Episode 107: Tax Time Tips: Maximising Deductions & Credits
14th April, 2025
In this conversation, Trudi Cowan and Sarah Eifermann discuss essential tax planning tips for small business owners as the tax season approaches. They cover the importance of understanding tax deductions, identifying business expenses, and the implications of cash flow on expenditures. The conversation also emphasizes the need to distinguish between business and personal expenses, and the significance of tax planning strategies for future financial health. In this conversation, Sarah Eifermann and Trudi Cowan discuss essential strategies for staying audit-proof, the importance of accurate record-keeping, the role of superannuation in tax planning, and the current state of ATO compliance. They emphasize the need for thorough documentation, timely lodgment of tax obligations, and proactive financial management to navigate the complexities of taxation and compliance effectively.
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Podcast Transcript Available Here
Trudi Cowan (00:10.882) Hi Sarah, welcome back. Sarah Eifermann (00:13.531) Hello, how are we all today? That's good. Trudi Cowan (00:16.128) Good, good. It's one of my topics today. Sarah Eifermann (00:19.809) It is so one of your topics today and I just said to Trinny, well, I don't have to think because if you don't know this by now, we're all screwed. So we are talking about tax time tips. Can you believe it is already like tax planning season? Year is going very quickly and this is a super important episode and knowledge piece for you. Trudi Cowan (00:24.152) Hahaha! Trudi Cowan (00:35.211) Very much so. in it. Sarah Eifermann (00:43.373) if you don't do tax planning, because you should be. And for those that do, there might be some things that have changed or things that you need to be aware of. Yeah, like what wasn't in the budget for small business owners. So, yes, that's kind of my point. Nothing, nada, zero, niente was in the budget for any of us. Trudi Cowan (00:45.44) Yeah. Trudi Cowan (00:54.232) Yeah. Trudi Cowan (00:59.69) Is there anything in the budget for small business? Yeah. Sarah Eifermann (01:11.535) The joke being now that you have to write off that new iPhone in totality because up to 20k deduction wasn't there. But you never know, they do change things last minute. maybe it'll come back around. Well, exactly. And who knows what if the Liberal Party get elected, what they'll offer instead. They do seem to have a bit of a better finger on their pulse when it comes to business. And so we'll see what we get. So why don't we go straight into it today? We're going to start. Trudi Cowan (01:19.213) No. They do and we're about to go into an election as well so who knows what the outcome of that will be. Trudi Cowan (01:35.212) Mmm. Sarah Eifermann (01:40.645) With kind of the basics, I think, sort of, it's been a long time since we've done some, yeah, and the basics of tax and the implications and things that you need to be aware of and know. So what is a tax deduction? A business tax deduction. Trudi Cowan (01:42.401) Yeah. Just a freight tax kind of chat, I think. Trudi Cowan (01:54.016) Yeah. Trudi Cowan (01:59.474) business tax deduction. And look, this is a question that I get all the time, but it's usually phrased off, can you tell me all the things that I can claim? And that's a bit like asking me how long is a piece of string, because it really does depend on the nature of your particular business and the structure of your business and lots of different things like that. But basically what we're looking at is, is that expense necessary for you to run your business? That's probably the most simple way to put it. Sarah Eifermann (02:02.469) Mmm, every day. Yeah. Sarah Eifermann (02:10.327) and Sarah Eifermann (02:24.783) Yeah, I saw her. Yeah, I saw her post yesterday that said, and it's not business, but to give you an idea, she said, my daughter is flying to Africa to do the vet program because she's a vet nurse. That's a two week program where you go and do hands on learning experience and she's employed as a vet nurse. What can I claim? And then someone said, is she taking any holidays? And she said, well, yeah, she's taking a week because she's in Africa. And they're like, well, you need to within a portion. Trudi Cowan (02:44.364) Hehehehehe Sarah Eifermann (02:54.437) the personal to the business. She's like, so I can't claim the whole affair now. No. And that goes for business too, if you're doing business travel. So. Trudi Cowan (03:01.102) Yeah, it does. And look, and again, that's another common question that I get. Well, you know, I'm going over for this conference, but I'm going to have a bit of a holiday while I'm there. And in that instance, my first question always is, are you going over for the conference and you're having a holiday because you're there anyway, or are you going over for a holiday and while you're there, you're working on a conference? And there's actually two different outcomes depending on which way you go. Yeah. Sarah Eifermann (03:20.891) Sorry, I'm getting here because Trudy and I have had this conversation quite a few times. Trudi Cowan (03:29.035) And lots of people are like, wow. And I'm like, yeah, but if you're going on a two week holiday and doing a two day conference, well, there's going to be an assumption one way versus a two week conference and staying for an extra two or three days. Sarah Eifermann (03:33.913) Yeah. Sarah Eifermann (03:39.189) Yeah, absolutely. It's all about structure. It's all about purpose. The reason that you're actually doing it as well. So if you're tacking on a business purpose to try and claim it, that don't work. You've got to be able to justify it. Trudi Cowan (03:45.272) Yeah. Trudi Cowan (03:48.864) Yeah, but really that is the basic thing. So if you're going to spend some money, it's like, I spending this money because I actually need it for my business or am I spending this money just because it's something that I want? And if it's just something that you want, then it's not necessarily a business expense. If you want it because it's going to improve your business, well then that's helpful. That's useful because it's again, you're buying it to help improve your business. yeah. Sarah Eifermann (03:55.728) Mm. Sarah Eifermann (04:08.345) Yeah. Sarah Eifermann (04:12.877) You mean like a Silverado or a Ram? Trudi Cowan (04:16.362) Yeah and that's another great example like am I you're buying a car and yes you might use it in your business but are you also using it for personal but if so if you're also using it for personal use then there's going to be some sort of apportionment or fringe benefits tax or something else that comes into play so that you're not really getting a deduction for the full amount. Sarah Eifermann (04:19.257) Yeah. Sarah Eifermann (04:23.642) Yeah. Sarah Eifermann (04:35.309) And then you need to weigh up whether or not it's worth it or viable or just spending the money because it's coming out of the business account. It still gets apportioned back to you personally, whether you realize it or not. So that's a common misconception. Okay. So in terms of what qualifies as a deductible business expense, knowing that the strings very long, what sort of things or what, would you define a business expense? Trudi Cowan (04:44.876) Yeah. Yeah. Trudi Cowan (05:01.452) Okay, so we could probably do a couple of different categories. So the things necessary to run your office. So it could be the rent for your office space and the phone and the internet and the stationery and all of those sorts of expenses. might be telephone. If you're selling a good or a product, it might be all the materials that you need in order to make that product or the cost of purchasing those products so that you can go and sell it. If you run a mechanic shop, it might be all the parts. Sarah Eifermann (05:15.184) Telephone. Sarah Eifermann (05:19.054) Mm-hmm. Trudi Cowan (05:29.902) But it's also going to be the labor, so your staff and your contractors, the superannuation that you might need to pay those. It could be large pieces of equipment and we'll get to it, but you may not be able to claim them all in the first year, but you're going to be able to claim them potentially over a number of years instead. So it's still going to be deductible just in a different way. Sarah Eifermann (05:49.627) And look, each business is so unique that you really do need to get individual advice as to what you can claim. Obviously there are some standard things like we just talked about, materials, labor, parts, equipment, basic office operating expenses, especially in the age we live now in digital technology, there could be software that you're using as well. But Trudi Cowan (05:52.131) Yeah. Trudi Cowan (06:00.191) Yeah. Trudi Cowan (06:08.938) It says. Trudi Cowan (06:13.4) Yep. Sarah Eifermann (06:15.371) whether or not you can claim that Silverado or that Ram is going to have an impact based on what type of business you have, what type of work that you do, what type of staff and crew that you have, what the purpose and use of the vehicle is. So there is no blanket ruling and it's about being clever but also compliant in how you approach your business expenditure. Buying Trudi Cowan (06:26.455) you Trudi Cowan (06:40.29) Yeah. And what I always say, if you are going to spend a lot of money, like with the car example, go and have that conversation with your accountant before you spend the money. Is this going to be claimable for me? Is it going to be fully claimable or only part? What are the things that I need to consider if I spend $100,000 on a car? Is that fully claimable or are there limits on how much I can claim for some of those things? Sarah Eifermann (06:49.273) Yes, yes. And also... Sarah Eifermann (07:01.915) Yeah. Yeah. JST for a start is a perfect example of that. yeah, yeah. Right. And I suppose this has always been in my head, but for me, there's a line between finance broker when you're just coming to me for an asset purchase versus business strategist and advisor that says, do you really need this? But Trudy often says to someone, do you actually need this? Do you need this or do you want it? Cause they're two different Trudi Cowan (07:07.054) Lecture of context limits another. Yeah. Trudi Cowan (07:24.338) Maybe. Yeah. Sarah Eifermann (07:31.835) things and at the moment with the cost of everything and cash flow tightening and delays in payments being received spending 50, 7,500, 300 K on a piece of equipment. You really need to justify it to yourself with proper cash flow before you go and purchase it. Otherwise you may find, which I am now finding with a lot of customers that they're having to sell things and they're losing money on them because the secondhand market has dropped. You know, we had that buoyancy with COVID because we couldn't get new cars in and new equipment in. it ratcheted up the secondhand equipment and plant and car market. That has the bottom has fallen out of that market. So you really need to be careful with your decision making process when you need it and do an assessment. Trudi Cowan (08:11.618) Yeah, it is. Trudi Cowan (08:16.983) Yeah. Trudi Cowan (08:23.534) And you come to another important point as well, is that a lot of people think that, well if I go and spend this $20,000 on my new car, then I'm going to get that back in my tax. Not actually how it works. All a deduction does is reduce your profit. So the tax benefit is actually only multiply that $20,000 by your tax rate. So if you're a company and you're paying a 25 % tax on it, Sarah Eifermann (08:33.273) Mm-mm. Mm-mm. Trudi Cowan (08:49.26) your benefit of that $20,000 deduction is a $5,000 tax benefit, right? So it's not the full amount back. So if you are having cashflow concerns, you're not spending that 20 and getting that 20 back, you're spending that 20 and maybe getting a 5K benefit, you still have a pocket 15 grand. So if it's more of a want than a need, you do really have to take into account your cashflow implications of that expenditure as well. Sarah Eifermann (09:00.56) Yeah. Sarah Eifermann (09:12.899) And when Trudy and I first met very long time ago, she drew me stick figure diagram. It was to explain fringe benefit tax and franking credits at the time. But the same thing would apply here. So if you were to draw a stick figure diagram and say the profit was 100k and the deduction was a 30k purchase, so you bought a trailer for 30k, what would that do in terms of actual figures to the tax? Because you don't... Trudi Cowan (09:21.815) and Sarah Eifermann (09:42.235) save 30k in tax, you save a percentage based on the deduction. So on the 100k, we would add 25 % if you were a company. Is it still 25 % or has the tax bracket changed as well? Yep. Trudi Cowan (09:45.058) No. Trudi Cowan (09:52.078) and you'd small businesses, it's 25 % in a company. So it'd be 25,000 tax on 100 grand profit, right? If you have a $30,000 deduction, your profit comes down to 70,000. And so then 25 % of 70, Sarah, you got your calculator in front of you. Sarah Eifermann (09:59.875) Right and Sarah Eifermann (10:11.931) Yeah, 70,000 times 25 % would be $17,500. So we're saving $7,500 for spending 30. But often most people borrow and leverage the debt. And so they save $7,500. But then they have to pay a loan and most businesses take it across five years. Trudi Cowan (10:18.286) Alright, so you're saving the difference between the 25 and the 17 and a half. Trudi Cowan (10:39.394) Mm-hmm. Sarah Eifermann (10:39.643) So you're now paying a debt across five years. And if we just give a very basic calculation on that 30,000, in fact, I'll put it into my lending calculator. 30,000 on five years, whoops, that's receipt bank, Dex, that's not my calculator. They've got the same color. 30,000, we'll just say it's saying 9 % because it's about the rate depending on what we're buying over five years. Over five years, you're to pay $623 a month. 623 times 60 months. It's going to cost you $37,380. Trudi Cowan (11:20.174) You're not really making a saving. Sarah Eifermann (11:21.915) There's, well, 7500 minus 738, you're saving a total of $120. Trudi Cowan (11:25.356) What you're saving in tax, you're paying in interest. Trudi Cowan (11:32.05) Hmm, suddenly doesn't make the introduction so impressive. Sarah Eifermann (11:33.679) Like that's a very basic calculation, but it makes zero sense at all, doesn't it? So how do we then distinguish between business and personal expenses? Trudi Cowan (11:46.612) It really comes down to purpose. What was the purpose of the expenditure? And when there's a personal purpose, then it really is personal expenditure. Sarah Eifermann (11:59.535) Bless you! Trudi Cowan (12:01.252) big sniff. Where there is personal... Yeah, I'm already... Sarah Eifermann (12:03.653) She's allergic to tax. It's mornings, yes. Trudi Cowan (12:11.274) Where there's a personal component to the expenditure, then we really do need to split that out. So if the expense is entirely in personal nature, for example, you are buying a car that your partner who does not work in the business is going to drive around and use, that's an entirely 100 % personal use vehicle. So there's going to be some implications on that. Depending on your structure, it's either just straight, not deductible, or there's going to be some fringe benefit tax implications, which effectively makes it. Sarah Eifermann (12:25.391) Mm-hmm Trudi Cowan (12:39.116) non-deductible. If there's a split purpose, so for example, the travel example we talking about earlier, then there's going to be a division, I guess, of which component can be claimed in the business and which component needs to be treated as personal. Sarah Eifermann (12:54.523) Yeah, which means log book has to be maintained to achieve that calculation. Absolutely. Trudi Cowan (13:00.812) Yeah, yeah. And look, lot of those sort of things, you know, it comes down to documentation and having that documentation to support. If you're wanting to claim to the business, the documentation to support that it is business and this is the reason why it's business. And here's my log book or my travel diary or whatever it might be to prove that there is that business purpose there. Sarah Eifermann (13:16.537) Yeah. Sarah Eifermann (13:21.369) And so the next thing would be, it's very hard for people to do tax planning if their books are not up to date, if they haven't got their bazzes up to date and they haven't potentially got their depreciation calculations all sorted from the previous year and added in. But prepaying expenses is one that is a very common for an immediate deduction. Obviously the instant asset write off is another. We'll do prepaying expenses and maybe then we'll jump back to instant asset write off. Trudi Cowan (13:27.084) Yes. Trudi Cowan (13:36.238) Hmm. Trudi Cowan (13:43.053) Yep. Trudi Cowan (13:51.665) So prepaying expenses can work if we're paying something that is for less than a 12 month period. So for example, you might prepay your rent for a couple of months or you might pay an insurance premium that actually covers the next 12 months, but you still get the deduction now when you're paying it rather than having to apportion it over that 12 month period. Software subscriptions is another one that's common. You might pay for sort of a 12 month. Sarah Eifermann (14:06.619) 12 months, yeah. Yeah. Trudi Cowan (14:19.214) period. Yeah, look, the key thing is that 12 month period and it's also helpful that the service has sort of started. You know, if you're literally prepaying, I'm paying a deposit for some goods that I'm not getting for six or 12 months time and that's a different sort of situation because you haven't been provided any component of that service or good yet. It's a deposit as opposed to a prepayment. Sarah Eifermann (14:43.941) which is a very nice segue back into instant asset ride off and ensuring that the vehicle or piece of equipment is in your hot little hands before June 30. So. Trudi Cowan (14:55.842) So let's just take a step back for a second. So anyone that doesn't know the instant asset write-off is basically a rule within the tax provisions that allows you to 100 % deduct an asset under a certain value and it's only available to small businesses. So over sort of recent years, the government's been tinkering with that limit every year and changing it every year. Sarah Eifermann (15:15.428) Mm-hmm. Trudi Cowan (15:17.998) So to 30 June 2025, that limit is $20,000. So anything under the 20,000 you can claim in the year that you purchased the asset and that you have it in your hot little hands, as Sarah would say. From 1 July 2025, that limit is $1,000. And so anything over the $1,000 will need to be depreciated over a period of time rather than claimed in that one single year. So it's actually a really important tax planning point for the current financial year. If it is in your business plan to be purchasing some new equipment or some larger items, it may be worthwhile. I did just throw a business plan at that statement because it should be part of your plan, not just something you want. So it's part of your plan to be spending some money. Maybe the plan was July. Well, maybe it is worthwhile considering bringing it forward to June so that you can get that instant asset right off deduction. Sarah Eifermann (15:54.171) Here's where it's business plan in that statement. Yeah, that's right. That's right. Sarah Eifermann (16:10.553) because of the changing tax laws. Yeah. Trudi Cowan (16:13.75) rather than buying it in July and then having to depreciate it over multiple years. But it does go both ways. I do have clients in certain circumstances where it is actually better to wait till the July because the depreciation actually works out better for their particular business. Sarah Eifermann (16:25.179) And it depends on your income. Like if you have had a really crappy year, but you know you've got a contract starting in next financial year, that's going to be very lucrative for you. Maybe get you back on track. Maybe you hold the deduction. That's what tax planning is to reduce any potential profit that you may be in next year so that you're not paying tax. Cause everyone knows I have paying tax. I pay plenty. Trudi Cowan (16:29.71) Mmm Trudi Cowan (16:34.574) Yeah. Trudi Cowan (16:38.605) Yep. Trudi Cowan (16:44.087) Yeah. Trudi Cowan (16:47.434) Yeah and look and tax planning is a really important thing that it's not just about the year that you're in. You should also be looking at the next year and what's the plans for the next year so therefore is it better this year to do something or is it better to hold off and do something next year and what are the plans look like in both of those years not just a single year. Sarah Eifermann (16:52.484) No. Sarah Eifermann (16:56.122) Yeah. Sarah Eifermann (17:04.291) And the kicker with that is that you need to have your tax done. These people that wait and do their tax in March in the year after it's due and you've been trading for what, nine months with no knowledge of what your previous tax position was, that's not okay. I know a lot of people do it and it's about cash flow, but get ahead of that game because it is not doing you any favors. Trudi Cowan (17:12.864) tell me about it. Trudi Cowan (17:30.49) But it's not about cash flow because just because I do your return doesn't mean I have to lodge it. Sarah Eifermann (17:36.483) A lot of my clients hold it solely because of that reason. I agree with you. It's not. You can do your return and not lodge it. Trudi Cowan (17:36.64) I can do your rich pit. Trudi Cowan (17:42.24) I can do it in July and August and have it done. You know exactly how much you're going to owe, but we can hold off lodging it until you get that longest period to pay. Sarah Eifermann (17:50.329) And so for the dates, if it's lodged by 31st of March, no, what are the dates? Tell us the dates again. Trudi Cowan (17:56.396) So if it's lodged after about, it's about mid-March, then you get until 15th of May to pay. In some years, there've actually been extensions on that to the 5th of June. But really mid-March is that point, as soon as it's lodged after that. So there's actually no need to hold it until the 15th of May, which is the last due date. You get that due date even lodging it after mid-March. Sarah Eifermann (18:07.428) Yeah. Sarah Eifermann (18:19.161) Yeah, so you could do your tax in August, sit on it till mid-March with your accountant. It makes your accountant's life so much easier. And then lodge it and still get a payment date. So the cashflow argument is null and void if you come to me or Trudy really. Trudi Cowan (18:24.59) Yeah. Much easier. Trudi Cowan (18:31.978) It doesn't No. And if the cashflow argument is about paying your accountant, then you have bigger cashflow problems. Sarah Eifermann (18:41.551) damn straight. It's yeah, a common concern. I suppose for people, what's the difference between international ride off and temporary expensing and is temporary expensing even something that we can look at at the moment or is a gun? Trudi Cowan (18:54.072) So temporary expensive was something that just came in during COVID. And so it worked in the same way and then it allowed you to write off the cost of the purchase of an asset, but it was available to a wider group of businesses and had a much higher limit. That is now gone and isn't applicable anymore. So the instant asset write off is the only thing that we have. Sarah Eifermann (18:58.885) COVID? Yeah. Sarah Eifermann (19:08.238) Uh-huh. Sarah Eifermann (19:14.277) Mm-hmm. Okay, so the common thing that I say to clients when they ask me for stuff and they think they're being clever is how would that stand up if you were audited? So what are your suggestions to stay audit proof and what can you recommend for people? Trudi Cowan (19:33.356) I mean, it's all about documentation and having support. So I have a lot of people that go, well, I've got a bank statement. A bank statement doesn't tell me anything about the purpose of the expenditure. It doesn't tell me whether there was any GST on any of those items. It doesn't tell me exactly what you bought from Officeworks. Was it a bucket of lollies or was it a computer or was it some stationary? There's a wide range of things that I could have. Sarah Eifermann (19:47.291) door. Trudi Cowan (19:58.23) it could have been. Same with bunnings. Did you buy some materials and some wood or were you out buying plants which are completely unrelated to your carpentry business, right? Not having that detail is where the problems can come and arise. Yep. There's decks, there's Hubdoc, there's a Smartdoc, there's a couple of different ones around now. Sarah Eifermann (20:01.071) Mm-hmm. Sarah Eifermann (20:11.811) Yeah, so software like Dext is actually or the hub doc or this. Yeah. And some of the programs have native inbuilt receipt, digital receding. Trudi Cowan (20:25.046) Yeah, I think MyUp has its own sort of native product, but what they do is they basically, you send in your receipt, it pulls out some of the data, connects it with your accounting software and means importantly, that receipt, that document is attached to the transaction from the bank. Sarah Eifermann (20:38.063) Yes, so not only does it save you time on reconciliation in your books or your accountant, it actually gives you the audit trail that you really need in case you do get audited. And also something to bear in mind, those ticket rolls that you get, you your receipt rolls that you get out of shops, they fade. So if you haven't taken pictures of them, if you put them into a shoe box for five years and then you get audited, you may not have the documentation that you need to actually... Trudi Cowan (20:45.773) Yes. Trudi Cowan (20:53.602) Yes. Trudi Cowan (21:00.398) 12 months even. Sarah Eifermann (21:05.627) I had one from like six weeks ago that's faded already. was like, yeah, but mine are all picture taken. Trudi Cowan (21:05.902) Yeah, just, yeah, yeah, they don't last very long these days. And, and look, and the reality is without a receipt to confirm that deduction, then potentially the ATO on a review can say, well, no, you can't claim that GST credit. And no, you can't claim that deduction because you can't actually prove to us how that is relevant as a business expense. And you can't actually prove to us how much the GST was on that. And unfortunately, in tax, there is quite a burden of proof on the taxpayer to be able to prove these things. Sarah Eifermann (21:33.785) Yes. Yes. You're guilty until proven innocent in the tax department. Trudi Cowan (21:35.854) And then the other types of things that are really important to keep as well is it's not just about the receipts, it's also about the log books for your card, the diary records for your travel, loan documentation, really important to keep that as well. If there's personal loans, so if you've lent money to the business or the business has lent money to you or an employee or someone, Sarah Eifermann (21:45.071) Yep. Yep. Sarah Eifermann (22:00.473) Yes, vice versa. Trudi Cowan (22:02.316) Document all those things. It doesn't have to be a big formal legal document in some cases, depending on how much money we're talking about, but even just a one-pager or a company minute to support that this is what we've done. If you're doing dividends, let's make sure we're doing those company minutes to declare those dividends and we're doing dividend statements to ensure that we're properly documenting exactly what's happening. Sarah Eifermann (22:10.64) Yeah. Sarah Eifermann (22:18.87) Hmm Sarah Eifermann (22:25.997) they have to be done before June 30. You can't administer a dividend after that. So if you were planning on doing one to save on tax, too late. Which is why tax planning is so important. Trudi Cowan (22:29.772) Yes. Yeah. Trudi Cowan (22:36.974) Hmm. Trudi Cowan (22:41.07) An important way to actually kind of look at it is that your accounting records should actually be recording what has happened. It shouldn't be the happening of the thing. So just doing the journal entry isn't necessarily enough. The journal entry should just be recording what you've actually actioned. So whether that's actioned by paperwork or discussion. Sarah Eifermann (22:47.917) Yeah, that's the point. Yeah. Sarah Eifermann (22:58.895) Yeah, the formal documentation is the company minute, not the journal entry into zero. Right. So you do the company minute if you don't know how to do a company minute, let us know we can give you a template. They're very simple. You can put it in chat GPT to give you a company minute template. Like you can use them for all sorts of things. I'm putting in 10 grand into the business. Here's a company minute for the date, the time, the amount, the payment receipt, the journal. Trudi Cowan (23:04.586) Yeah, that's the action. Yeah. Yeah. Trudi Cowan (23:11.918) It helps. Trudi Cowan (23:17.132) Yeah, that would drop you off a minute. Trudi Cowan (23:27.574) Yep, the reason why I'm doing it. Sarah Eifermann (23:29.273) The journal entry number. The more documentation you have, the more you can demonstrate compliance to the tax law, which the less likely you are to have issues with the ATO. The other thing I often get said is, well, no one's going to audit me. Are you dreaming? With the change to digital record keeping and the data that the ATO now has about Trudi Cowan (23:47.726) Are you sure? Sarah Eifermann (23:56.539) statistics of earnings within each industry. If you were trying to dodge via cash or writing things down, they just look at their benchmarks and go red flag, red flag, carnival size red flag. We're ordering everybody on that list. Bang. And they can cost you tens of hundreds of thousands of dollars depending on your business. Trudi Cowan (24:00.429) Yep. Trudi Cowan (24:11.96) Yep. Yep. Yep. Yep. that in most cases an ATO review starts off quite simple. And if you're able to respond to their questions quite easily and have supporting documentation for those questions, it can very quickly and easily go away because they can see that you're doing the right thing and that you have the information available to support that you are doing the right thing. Sarah Eifermann (24:23.813) Mm-hmm. Sarah Eifermann (24:32.015) Yes. Trudi Cowan (24:40.674) as And the other thing, the ATO is not stupid. They can, in many cases, tell when the document was created two years ago when you said it was, and when it was very quickly created in response to an audit letter. Sarah Eifermann (24:52.953) Yes, exactly. Exactly. So. Trudi Cowan (24:58.542) In terms of keeping all these documents, I mean the general rule is five years, but an important thing to note is if for example you're buying a car, you really should be keeping the purchase documents until five years after you sell the car. Sarah Eifermann (25:03.739) Mm-hmm. Sarah Eifermann (25:15.57) that's annoying. That's like my home loan document requirements. Trudi Cowan (25:17.834) Okay, so there's certain circumstances where it's not necessarily just a straight five years. I had a recent one which was not business related but I had a personal case they'd sold a home and they were claiming the main residence exemption and the ATO wanted evidence from 10 years ago that they lived in the property. Sarah Eifermann (25:39.419) Mmm, fun times. Trudi Cowan (25:41.366) Right, so even just sometimes the five years is not enough when we're talking about larger assets that you are holding for a long period of time. Sarah Eifermann (25:49.431) I mean if you look at it objectively we know that the country is not doing well economically So if the government can find ways to not pay out your deductions That gives them more money So you Correct yeah Trudi Cowan (26:00.182) Mm-hmm. Yeah. But it's also the benefit of electronic record keeping because it's not like you then have to keep a very large filing cabinet with all of your documents in it. Just save it electronically by year or some sort of logical system for you. And then it's very easy to keep those purchase documents. And if you had to go back and look, then it's easy to find them and obtain them. Sarah Eifermann (26:09.659) You Sarah Eifermann (26:15.642) Yeah. Sarah Eifermann (26:21.571) Yeah, which was like when I sold my investment property and I was like bang, bang, bang. Here are all the valuations from when I moved out. Here are all the statements, everything else. And it makes Trudy's life easier, but it also means if I do get audited on that sale, I've got proof of and evidence of all the different outcomes that protect. Yeah. Trudi Cowan (26:37.97) the different things. Yeah, so look, five years unless we're talking a larger asset that you're holding for a longer period, in which case five years after you sell. So just keep all that stuff electronic so that you've got it if you ever need it, a much easier way of doing it. Sarah Eifermann (26:47.961) Yep. So what about superannuation? Superannuation tax planning kind of go hand in hand, but they're often forgotten about, especially when super can be business, but super can also be personal. So. Trudi Cowan (27:02.484) Yeah, superannuation when we're talking about businesses is a bit of a tax planning tool and it does depend on your structure again. If you're earning income as a sole trader or you're earning your income just from a trust distribution, you're not having any superannuation paid into your account like an employee would. Sarah Eifermann (27:10.075) Mm. Sarah Eifermann (27:19.331) because you're not legally required to, right? So, yeah. Trudi Cowan (27:21.774) because you're not legally required to in those circumstances. So in those circumstances, the superannuation then becomes a tax planning tool because you can claim a deduction for personal superannuation contributions. But it's also important to note that when you claim that deduction, the superannuation fund then taxes your contribution at 15%. So depending on your earnings, if you're a low income earner, it then sort of becomes a balancing point of where it's worthwhile claiming that deduction. But Sarah Eifermann (27:29.807) Mm. Sarah Eifermann (27:40.752) Yes. Trudi Cowan (27:49.856) If you're a higher income earner, then typically you're paying a higher tax rate than 15%, so therefore it's worthwhile. Sarah Eifermann (27:53.061) Do you, putting you on the spot, do you know the tax scale for where the deduction, well, the rate changes at the moment? Like what's considered a low income earner? So up to like 35K or? Trudi Cowan (28:05.474) Well, mean, pretty much once you start paying, once you get off the tax free threshold, you're paying at 16%. Okay. Sarah Eifermann (28:12.315) Okay, so is that now 23,000? Is it still 18? I had heard that they were going to change it, but I didn't check to see whether or not they have. Bear with us one moment. Trudi Cowan (28:16.686) I think it's still. Trudi Cowan (28:21.198) There is new rates for this year and I really need to have these in my head but it is coming up very quickly but I'm still working off 2024 rates at the moment. Sarah Eifermann (28:26.075) I was gonna say it's coming up pretty quickly, so yes. Sarah Eifermann (28:32.763) And to be fair, had been what, 18200 for a very long time as the tax reflection. Okay, so it's still 18200. Right. Trudi Cowan (28:36.942) Yeah, so 18, still 18,200. Yeah, but the other thing to look at is that you're only paying that 16 % once you get over the 18,200. So for example, if you're only at 19,000, the average tax rate is not 16%. Okay, it's going to be much, much lower. So in that sort of, I guess, zero to maybe 45,000 on an average basis, sometimes you're below that 15%. So it's not worth claiming the tax deduction. Sarah Eifermann (28:46.041) Yes. Mm-hmm. Sarah Eifermann (28:52.792) No. Trudi Cowan (29:06.936) for the superannuation contribution. Okay, once you're owning over that, it typically is worthwhile. Sarah Eifermann (29:07.405) super yeah unless yeah unless you're really keen to build your superfund balance up for whatever reason that looks like future planning yeah yeah because then do you still then pay the tax in the superfund Trudi Cowan (29:16.834) Well, in that case, you still make the contribution, but you don't necessarily claim the tax deduction. Yeah. Trudi Cowan (29:25.91) Not if you don't claim the tax deduction, there's no tax in the superfunding. Sarah Eifermann (29:28.025) There you go, right? So that's where the win is. You can still put the money in, but you've been taxed on the total amount of earnings that you had and you still make the contribution, a non-concessional contribution in that instance. Trudi Cowan (29:38.478) Now, if we're talking about say a company and you're paying yourself a wage, so you are receiving some superannuation with your wage, it can still be a planning tool because depending on how much you're paying yourself as a wage, you may still have some limit available in your cap to make another lump sum contribution and to claim a tax deduction for you. And this all comes down to what's your cash flow like? What is your exact tax situation looking like? What are your plans at the moment? Are you in a position where, you know, really trying to increase your superannuation balance is a relevant plan for you or is that just not something that you're focusing on at the moment? And none of those situations are right or wrong. It's just what is right for you right now and in this particular year. And definitely something that you should be discussing with your accountant as you're working through your tax plan. Sarah Eifermann (30:30.095) Yes, completely. So, let's get into the fun stuff. What's ATO compliance like at the moment and have there been any recent changes post budget or just climate? Trudi Cowan (30:35.278) Thank you. Trudi Cowan (30:43.074) Look, nothing post budget, but it's very much ATO is chasing hard. The kind, gentle ATO of COVID is gone. no, not anymore. And they are chasing really hard. Like I've had instances where a BAZ was overdue by literally a couple of days and I received a phone call from the ATO asking when they were going to pay the BAZ. So. Sarah Eifermann (30:47.727) Yeah. Sarah Eifermann (30:52.866) You mean they don't want to be your bank anymore? Trudi Cowan (31:07.116) There is no leniency or waiting periods anymore. I'm seeing debts go to debt collectors. I'm seeing reporting to credit agencies. We are seeing a very high increase in the use of director penalty notices, which can make a director liable for the company's outstanding taxes, makes you personally liable. So all these things are definitely happening. Sarah Eifermann (31:28.335) Yep. Yes. Sarah Eifermann (31:33.635) And also bear in mind that a lot of, as we discussed in our previous episode with Lynne Walton, a lot of the reporting entities now are sharing that information with people like Access Intel or Creditor Watch. And so the lenders are getting real-time knowledge of your ATO debt and non-compliance. So they may be, especially if you've got commercial facilities overdrafts. Trudi Cowan (31:45.026) Yep. Trudi Cowan (31:54.284) Yep. Yep. Exactly right. Sarah Eifermann (32:00.109) they may, when they do their annual review or immediately upon notification, call in your facility. And if they call in your facility, you're in big trouble if you don't have the cash to pay it out. Trudi Cowan (32:09.582) Yeah. Yeah. And then the other thing that I'm seeing is a lot more penalties if you are late in lodging your documents. Okay. And those penalties can get quite high, like a thousand dollars for a BAS. So even just logging... Sarah Eifermann (32:19.331) Not me. Sarah Eifermann (32:23.001) Yeah. Geez. Wow. Okay. Have they ever been in place? Like, I mean, obviously they're a legislator, but have they ever used them? Trudi Cowan (32:29.442) They've always been there, they've just been a bit more flexible in what circumstances they've applied them. These days it seems to be one warning and then we are putting that in place for penalties. Sarah Eifermann (32:33.242) Yeah. Sarah Eifermann (32:41.647) Well, to be fair, I did have a client get a rather large tax default whacked on their credit file, which meant they couldn't get facilities to enable them to trade, which meant finding the money to pay out the defaults being fun for me. And then when they went on payment plan, they then were able to get it removed. But Trudi Cowan (32:55.128) Mm-hmm. Trudi Cowan (33:00.942) or maybe it, yeah. Sarah Eifermann (33:04.641) if they had had. Yeah. Yeah. Yes. Trudi Cowan (33:04.846) So look, the message really is lodge your stuff on time. Even if you can't pay it, get it lodged on time. And if you can't pay it, get on a payment plan. Sarah Eifermann (33:15.355) payment plan and ring them yourself. This is the other thing sometimes individually ringing them yourself now is much better than your accountant trying to ring. Yeah. Trudi Cowan (33:22.144) I have actually seen that as well that, you know, there's certain ones that I can get through online or that I can do myself. But if you are in a position where you've got a quite large amount owing or I can't do it online because you had previous defaults, then in many circumstances, I am finding that the business owner is having more success with the ATO than we are. Obviously, accountants were all more than willing to try and help you. But if you can get a better outcome by bringing yourself, it's definitely worthwhile. Sarah Eifermann (33:35.995) Mm-hmm. Sarah Eifermann (33:48.727) We have a mutual client as well that had been on a payment plan and needed to put her next spas on a payment plan and we were like, you need to ring. Trudy is not going to be able to Trudy tried. She's like, I can't get the second rollover in. And then she rang up and she got it immediately. I was like, wow, like that's a massive difference. Trudi Cowan (34:04.418) Yeah. And look, the other thing to note is that when you do go on an ATO payment plan, there are conditions associated with those plans. So, and they are that you make the repayments as required, that you make any future lodgements and payments on time. Okay. So there is an expectation that if you get a payment plan for one BAS, the next BAS will be both lodged and paid by the due date. Okay. Not put on. Sarah Eifermann (34:09.743) Mm-hmm. Mm-hmm. Sarah Eifermann (34:30.691) not on a payment plan. Trudi Cowan (34:33.678) another payment plan. It does not say the ATO won't do it, but they are making it a lot harder to do. And we're seeing a lot more instances where they're wanting to actually see a lot of data from you around, well, what is your business income? What is your business expenses? Can you actually afford this payment plan? They're really looking to see, I think, whether businesses are actually viable or whether they should take more serious action and just wind this business. Sarah Eifermann (34:45.306) Yes. Sarah Eifermann (34:52.877) Mm-hmm. It's all right. Trading insolvently and just kicking the can down the road. So as a final takeaway from today, I have two. One, do your cashflow forecasting. And if you don't, you are a muppet because it will impact things like this. And two, make sure that you're not using the ATO as a bank because it will not work for you moving forward. Trudi Cowan (35:00.418) Yes. Trudi Cowan (35:06.263) Hahaha Trudi Cowan (35:11.544) Yeah. Sarah Eifermann (35:19.001) And therefore you need to be thinking about it now whilst you've got it under control what that will look like in six, nine and 12 months time, because I guarantee you, won't be able to ring up the ATO and ask for an extension. They will just say no. And if you don't, they'll hit you with a DPN, which will impact your credit score, which means you're up that creek without a paddle. Trudi Cowan (35:32.622) I will just say no. Then that makes life very difficult for you. Trudi Cowan (35:41.89) Yeah, my two would be same. Make sure you're on top of your ATO compliance. And if you're not get someone to help you, whether that's a bookkeeper or an accountant or whoever it might be, get someone in to help you manage those obligations. And the second one would be it is tax planning time. So all of the things that we've talked about today are things that you should be speaking about with your accountant. We've spoken very generally about all of these things. But an accountant that knows and understands Sarah Eifermann (35:47.087) Yeah. Sarah Eifermann (35:59.663) Yes it is. Sarah Eifermann (36:05.691) Yes. Trudi Cowan (36:11.306) your business and the type of business that you operate is going to be able to be a lot more specific with you around the things that you need to claim, the documentation that you need to be keeping and where tax savings can be made by proper planning. Sarah Eifermann (36:13.829) Yeah. Sarah Eifermann (36:26.041) Yes, and do not wait for June 25th, as in June 25th of 2025. Trudi Cowan (36:30.722) You know what, know a lot of accountants that actually just go on leave about June 25th till about mid July and are like, well, if you can't get organized before then, that's a you problem, not an us problem. So interesting. Sarah Eifermann (36:35.001) Yeah, for that reason. Sarah Eifermann (36:39.865) Yeah. Yeah. Yeah. Awesome guys until next week. I don't even remember what we got on next week. What do we got? there we are. Thriving Amid Economic Uncertainty, aptly titled for where we're at. You've been listening to Financial Fofu. Feel free to drop us a line. We're still waiting for some suggestions on episodes. Obviously we're doing very well if no one's had any. So we'll speak to you next time. Cheers. Trudi Cowan (36:54.904) So good. Trudi Cowan (37:05.651) you Bye.