Macquarie Update - November 2006
Welcome to the November Newsletter. This month’s quote is: “Never confuse motion with action” Ernest Hemmingway Tax Office GST Audits According to David Vos, the Inspector General of Taxation, an office that is akin to a tax ombudsman, “There is a question whether [ATO] auditors are adequately skilled and whether the targeting is not well done because of the low strike rates.” “GST is a transaction tax.  It is important taxpayers know they are complying and, if there is any risk it is better to engage sooner than later”. The Tax Office collected a net $37.4 billion in GST last financial year, but its compliance activities – including demands for payment and formal audits – raised only an extra $1.6 billion, including penalties. The question to ask therefore is whether compliance by taxpayers is so strong or whether the audits are not well targeted. As experts dealing with the ATO on a daily basis, you should contact us if the ATO indicates that an audit is likely so we can minimise the intrusion, disruption and cost of the audit. Further the ATO attitude regarding errors that had a neutral impact and not GST collected has been highlighted by recent ATO activity and the comments below.  “Corporate Tax Association director Frank Drenth said it was inappropriate for the ATO to charge interest on transactions that were revenue-neutral where the taxpayers had made mistakes. He said that the ATO often argued “nonsense” that GST was collected for state governments and therefore needed to charge the general interest charge. In a speech last month to the Corporate Tax Association, deputy commissioner Mark Jackson defended the ATO’s treatment of wash transactions, where GST has not been paid or claimed. He said that the GST law was “unequivocal” in its demand that someone had to pay the GST and someone had to claim it – even if there was no net effect on revenue. “We had no scope to ignore the design of the law.  It is clear and unambiguous,” he said. Clients should be careful in assuming that a GST omission can be disregarded where no net impact to the ATO arises. Is discounting to get new customers worthwhile? As interest rates rise, more clients may feel the pinch of reduced consumer confidence and declines in the disposable income of their customers. The tables below show the impact of discounting (and price rises) at given gross profit levels.  As you will see, sometimes a price increase is far more effective than discounting to achieving higher gross and net profits for your business.  Using an example of a business with a gross profit of 10%; if prices are increased by 2%, the business can sustain a loss of 17% on its sales volumes without an impact on gross profit.  Any reduction in sales volumes below 17% means that the loss of customers through higher pricing has actually increased gross profit notwithstanding a decline in customers. So often, it is the slow paying, complaining customers that leave anyway meaning that any reduction in overhead in dealing with such customers further cushions the impact. We have the experience and tools to help you in these times when your business is facing greater challenges.  Please feel free to discuss implementation of effective profit improvement strategies with any of the team at the firm. Current Gross Profit % % Price Increase 10 15 20 25 30 35 40 50 Percentage that sales can decrease before total gross profit reduces 2 17 12 9 7 6 5 5 4 3 23 17 13 11 9 8 7 6 4 29 21 17 14 12 10 9 7 5 33 25 20 17 14 12 11 9 10 50 40 33 29 25 22 20 17 15 60 50 43 37 33 30 27 23 Current Groos Profit % % Price Reduction 10 15 20 25 30 35 40 50 Percentage that sales must increase to maintain total gross profit 2 25 15 11 9 7 6 5 4 3 43 25 18 14 11 9 8 6 4 67 36 25 19 15 13 11 9 5 100 50 33 25 20 17 14 11 10 - 200 100 67 50 40 33 25 15 - - 300 150 100 75 60 43		Land Tax Threshold – 2007 On 13 October 2006 the NSW Office of State Revenue notified on its website that the land tax threshold for 2007 is $352,000 (unchanged from 2006).  Land tax is levied in each state of Australia and applies to most land that is not the home of the owner.  Responsibility for lodgement of a land tax return advising the land tax authority in each state of the properties subject to the tax as at 31 December each year is the responsibility of the owner.  Substantial penalties apply for non-compliance.  With improved data matching capabilities existing in all States, please contact us if this is an area where you need help with complying with your obligations.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.