16. Investment property depreciation

Please arrange for a Property Tax Depreciation Report as generally this will allow you to claim the maximum amount of depreciation and building write-off tax deductions on your investment property in Australia.

17. Defer investment income & capital gains

If possible, arrange for the receipt of Investment Income and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2020. The Contract sales date is generally the key date for working out when a sale occurred, not the Settlement Date.

18. Higher-income employees with deductions or losses – PAYG variations

For PAYG earners with significant deductions or tax losses e.g. some property investors, returning expats with carried forward tax losses for utilisation in the 2020FY or the 2021 FY, call Chris Bloxham (0414 985 724) as soon as possible to consider putting a PAYG variation in place for your 2021 payments to capture the first pay cycle after 1 July 2020.

19. Private Health Insurance

If your taxable income exceeds $90,000 as an individual or $180,000 as a couple or you are 30 years of age and older, you should have complying private health insurance for all family members otherwise you may become liable to additional Medicare levy called the surcharge.

20. Tax deductible gifts

Make tax-deductible gifts before 30 June in the name of your family group’s highest income earner. Note: only gifts to registered Deductible Gift Recipients (“DGR’s”) qualify for a tax deduction.

21. Lodge your return early 

If you are due a refund! This is your money, and it has real time value, so is better served to be in your pocket. Keep good records and lodge your return as soon as possible after year-end (30 June) every year to avoid paying penalties. Then invest or spend the money!

22. Keep records for efficient business management

In the event of an ATO review or audit, you will be asked to provide sufficient and relevant support including documents to substantiate the claims made. 

Please ensure you have documented relevant records such as sales receipts, expense invoices, bank statements, credit card statements, lists of debtors and creditors, employee records (wages, super, tax declarations, contracts), vehicle records, logbooks, stock take listing, and asset purchases.

Contemporaneousness is supreme!

We hope you found some helpful hints and tips to consider leading to the end of every financial year. Please call us at Solve Accounting to discuss any of the above tax strategies and how they might apply to benefit your financial life.


franking-credits

What are Franking Credits? How do Franking Credits work?

The word Franking Credits or Franked dividends might sound unfamiliar to you, but it caught many Australian eyes during the 2019 Federal election. Before we dive right into what Franking credits are and how do franking credits work, let’s brush up on some basics.

One of the few business methods to raise capital is by listing shares on the stock market. However, money always comes at a price. When individuals like yourself invest in these shares, the company cuts you a small slice in the ownership pie. Woohoo! You can now officially become a part-owner of Tesla Inc. After investing in those shares, you will be officially recognised as one of the many company’s shareholders. All companies reward their shareholders with a portion of their profit, and this is known as Dividends. 

The profit a company makes is taxed, generally a flat 30%, and the left-over profit is shared amongst shareholders as Dividends. However, dividends are categorised under passive income, and you are required to pay tax on the income you make. This basically means that the money you receive from the company you invested in is double taxed, and this is where Franking Credits come into the picture. 

Franking Credits and How do they Work?

A dividend paid by an Australian company from their after-tax profits is called a ‘fully franked’, and the tax paid by the company on your dividend is known as ‘Franking Credits.’ For instance, you have received a dividend worth $700, and this is the slice of the net profit after tax.

Assuming the corporate tax rate to be flat 30%, the tax for the dividend you just received is $300. This will be already paid by the company on the $1,000 in corporate profit derived.

Along with the $700 in cash, you also receive a notice that labels the $300 as ‘Franked Credits.’ The sum of the dividend and Franking Credit is known as the ‘Gross Dividend,’ which is worth $1000.

Continuing with the numbers from above, you are now required to pay tax on the gross dividend. Now, let’s assume that the tax rate for personal income is 19%, and this means that you have to pay $190 for the dividend you just received. This will result in $490 being paid as tax for the dividend you received in a traditional taxation system. This results from double taxation and the ‘Franking Credits’ or “imputation” system that exists solely to prevent this specific scenario.

The ‘Franking Credits’ in your gross dividend will act as a tax credit. The practice of using Franking Credits as tax credits is known as “claiming Franking Offsets.”

Assuming the company tax rate to be 30%, the dividend you received will be tax-free if the tax rate for your personal income is also 30%, as you can simply offset the income tax on your dividend using the tax credit from the Franking Credits.

Moreover, if your personal tax rate is 46%, you are only required to pay 16% “top up tax” on the dividend, as the remaining 30% is already paid in the form of the tax credit. This system was established in 1987.

If we continue with the earlier example, the income tax to be paid for the $700 dividend is $190, and now you can deduct this using the Franked Credits, which is $300, and you will still be left with $110 of excess credits. This extra credit can then be used to offset tax on other tax levied on taxable income, or the excess credits can be filed for refund with the ATO if there is no additional tax to be paid on the taxable income. Hence, with this system, the issue of double taxation is resolved. 

Another Example for Dividend and Franking Credits

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The Australian Tax Office decides the income tax rate for every individual based on their income. Australian residents with income less than $18,200, or students, or low-income retirees are exempt from income tax. Franking Credits will be beneficial for these individuals, as they can file for a 100% refund of the Franking Credit as they have no tax to offset, resulting in the government receiving no tax from the company or the individual.

Unfranked Dividends and Partly Franked Dividends

Unfranked Dividends are basically dividends with no tax credit attached to them, which arises when the company makes profits. There is no tax levied on it and therefore no credits in its franking account to impute on a distribution. Now, how can a company make a profit with no tax being imposed on it? This type of profit is gained from the sale of assets with no tax levied on them or overseas earnings as the company does not pay tax in Australia. Hence, the dividends being distributed without any tax credits attached.

When a company declares 30% company tax on a ‘part’ of the dividend, this is categorised as a partly franked dividend. For instance, the company declares 30% tax on only 75% of the dividend, but not 25% of the dividend. In this case, you will receive more dividends with a lesser tax credit compared to a fully franked dividend.

These three types of dividends might get your head spinning, and you might wonder which one of the three will be beneficial to you. In the end, the tax paid and the amount that ends in your pocket will be the same. However, it will affect your investment strategy. 

Franking Credit Formula

Franking credits are calculated using the formula:

 

45 Day Rule

In order to be eligible for franking credits, you are required to hold the shares “at risk” for 45 days, and this excludes the purchase and sale date (effectively 47 days). The shares are to be:

  1. Purchased before the ex-dividend date.
  2. In your possession in the ex-dividend date.

In the end, the world of Franking Credits might sound complicated but is easy to comprehend and more beneficial for you as more money will be available to you for future investments. The Franking Credits system successfully eliminates double taxation and has the potential to be followed in other countries in the following years.


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How to Find an Accountant for Your Business

Accounting is an invaluable aspect of your business and business management, which means that you need to find an excellent accountant, to not only navigate the ever-changing tax laws’ maze but also to maintain critical financial records and offer sound financial advice about what you need to do to manage and gradually grow your business.

With a good accountant, you won’t have to worry about PAYG, BAS, or GST taxes, hence searching for the most qualified accountants.

But there are many accountants in the country today, and your first account may have disappointed you more times than you can take. So, how do you make sure that the next accountant you settle on offers all you need and more? 

If you started a new business and you are looking for the right accountant for you to start things on the right foot, what do you look for when choosing a new accountant?

 

How Do You Find an Accountant?

An accountant is more than an expert that keeps you informed on all tax matters and changes and why you have to pay more in taxes this year than the previous year. Essentially, the right account will guide your management process and help in ensuring that you make the right decision on how to manage your finances while growing the business. 

Whether you are looking to bring in new partners, purchase or lease a new commercial space, change the business structure, expand, or sell shares, an accountant is a person you need to know whether those ideas should be implemented or not. By analyzing the business’ past, present, and using future projections, an accountant gives you sound business advice.

Your accountant will also tell you how certain moves will affect the amount of tax payable and your business’ growth rate.

If you run a business, but you don’t have an accountant, you really are running the business on borrowed time, and that could be the reason for the business’s poor performance.

To find a good accountant, here are some of the basic steps you could follow.

  • Referrals

The best way to find the right accountant for your business is to ask friends in business or other business people about their accountant, specifically, if they are satisfied with the services offered by the accountants or the accountancy firms they are working with.

You could look for referrals from the internet or the Yellow Pages if you didn’t find worthy referrals from your circles. When scouting for the best accountants, it’s a good idea to settle on the accountants with previous experience in service delivery in your industry. You’d want to come up with a relatively long list of prospective accountants to easily find your best fit.

  • Call and interview about five accountants from your list.

Next, you need to shortlist the candidates that seem like they could be good fits for your business.

In the phone interview, ask about their education and certifications, and also their experience in your industry. You could also check with accountants’ professional associations to check the validity of the stated qualifications and for information about their character. Outstanding disciplinary issues, for example, tell a lot about the accountant’s character.

From this interview, you’ll easily narrow down the list to 2 or three accountants with that you can hold face-to-face interviews.

  • Phone/Video Interview

For this interview, create a shortlist of questions that you’ll ask the prospective accountant. These questions will including their billing rates and how they determine their rates, their preferred communications channels, and their overall accessibility, and you could also ask them what they’d charge for basic tax returns for your company using an example from the previous year or a rough estimate. You’ll also ask and confirm their experiences in your industry, if they’ve worked in other countries (if your business has expansion plans to international markets, etc.

  • Meeting prospective accountant chosen.

To gauge how well you’ll be able to work with the last one or two prospective accountants, you might want to schedule a face-to-face meeting. This meeting is important because it helps you gauge if you will be able to work with the accountant(s) or not, how comfortable you are with them, how well you communicate with each other, and if they really are who you want to run your business’s accounts.

                                                 

What to look for when choosing an accountant?       

At the end of the day, your business accountant is more than a tax preparer; they can help you come up with a definite blueprint to guide the future of your business.      

  • Understand your needs

Businesses have different needs, and you may need an account for more than bookkeeping and tax management. So, you should choose the accountant with proven records of their ability to do more, specifically, for them to help you run the business in the direction of growth and success.

Besides the not-so-obvious roles, you need to list all the other services you expect the accountant to provide. If you need the accountant to do everything from handling business tax, VAT/GST, PAYE/PAYG, business taxes, basic bookkeeping, preparation of end-year accounts, and filing of tax returns, you should list all these services. Other additional services like auditing, peer lending, provision of investment advice, etc., must be listed on your list of requirements.

  • Check qualifications

Check and ask for their education and professional qualifications. Ensure that the prospective accountant has the accounting qualification they claim to have. Also, make sure that the accountant is a member of reputable accounting bodies like ACCA (Association of Chartered Certified Accountants). You’d also need to decide whether you are looking for a CPA firm or an accountant. 

  • Check for the licenses

By now, you know that an account is only in a position to give you the best tax advice if they are a tax agent, and they can offer financial planning advice only if they are accredited and licensed; and if they have the Australian Financial Services License. An alternative to the license that is acceptable would be a situation where the accountant is an authorized representative of a licensed accountancy firm or individual license holder.

In addition to licensing and accreditation, you also need an accountant who is appropriately qualified, with professional indemnity insurance.

  • What kind of services the accountant offers    

In line with making sure that the accountant is capable of meeting your needs, you need to confirm the services they provide. Is the accountant experienced in your line of business or the types of services you provide?

If you are looking for an accountant to take care of business tax, GST, PAYG, bookkeeping, preparation of annual financial documents, as well as auditing, credit management, trading internationally, investment advice/management services, etc., you’d want to look at the list of Accounting Services that the accountant claims to offer.

  • Find a specialist

Depending on the size of your business and the type of business you run, you may find that you need the services of not just any accountant but a professional accounting adept in specific areas of business accounting. 

The main specialties include bookkeeping, tax filing/ tax planning, auditing, advisory, and accounting. If you are looking for specialty services, find an accountant with a proven track record showing their ability to provide the service you are keen on.

Other specialty services offered by accountants include management consulting, business valuation, information system services, forensic accounting, etc.

  • Consider location

Some businesses call for the hands-on and active involvement of an accountant. For these businesses, an accountant must be willing to visit the business location frequently or even work in-house. This is a common feature for large corporates and businesses that handle a lot of physical stock. So, if your business needs an in-house accountant or an accountant you can meet with on short notice, you should find an accountant based locally.

With cloud accounting, the location shouldn’t matter. However, there are situations where the location matters because you won’t be able to collaborate using any of the online/advanced communication channels available.

  • Experience

You are most likely a small business, which means that you need an accountant with experience in running finances for small businesses. Your budget could also be too small for you to afford the services of the big accounting firms, which is why you’d be better off with an account or an accountancy firm like Solve Accounting with experience working with small businesses. 

  • See what other clients have to say

Before you settle on an accountant, check online reviews of their services. You could also use online forums or social media to determine whether you should trust the accountant or not. Your social networks are also incredibly helpful.

So, check out who they are connected to, how they talk about their profession and the services they provide, whether they’ve been recommended by their past clients, and the experiences of previous clients. The online space is essential if you are going to find an accountant in Sydney. 

  • Fees and Billing

What are the accountant’s fees, vis-à-vis the services they provide? Do other clients claim to get value for money for the services provided?

How do they charge? Most accountants charge by the hour, which means that it may not be the business move to have the accountant come in to do the data entry work. To ensure the best value for your money, choose accountants who are proactively working on saving your money through the use of the best quality accounting services or working out ways that you can cut down operational costs on.

  • Software used

Accountants often have preferred accounting software that they use. Since the accountant may be in your company for many years, you might want to switch to the type of software they use/vice versa to avoid data-sharing issues. For easy accounting, opt for the accountant that uses the software you use, or with the option of using the same accounting software that you use (most accountants use more than one software).

 

Conclusion

A good accountant will help your company grow. Since the accountant is intimately involved with all the operations of your business, you need an accountant who checks all the important boxes above. You also need to find an accountant you trust and one who will be there when you need them.