Unfortunately, accidents do occur, even if you are extra careful. And thankfully none of us know when these accidents will occur.

If you die without a Will the Government force their Will distribution rules upon your estate. The Australian Taxation Office will be a large beneficiary, via Capital Gains Tax, and Income Tax, and State governments benefit from Stamp Duty on asset sales.

Many famous people, in many countries, have died without Wills, and an examination of their results is informative.

1. Heath Ledger: Died in 2008 while making the film "The Dark Knight." His Will was drawn in 2003, and left all of his estate to his parents. But Heath had not updated his Will, and in the time since drawing his Will, a daughter Matilda had been born. Under the existing Will Matilda was entitled to nothing. Fortunately, Heaths parents used common sense, and ensured that Matilda was looked after.

   After reading the newspaper report it is obvious that this was a messy, and expensive exercise to sort out.

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]]> Thu, 22 Dec 2011 16:30:25 +1100 http://www.petermulcahy.com.au/Blog/Bench_insulate.html http://www.petermulcahy.com.au/Blog/Bench_insulate.html editor@petermulcahy.com.au (Peter Mulcahy FIPA) benchmarking
2. Develop a strong working relationship with your accountant, and advisers, who are there to make your life easier.

3. If you insist on being paid by cheque, EFT or credit card and avoid cash sales you have removed the main area of ATO attack.

   As all your sales will now be passing through your bank account/s there is little room for the ATO to dispute your business income, even if you still fall outside the ATO benchmarks. It is then up to the ATO to prove that you have made sales which you are not declaring.

4. By refusing to accept cash you also remove the pressure from customers to give a discount because the sale "is off the books", and you preserve your profit margin from customer attack.

5. Keep excellent records, with all invoices for purchases and sales, credit notes etc., and keep your book keeping up to date.

6. Also keep records of your holidays, time off etc., as the benchmarks ignore that you may have had an extended holiday.

The benchmark system is flawed, and if you have excellent records you can prove the ATO wrong, but it is not a cheap exercise.

Your tax accountant should be able to offer you audit insurance, which is fully tax deductible. For a nominal cost you can protect yourself for up to $10,000 of audit expense. Unfortunately tax audits are an expensive process, particularly if you have to employ a tax lawyer to appear at a Tax Tribunal hearing to argue and defend your case.

I think it timely to review the legal requirements for business record keeping.

By law businesses must keep records:

• for five years after they are prepared, obtained or the transactions completed, whichever occurs latest, and
• in English or in a form that we can access and understand in order to work out the amount of tax you are liable to pay.

The ATO expect a business owner to:

• Record every sales transaction through their cash register or point of sales system
• conduct a daily sales reconciliation between the ‘z' total (or end of day report if using an electronic system) and cash in the register till, taking into account cash taken for business expenses and personal use.
• regularly transfer daily sales figures into a cash receipts book.
• perform a bank reconciliation between the bank statement/s and the cash receipts book at least monthly.

Retain these records for five years:

• the ‘z' totals or point of sale system end of day reports
• daily reconciliations
• bank records and cash receipt book
• till rolls or end of day reports that record details of each individual transaction. Note: If the ‘z' totals have been reconciled with actual cash sales and bank statements, the detailed till roll can be discarded after one month, plus
• maintain a filing system to keep track of paid and unpaid accounts.

Further information can be sourced from the ATO

Are there any other ways to insulate yourself from benchmark attack?

Word gets around about Helga's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Helga's bar. Soon she has the largest sales volume for any bar in Detroit. By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Helga's gross sales volume increases massively.

• Landscape construction
• Motor vehicle retail - new and used
• Panel beating and smash repairers
• Lawn mowing and garden services
• Tattooing services
• Pharmacy.

So far the ATO has identified 46,000 businesses which are operating outside benchmarks and 50% of these businesses are represented by just 1,900 tax agents. The ATO has written to 107,000 taxpayers regarding their performance against industry benchmarks.

The ATO has noted that many businesses it contacted responded by :

• reporting more GST revenue in following BAS's after receiving the letter
• explaining why they were operating outside the benchmark concerned,
• 1,400 taxpayers voluntarily disclosed income not declared in prior years.

Good quality record keeping is crucial.

Bench marking is really all about record keeping, and the quality of business records. The ATO has repeatedly stated that taxpayers with poor records are at risk if prosecuted, because without adequate records a taxpayer has no way to prove that what they are saying is correct. Taxpayers are at risk because it is up to them to prove that the ATO position is incorrect. The ATO do take into account the individual circumstances of each business that it reviews, based upon records maintained by that business. Where records are complete and reliable the ATO will not use benchmarks to estimate sales, even where the business is outside the industry benchmark.

Incorporation, within Australia is a legal process conducted under State or Territory legislation, and registration provides associations or community groups with certain legal advantages in return for accepting certain legal responsibilities. Incorporation of a body gives that body legal status separate from that of its members, and offers some protection to both office holders and members, from debts and liabilities incurred by the group, provided that the group is not run as a profit making body; that is you are genuinely "not for profit".

Incorporation allows you to have a bank account in the name of your body, to insure in the bodies name, to rent and lease in the name of your body, rather that your own natural name. If something goes wrong and someone sues, they sue the incorporated body, not the office holders or members. Therefore, the office holders and members have a "firewall" between the incorporated body and the office holders and members own assets. This is a huge advantage.

So incorporation is a legal status granted to not for profit community and service bodies who meet specific requirements, and are registered with a government authority. In Victoria, you will register with Consumer Affairs Victoria (CAV) and will operate under the Victorian Associations Incorporation Act 1981 as amended in April 2009. The legislation is 163 pages long, and details the rules and processes that an incorporated body must follow, including how you are to conduct your meetings, and these rules and processes must be complied with if you wish to remain incorporated.

Why would an Accountant in Public Practice tell you about this?

Incorporated (.Inc) bodies are required to have their financial accounts audited after the close of every financial year.

To do this your body must document:

• the receipts and expenditure of the organisation
• the assets and liabilities of the organisation
• the mortgages, charges and securities affecting any of the bodies property
• details of any trust for which the body was trustee
• details of any trusts held on behalf of the body, in which funds and assets have been placed.

Bodies must hold an annual general meeting and present the audited accounts to members, and must file an annual return with CAV.

I have had the misfortune this week to be trying to prepare small business tax returns with the new version of MYOB AO Tax v5.1.0.169 Plus with tax v2.50.3.63.

Although the manufacturers believe that it is ready for the 2011 income tax year, unfortunately it is not. The version I have installed on my PC does not have all of the options shown in the training video, so that it seems to be impossible to get generated dollar information depositing into the correct cells within the tax return. For example business car costs are deposited by default to cell D1 in the "I' return, rather than motor vehicle costs in the business return.

Depreciation immediate write off (DIWO) also termed "simplified depreciation" by the ATO

Another area of angst is the lack of depreciation immediate write off. The tax rates within the new AO are greyed out and therefore cannot be altered. MYOB in their wisdom give three ordinary depreciation rates, 37.5% ( low value pool), 30% (general pool), and 5% (long life pool, plus a software development rate, but for some reason they have not provided a 100% rate to cater for small business entities who use the depreciation immediate write off method. This appears an enormous oversight as the recent predecessors of Accountants Office have all catered in full for depreciation immediate write off.

For some reason MYOB choose to make it impossible for users to provide feedback about their AO Tax product, hence this blog.

Has anyone out there worked out a work around for the DIWO oversight? if you have please reply, and I can let the world know. :-)

I have this week also unfortunately had the misfortune of having to use the AO telephone help desk. This generally involves holding in a queue for up to half an hour whilst waiting to get assistance. Although the call centre are very friendly and genuinely do their best to help, they appear to not be interested in hearing what the software is lacking, or is not doing. Most of them have never used the software to do tax returns and seem not to understand the process or the terminology. I did once strike an Indian (software engineer) whose English was almost impossible to understand.

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I am reproducing this message from the Tax Office as it has much value, and relevance.

The Australian Taxation Office have issued a very timely warning to all tax payers too beware of scammers who masquerade as, or claim to be from the Australian Taxation Office (ATO) in order to steal your identity, or to steal your banking and credit card details.

The ATO advise that "you may receive an SMS or email from us or notice our presence on social media sites such as Facebook, Twitter and YouTube. Our presence in this space is legitimate and can be accessed through www.ato.gov.au"

The ATO also advise that "we will never use these channels to request that you confirm, update or disclose confidential details like the following:

1. your name
2. date of birth
3. address
4. passwords
5. credit card details."

The ATO knows most of this information about you already. In my experience the only time the ATO ask for information of this kind is when you contact them, and they want to confirm your identity.

The State government, have for many years provided, through the State Revenue Office (SRO) up to three grants for first home buyers. For many people these grants amount to you getting back the stamp duty that you will have paid to purchase your home. Such grants are gratefully received by the grant beneficiaries.

Firstly you have to be eligible in order to qualify.

Eligibility criteria:

• Applicant and partner must not have ever received a grant from any State or Territory within Australia.
• Applicants must never have owned a residential property, either jointly, separately, or with another person before 1 July 2000.
• Applicants must never have occupied a residential property,for more than six months in which they acquired a relevant interest 1 July 2000 in any State or Territory within Australia.
• Each applicant must be at least 18 years of age.
• At least one applicant must be a permanent resident of Australia, or a NZ citizen with a special category of Visa.

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]]> Thu, 24 Mar 2011 10:12:31 +1100 http://www.petermulcahy.com.au/Blog/Milkwar.html editor@petermulcahy.com.au (Peter Mulcahy PNA) Blog Price discounting does no one any good as suppliers lose, processors lose, retailers lose, and ultimately governments and taxpayers lose. In the very short term consumers reap a benefit, but in the longer term they are much worse off. One of the excuses offered to the Senate inquiry into milk pricing by supermarkets was “we supermarkets have very low profit margins (because they are grossly inefficient) and therefore we have to discount the prices that we pay to producers.” Clearly, if you are selling a product at cost price you cannot and never ever will be able to make a profit. You do not need to be very intelligent to work this fact out. Yet supermarkets need to make good profits, if for no other reason than they need to pay dividends to their shareholders, who in part are funding the growth of these monoliths.

Australian farmers, like all farmers throughout the world, have never been in a a strong position when it comes to selling their produce. Generally the produce is perishable and they have to be price takers in order to sell their product quickly. So it is at present for milk and egg producers, and processors, who are being screwed by the big supermarket chains Coles and Woolworths.



Fosters Brewing have demonstrated the advantage of being in a duopoly, where there are a limited number of suppliers for a product. Fosters are reported by the Age, Melbourne 23/03/2011, as quite rightly refusing to sell to Coles and Woolworths because they were going to sell Fosters beer at below the cost of production. Clearly this is an unsustainable situation for any producer or retailer, as they quickly become financially weakened and will eventually become bankrupt. Full marks to Fosters management for having the courage to withhold supply.



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]]> Thu, 10 Feb 2011 17:03:21 +1100 http://www.petermulcahy.com.au/Blog/Watchdog.html editor@petermulcahy.com.au (Peter Mulcahy PNA) article Our banking system is run by humans who, like you and me, from time to time make mistakes. Sometimes the humans making the mistakes are the ones writing the programs that calculate your mortgage repayments, and you end up losing in two ways:
1. You can end up paying far too much interest and end up being ripped off
2. You loan takes far longer to repay because you are incorrectly paying back insufficient of the loan principal.

I believe that there are still errors in 54% of bank loan statements with 82% of those errors being in the bank's favour.

Our friends at MortgageWatchdog have been helping people for years to take on the banks and recover overpayments. The average error is $242.00 and 22,442 people have so far discovered errors and recovered their money.

Mortgage Watchdog provides software that checks the accuracy of bank loan figures. Too many people are overcharged on their home (and other) loans. With banks hiking their rates higher than the RBA cash rate increase, it is a good time to be checking your loan statements for errors.

Mortgage Watchdog are offering you a one month no obligation free trial of their software, just click on this link to view their offer.

]]> Fri, 4 Feb 2011 17:15:16 +1100 http://www.petermulcahy.com.au/Blog/refinance.html editor@petermulcahy.com.au (Peter Mulcahy PNA) blog Home owners with a mortgage will be aware that rising interest rates are eating into their disposable incomes.

Our Reserve Bank conducts monetary policy, which controls our economies rate of growth. The Reserve Banks main economic tool is the setting of cash interest rates.



The big four banks have all announced record trading profits in the last six months, and many bank customers believe that the banks have the capacity to continue passing on only the Reserve interest rate increases. However, the banks have all demonstrated that they are keen to charge much more than the Reserve rate rises, and the big banks are certain too continue trying to increasing their profits at your expense.

Consumers are fortunate that there is a lot of competition for home mortgage finance, as it is a very, very safe form of investment. It is only because there is competition in the market that the big four have not tried too push their rates even higher than they presently are.

Be prepared to shop around.

Please be prepared to shop around for home loan finance. Finding a new home loan may be a daunting task to many of you. But remember that a half a percent (0.05%) reduction in interest on a three hundred thousand dollar ($300,000) mortgage represents a saving of one and a half thousand ($1,500 ) in annual interest payments.




Exit fees

Exit fees are seen by many as a deterrent to changing loan providers and you are fortunate because the Federal Government is looking to change this predatory behaviour. Some commentators in the market say that exit fees phase out after several years have passed. A telephone call to your current lender will help you to find out what is the exact cost of breaking your loan. Paperwork is not necessarily an issue for you as mortgage brokers will do most of the work for free.

We suggest you follow these simple hints:

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]]> Fri, 21 Jan 2011 17:12:44 +1100 http://www.petermulcahy.com.au/Blog/graindry.html editor@petermulcahy.com.au blog This is a very challenging year for Western Victorian grain growers south of the Grampians. If you can get on to your paddocks without getting bogged, you are often finding it hard to get the moisture content low enough to be able to harvest and sell your grain.

When I was young I had the privilege to attend Agriculture College in New Zealand, and I lived and worked there for nearly five years.



The cropping farms on the Canterbury Plains of N.Z. were worked much more intensively than cropping farms in Australia, and they had a very narrow time window (normally only two to three days) in which too get their main cereal harvesting completed. It was quite common too work for up to 60 hours without sleep when the North West wind was blowing, in order to bring in the harvest.

An issue we often faced was getting the grain moisture content low enough to be able to harvest, and store the grain safely.

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]]> Fri, 14 Jan 2011 16:25:39 +1100 http://www.petermulcahy.com.au/Blog/benchmark.html editor@petermulcahy.com.au(Peter Mulcahy PNA) newsletter For many years the ATO has been developing industry benchmarks based upon information provided within tax returns. The ATO have become sufficiently confident in their data and since autumn 2009 have begun rolling the benchmarks out. In June 2009 the ATO had eight industry benchmarks. By June 2010 there were 58 benchmarks, and a quick check at the time of writing shows there are now 97 small business sectors covered by benchmarks. This means that if your industry isn't already covered it soon will be.

There are three categories of benchmark used:

• Performance benchmarks, e.g. cost of materials to turnover, labour to turnover etc.
• Cash sales benchmarks, e.g. your % cash sales versus industry benchmarks
• Input benchmarks, e.g. range of income versus labour and materials used.

Example:

Con, married with 2 children, is a concreter, whom the ATO happened to audit. In the tax year in question Con had declared taxable income of $18,000. Con had also taken the family back to Greece for a holiday that year. The ATO has noted that Con had been reporting a very low level of taxable income for many years.

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]]> Mon, 6 Dec 2010 17:09:03 +1100 http://www.petermulcahy.com.au/Blog/retire3.html editor@petermulcahy.com.au (Peter Mulcahy PNA) Blog The types of ownership that retirement villages offer varies, and depends upon the wishes of the developer, who largely have the whip hand. Ownership types reported within Australia's retirement sector are:
• Freehold
• Leasehold
• A company title
• Rental
• Deferred Management Fee (DMF) also known as Loan / Lease or Loan / Licence.

Freehold:

Freehold ownership within the retirement sector is rare, and is similar to the freehold that you may presently enjoy on your current home, and obviously offers the best possible outcome out from all of the options listed above.

The obvious advantages are that you have security of tenure, there is no third party manager as the village is run by a committee of residents, you have the discretion as to whether you refurbish the property before you sell, and you pay no exit fees.

However, there are disadvantages, such as limited facilities, the village is generally built by a developer who wants a quick exit, and there is no manager of the complex. In addition you are responsible for managing your own refurbishment and the eventual resale process. You may pay more at purchase in order to secure the freehold, and apartments are rare as developers prefer to build villas.

Villages offering freehold typically have a strata title, and such titles are covered by relevant State community titles legislation.

Leasehold:

Are generally a 99 year perpetual lease, negotiated with the owner of the village at the outset of the lease. You will generally own your home and lease the land that the home is sitting upon. Such a lease provides the second best ownership outcome when you come to sell the property. This type of ownership can currently attract rent assistance through Centrelink.

Company title:

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]]> Thu, 25 Nov 2010 17:06:04 +1100 http://www.petermulcahy.com.au/Blog/retire2.html editor@petermulcahy.com.au (Peter Mulcahy PNA) newsletter Well designed retirement villages are developed to cater for people from their early fifties through to their departure from this world. Such villages comprise villas, serviced and studio apartments, and hospital beds. The degree of care provided increases as you progress through your life cycle. Please refer to the attached graphic.

Villas:

Comprise 2 to 3 bedrooms and are similar to residential housing, and are designed for the independent living of residents.

Villas are normally unserviced, but often services such as cleaning, meals etc. can be provided at an extra cost. Villas can be of the townhouse style (that is detached) or may be an attached style (duplex).

Villas are built with retirement in mind and have features such as:

• emergency call buttons for expert assistance
• enhanced security
• larger bathrooms and shower cubicles with hand rails etc.

Serviced apartments:

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]]> Sun, 17 Oct 2010 16:58:50 +1100 http://www.petermulcahy.com.au/Blog/retire1.html editor@petermulcahy.com.au (Peter Mulcahy PNA) newsletter What is a retirement community / village / home?

In Victoria a retirement village / community / home is set up under State government legislation, which is administered by Consumer Affairs Victoria. Each State and Territory have their own legislation covering such establishments. Victorian regulations do not appear to define what a retirement village is.

However, Queensland has a good definitions and I quote; "A retirement village is a premises where older members of the community or retired persons reside, or are to reside, in independent living units or serviced units, under a retirement village scheme."

]]> Thu, 9 Feb 2012 14:08:06 +1100 http://www.petermulcahy.com.au/Blog/Wills.html editor@petermulcahy.com.au (Peter Mulcahy PNA) newsletter

Updated 09/02/2012

People often put off planning for the distribution of their assets and personal chattels, possibly because of our busy lives, or because we are lazy, but often because the individual cannot face their own mortality. It is an unfortunate fact that none of us live for ever, no matter how immortal or virile we may kid ourselves we are.

Do you realize that:

http://www.petermulcahy.com.au/Blog.html]]> Fri, 8 Oct 2010 16:12:06 +1100 http://www.petermulcahy.com.au/Blog/Succession.html editor@petermulcahy.com.au (Peter Mulcahy PNA) newsletter

I have met a number of individuals over my long life who "have never had a plan in my life, and I am not about to start now!" These individuals are generally grossly disorganized, and they are a good example of why you need a succession plan, because dead men and women tell no tales. You cannot come back and clear up any stuff ups you leave behind when you die. Sorting out a mess can be hugely expensive, and can cause great division within the "beneficiaries". Everyone else will lie about, forget or mess up what you told them.

You cannot come back and explain what you meant to happen, so please explain what you want to happen clearly in your Will, and if you have a business explain your intentions clearly within your Succession Plan.

Many people fail in the area of succession planning for a number of reasons. I have listed 10 reasons below, but you may be able to think of others.

http://www.petermulcahy.com.au/Blog.html]]> Mon, 6 Dec 2010 16:25:01 +1100 http://www.petermulcahy.com.au/Blog/Negative_gearing.html editor@petermulcahy.com.au (Peter Mulcahy PNA) newsletter

What is negative gearing?

Under Australian taxation laws an investment can be either positively geared or negatively geared. I have simplified the the following examples in order to make them easy for people to grasp. This will not please the technically minded, but I am not writing for them.

A Positive Gearing example:


If you invest $200,000 at 6.5% flat interest for three years,

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