Monthly Archives: October 2015

Which PAYG Instalment method is best for you?

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.

With respect to PAYG Instalments, we usually prefer that clients use the instalment amount method.  In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.

In some cases though, the % rate method may enable one to pay a lesser amount.  If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid.  A significant payment will only be required at such time as income is received.

It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously.  If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.

Please do not hesitate to call us should you wish to discuss your own situation.


At MRS, we will spend today planning for your success tomorrow.

Why you should use the GST instalment method

Being the start of another activity statement year, one can exercise the choice as to the method to be used to calculate GST and pay GST for the 2015/16 year.

We recommend that Option 3 GST Instalments be selected in most cases for those that lodge a quarterly BAS.

Option 3 (which is only offered to small businesses with turnover of less than $2,000,000) is far and away the best option in the majority of cases as:-

  • It reduces our fees by our not having to prepare BAS’s or amend those prepared by clients (at the risk of being misunderstood, there are matters that only come to light when preparing annual financial statements and which require past BAS’s to be amended).
  • One doesn’t have to amend BAS’s for where a tax invoice is not held by the time a BAS is lodged.
  • If profits are increasing, then one’s GST net liability will also be increasing.  The instalment will represent an under payment as the ATO advised instalment is based off the prior year’s lodged activity statements.  In most cases, the shortfall is not payable until May of the following year so one receives an interest free loan from the ATO to pay any GST shortfall.
  • If the instalment is too high, then it can be varied downwards (but best left until at least the second and preferably the third or fourth quarter when the year’s position becomes clearer).

Please contact us if the ATO have marked on your BAS that Option 3 is not available.  This is often simply an ATO error and one that we can easily have rectified.

If Option 3 is adopted, then the ATO will issue an Annual GST Return at the end of the financial year.  This form is used to net off the actual liability against the instalments paid.  The form is required to be lodged by the time the Tax Return is lodged and by which time a shortfall is to be paid or a refund will be generated.

At MRS, we will spend today planning for your success tomorrow.

Deadlines for Sep 15 quarter

For those of you who are employers, Wednesday 28th October is the end date for satisfying your SGC super obligation for the September quarter.  Late payments will attract substantial interest and penalties.  Consequently, SGC super should never be paid late.  In the past, payments made even a day late had to be paid directly to the ATO.  Now payments up to a month late can still be made to employees’ super funds.  Payments made more than one month in arrears must be paid to the ATO.  BAS’s and SGC liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

As per earlier reminders, the SGC rate increased from 9.25% to 9.50% as from 1st July 2014.  Please ensure that your system is calculating the SGC at this slightly higher new rate as we have found some clients have still been using the previous rate.

For those who lodge a quarterly BAS, your September quarter BAS is due for lodgement by Wednesday 28th October.  However, you will have to Wednesday 11th November if you are a registered user of the Tax Office’s Taxpayer Portal.  As per our June 2014 edition of Tips & Traps, we encourage you to register for the ATO Taxpayer Portal if you have not done so already; particularly as no further paper activity statements will be issued when an activity statement has been lodged electronically after 30th June 2014.

At MRS, we will spend today planning for your success tomorrow.

What’s your break-even point?

I watched an episode of Gordon Ramsay’s Kitchen Nightmares during the week – you know that show that would be under 50 minutes if they cut and out every word starting with f.

This week’s episode featured a husband and wife team. The business was going down the gurgler, and sadly, as so often happens, so too was their marriage.

All the restaurants in the series are on the wrong side of serious trouble and their problems are numerous. As usual, the restaurant was re-designed and the menu was simplified with an emphasis on fresh ingredients. However, in this case, Ramsey also honed in on the fact that they had no idea of their break-even point.

What intrigued me was that Ramsey adopted the pure definition – how much revenue do you need to cover expenses in order to break-even. There are two points I would like to make about this common definition.

Firstly, most business owners don’t have a clue about their break-even point. Business owners must be able to:-

  1. Correctly identify which costs are overheads (being those expenses incurred in just opening the doors) and those cost of goods/services sold (being those expenses which are which are directly incurred in doing what they do whether that be make widgets or provide say training). Getting the cost of good/services sold correct is vital – yet sadly few of my fellow professionals bother to ensure that their client’s system accounting systems report on this basis.
  2. Have an understanding of which costs are fixed and which ones are variable. This is easy to do. However, some costs are stepped – meaning that they are largely fixed but go up in steps such as taking on another employee. It’s not easy to track this but one must know what these costs are, when they increase and by how much.

Secondly, the break-even point is not the end game. The purpose of being in business is to make a profit; if not, the operation is effectively nothing other than a charity. So therefore the true break-even point of a business includes a fair return for the effort, time, finance and risk that the owners put into the business. Every business owner should be regularly measuring itself against this number.

Do you know what your true break-even point is? We have helped many clients to not only determine it but also to set up measuring systems and procedures to ensure the business (or rather its owners) stay on track. We would welcome the opportunity to discuss this with any potential new client. You have nothing to lose as the first meeting is free of cost or obligation.

At MRS, we will spend today planning for your success tomorrow.

The danger in not increasing prices

I recently met with a new client. They manufacture and sell a product that whilst not unique, has few direct competitors and certainly none in their area. It’s not expensive so people aren’t going to travel to buy from someone else.

The story of their last couple of years has been a steady decline in profit. Unfortunately, it has been matched by a savage decline in cash but that will be a story for another day.

Whilst there are a few reason for this, it didn’t take long to get to the bottom of the problem. They haven’t been increasing their prices. Their suppliers have been charging them more and they are paying more to their employees.

By not passing on their increased costs, they have in effect given a discount to their customers. Or put it another way, they have more and more started to work for the benefit of their customers rather than themselves.

If the price freeze continues, then they will do their employees (and their families) a disservice as well as they will lose their jobs.

I reckon their customers would have been expecting their prices to increase. Given, the quality of their product and the apparent return loyalty of their customers, I would not expect a price to increase result in their losing custom.

We use some business analysis software that shows the outcome from changing any key driver in a business. In this case, we were able to show our client:-

  • What price increase would be needed to return to past levels of profitability.
  • Discussed how those price rises should be communicated.
  • How many customers they would have to lose and still make the same profit. Just to digress, this is usually substantially less than most clients guess.
  • What difference this would make to the sale value of the business.

Our cutting edge software can set out the impact from making changes such as this in a form that business owners understand. Yes, there are still a host of numbers (largely for my benefit), but the output is graphical and the numerical result simplified.

In my experience, business owners are reluctant to make changes when they don’t know the outcome. The results from making small changes are often amazing. So what is your lost opportunity? Why not met with us to find out. You have nothing to lose and everything to gain, particularly as our first meeting with a potential new client is free of cost or obligation.

At MRS, we will spend today planning for your success tomorrow.


So what did Friday’s public holiday cost your business?

We have long had a public holiday for a horse race; we now have one for the AFL Grand Final.

I have been asked many times over the last week about what Friday’s holiday cost the typical small businesses. The answer depends on the nature of your costs.

If your costs are largely fixed (like mine), the loss is basically the loss of time and subsequent billings. Or costs basically don’t change – maybe we saved $10 of electricity.

Other business will have more variable costs than fixed. Most of these businesses losses won’t be as great as they avoided the variable costs that otherwise would have been incurred on Friday.

Some businesses may have gained, but I suspect that they are few and far between. I understand a lot of shops were closed but some cafes may have a booming day even after allowing for penalty rates and other labour costs.

All this leads to an interesting point.

So few business understand what costs are direct and which aren’t and which ones are fixed and which are variable.  They don’t know their gross margins and they don’t know their break-even point (which may be rising in steps as they grow).

With this information to hand, you can confidentially make decisions about your business and know what the outcome will look like. Our business clients know these things. Do you? If not, why not have a free meeting with us to see how we can help you.

In the meantime, read the following posts from our archive:-

  • 1st post from Feb 2015 – Greater profitability is closer than you may realise
  • Last post from Feb 2015 – When growth is bad (and running out of cash)
  • Last post from March 2015 – What your accounting system should do for you.

 At MRS, we will spend today planning for your success tomorrow.

Don’t be misled

Front page headlines on Tuesday and to that night’s TV news were how the share market had dropped $60 billion by day’s end. It was a big number.

Some mentioned the % fall; most didn’t. The “billions wiped out” bit was the big message, with the headline often being in red and/or pictures of unhappy people.

So what has actually happened? On Tuesday. the share market index value which opened at 5,070 fell to 4,918.

It made up half of those gains within the next 24 hours. Now, at the close of trading on Thursday, only 48 hours later, it sits at 5,110 – i.e. 40 points higher than when it started on Tuesday.

But does this recovery and indeed increase above Tuesday’s “wipe-out” lead the news? Most certainly not. There probably won’t be a single heading anywhere except in the business section. So unless you read the business pages you would be left thinking that the market had suffered some kind of permanent loss.

So who won out of this – these that that took the chance to buy shares at a reduced price.

So who has lost out of this – those that panicked and sold shares at a lower value. It’s funny how many of these people then buy back in at inflated prices.

The clear lesson from these often recurring episodes is to be very careful of what you read and hear. The market might well fall further. But do not confuse sensationalised headlines with facts and fundamentals. Short term minor corrections, no matter how the press portray them, should not cause you to make snap and emotional decisions.