October 2025

NDIS Bookkeeping: Why ‘Good Enough’ Isn’t Good Enough for Compliance

The Hidden Financial Risk in Your NDIS Business For NDIS providers, the focus is, rightly, on delivering exceptional support and services to participants. However, the financial and compliance requirements of operating within the scheme are complex and unforgiving. Unlike standard small businesses, your bookkeeping is not just about tax—it’s about compliance, audit-readiness, and the very viability of your business. Settling for “good enough” record-keeping; a messy spreadsheet or generic accounting software is a fast track to headaches, delayed payments, and, critically, non-compliance penalties from the NDIS Commission. Here are three core areas NDIS businesses must master to ensure their bookkeeping is robust and audit-proof: 1. Master the NDIS-Specific Invoicing and Claiming Process The NDIS funding model is unique, and your bookkeeping must reflect this complexity. NDIS Price Guide Alignment: The NDIS Pricing Arrangements and Price Limits document changes regularly. Your system must be agile enough to apply the correct item codes, pricing caps, and rules (e.g., non-face-to-face support, travel) at the time the service is delivered. Charging over the cap or using the wrong code can lead to a rejected claim. Detailed Service Documentation: Every claim must be substantiated. This goes beyond a simple invoice. Your records must link the financial transaction to the actual service delivery. Essential records include: Participant name and NDIS number. Date(s) of support delivery. Support Item Number and clear description. Quantity (e.g., hours or units) and unit price. Evidence of service delivery (e.g., signed timesheets, shift logs, or case notes). GST Treatment is Not Simple: While most NDIS supports are GST-free, some specific items or general business expenses are not. Misclassifying GST can result in incorrect charging, which creates compliance issues and affects your Business Activity Statement (BAS) reporting. 2. Differentiate Income by Funding Source NDIS participant funds can be managed in three ways: NDIA-Managed, Plan-Managed, or Self-Managed. Each method has a different claiming and payment pathway, and your bookkeeping system must track and reconcile all three. NDIA-Managed (Provider Claims): You claim directly via the myplace provider portal. Your records must match the NDIA’s system exactly to ensure prompt payment. Plan-Managed (Invoicing Plan Manager): You invoice the participant’s Plan Manager. You must include all required invoice details to avoid delays caused by the Plan Manager needing to query or correct errors. Self-Managed (Invoicing Participant): You invoice the participant directly, who pays you from their NDIS funds. This requires careful tracking of payment due dates and follow-up. A robust system segregates these income streams, allowing you to quickly reconcile payments, identify outstanding debt (especially from Plan Managers or self-managed participants), and forecast cash flow accurately. 3. Embrace Technology for Compliance and Efficiency Manual systems (like Excel spreadsheets) are too error-prone and time-intensive for the demands of NDIS bookkeeping. Integrate Your Systems: Look for cloud-based accounting software (like Xero or Myob) that can integrate with NDIS-specific management tools (like ShiftCare or SupportAbility). This allows support workers to log shifts, which then automatically flow through to invoicing, eliminating manual data entry errors. Secure Record Retention: NDIS rules require you to securely store all financial and service delivery records for a minimum of five years. Cloud-based storage is essential for accessibility, security, and audit-readiness. Automate Payroll Compliance: Staff wages in the NDIS sector often fall under complex awards (like the Social, Community, Home Care and Disability Services Industry Award – SCHADS Award). Your payroll system must be accurate and compliant with Single Touch Payroll (STP) to avoid penalties and ensure staff are paid correctly. The Takeaway Your bookkeeping system is the backbone of your NDIS or allied health business. Investing in the right processes and specialist knowledge isn’t a cost; it’s a foundational necessity for both financial sustainability and continued compliance. If you’re unsure, consulting with an NDIS-specialist bookkeeper or accountant is a worthwhile strategic move. You may also like: Beyond the Books: The 3 Key Numbers Every Australian Allied Health Practice Must Master in 2025

Accounting

Moving Your NDIS Bookkeeping from Reactive to Proactive

Beyond the Books: The 3 Key Numbers Every Australian Allied Health Practice Must Master in 2025

Leave a Comment / Managing a Business / mahek

Are You a Clinician or a CEO? (You Need to be Both) As an allied health professional in Australia (think physio, psychology, osteo, or speech pathology), your passion is patient care. But to ensure the long-term viability of your practice in a complex funding environment, you must also be a financial strategist. In 2025, a simple Profit & Loss report is not enough. Your bookkeeping needs to be accurate, but your focus must be on understanding your Key Performance Indicators (KPIs). These are the three essential numbers you must track, understand, and use to drive your practice’s success. 1. The Lifeblood: Provider Utilisation Rate Your most valuable resource is the time of your clinicians. The Utilisation Rate tells you how efficiently you are monetising that time. Provider Utilisation Rate = Actual Billable Hours / Available Working Hours What it means: A high utilisation rate (e.g., above 75-80%) means your clinicians are spending most of their paid time in billable sessions, which drives revenue. A low rate signals wasted capacity. Bookkeeping Connection: Your payroll and rostering system must integrate seamlessly with your practice management software. Accurate tracking of non-billable time (e.g., admin, team meetings, professional development) is crucial to calculate Available Working Hours correctly. Actionable Insight: If your rate is low, investigate: Poor Scheduling: Are there too many gaps between appointments? Excessive Admin: Is a clinician spending too much time on admin tasks that an assistant could handle? Cancellations: Is your cancellation policy being consistently enforced and recorded? (See next point). 2. The Risk Indicator: Aged Receivables Unlike a retail business, allied health often has multiple, complex payers (Medicare, private health funds, NDIS, WorkCover, TAC, DVA, SWEP, private patients etc.). Aged Receivables is the money owed to your practice that hasn’t been paid. What it means: This KPI tracks how long your invoices remain unpaid and is the clearest indicator of your practice’s cash flow risk.2 It’s typically broken down into categories: Current (0-30 days), 30-60 days, 60-90 days, and 90+ days. Bookkeeping Connection: Your bookkeeping system (e.g., Xero or MYOB) must reconcile incoming payments from all sources back to the individual invoices/claims. Errors here are common when processing bulk payments from funding bodies. Actionable Insight: High 90+ Days Balance: This is a red flag. Implement a stricter collection process. This might require dedicated staff time to follow up with Plan Managers, WorkCover case managers, or insurance companies. Alternatively, should you be quoting before you are creating invoices and adding a patient to a debtors list? Invoicing Errors: Often, delays are caused by simple errors (wrong provider number, incorrect date, or missing client details) or missed claim opportunities due to a lack of reliable process. A quick review of your high-risk accounts will help you tighten your invoicing protocols. 3. The Sustainability Check: Wages-to-Revenue Ratio Staff costs are typically the largest expense for any allied health practice. This KPI helps you determine if your wages are sustainable relative to your revenue. Wages-to-Revenue Ratio = Total Wages & On-Costs (Inc. Super) / Total Revenue (Excl. GST) What it means: For a healthy, sustainable practice, this ratio typically sits between 45% and 55% of total revenue. If you are above 60%, your profitability is at severe risk. Bookkeeping Connection: This is where accurate payroll accounting is critical. Your Total Wages & On-Costs must include superannuation, annual leave entitlements, payroll tax (if applicable), and workers’ compensation insurance. The Payroll Tax Warning: In 2025, state-based payroll tax rules for medical and allied health practices are a major area of scrutiny. Revenue offices are increasingly reviewing contractor arrangements to see if they should be deemed employees for payroll tax purposes. Consult with a specialist accountant to ensure your financial structure and contracts minimise this significant compliance risk. The Takeaway: By moving beyond simply recording income and expenses, and instead focusing on these three core practice metrics, you transition from a reactive clinician to a proactive CEO, building a financially sound practice that can thrive in the Australian healthcare system. Read More: NDIS Bookkeeping: Why ‘Good Enough’ Isn’t Good Enough for Compliance

Accounting, GST, Managing a Business

Capital Gains Tax in Australia: How To Calculate Capital Gains Tax

Leave a Comment / Accounting, GST, Managing a Business / Raval Harshil

Capital gains tax (CGT) applies to the profit you make from the sale or disposal of property. Any sale or disposal of property can trigger what is known as a CGT event. If you sell a property for more than your purchase price, the difference is your capital gain, and this amount is subject to tax. At the end of the financial year, you can use this guide to help you prepare your tax return or to have an informed discussion with a tax advisor. We strongly recommend seeking professional guidance for your individual tax situation. CGT Property Not all property is subject to capital gains tax. The most common exemption is a family home. The Australian Taxation Office (ATO) maintains a list of properties that are subject to and exempt from CGT. Common examples of properties that can give rise to capital gains or losses include: Investment properties Shares Collectibles What Are Capital Gains And CGT? Capital gains are profits made on the sale of investments. For example, if you buy an investment property for $450,000 and sell it five years later for $520,000, your capital gain would be $70,000. The property you live in is usually exempt from CGT, as it is not considered an investment. Capital gains tax is a tax paid on profits from investments. It is important to note that CGT is not a separate tax. Instead, any capital gains are included in your regular income tax. These gains are added to your assessable income in the year you sell the property, just like the property. This means that your capital gains are taxed at your marginal tax rate, rather than a separate CGT rate. How Much Is Your Capital Gains Tax? Many factors affect your remaining CGT, including the length of ownership, your marginal tax rate and whether the transaction results in a profit. To calculate capital gains or losses, subtract the original purchase price and associated costs – such as stamp duty, conveyancing fees, valuation reports and building inspections – from the sale price. The result is your capital gain or loss. Length of ownership is important because if you have held the property for more than 12 months, you are eligible for a 50% CGT discount. If you have owned the property for less than 12 months, you pay full CGT on any gains. The Australian Taxation Office (ATO) levies this tax. It is advisable to consult an accountant to estimate your capital gains tax before selling an investment property. How Is The Capital Gains Tax Rate Calculated? CGT is triggered by a CGT ‘occurrence’. This usually happens when you sell an asset, but can also happen if the asset is gifted, destroyed, lost, or when you cease to be an Australian resident. CGT applies by taxing the increase in value from the time you acquired or created the asset. Capital gains are calculated in the year in which the contract for the sale of the asset is signed. If there is no contract, it is determined from the date the asset changes ownership. The taxable amount changes, but the resulting capital gain is included in your income and taxed at your applicable marginal rate. This additional amount to your assessable income is called the ‘net capital gain’. Your capital gain is calculated as follows: Step 1 Subtract the cost basis from the sale proceeds. The cost basis includes the purchase price of the property, any costs involved in buying or selling it and other incidental expenses. This gives the total capital gain. Step 2 Deduct any eligible capital losses. Step 3 Apply any applicable discounts. Resident individuals can claim a 50% discount, while superannuation fund holders get a 33 1/3% discount. The property must have been held for more than 12 months to qualify. Companies are not eligible for this discount. Step 4 The resulting figure after deductions and discounts is your net capital gain. Key Points The capital gains tax calculator helps you estimate the CGT liability for a property sold by taking into account the purchase cost, sale proceeds and taxable income. The CGT payable depends on the period of ownership, the type of entity and your marginal tax rate. You can manage CGT through exemptions, concessions or strategic planning, particularly for primary residences, but accurate record-keeping is essential. Given the complexity of the CGT rules, it is highly recommended to seek advice from a qualified tax professional. Further Reading: Sole Trader vs Limited Company in Australia: Key Differences & Which Is Better Frequently Asked Questions Q1. How much CGT will I pay? The CGT you pay depends on your property, your marginal tax rate and how much capital loss you can claim. Your marginal tax rate is important because it is the capital gains that are added to your assessable income in the financial year. Holding a property for more than 12 months allows eligible individuals to claim a 50% discount on capital gains. Q2. What is a CGT event? A CGT event occurs when you sell or transfer an asset, such as shares or investment property. It marks the point at which you make a capital gain or capital loss. Other events include the distribution of capital gains from managed funds. More details are available on the ATO website. Q3. What happens if I make a capital loss? A capital loss occurs when you sell an asset for less than its cost. You can only offset a capital loss against other capital gains; it cannot reduce tax on other types of income. Excess capital losses can usually be carried forward to offset gains in future years.

Accounting, Uncategorized

Company vs Trust: Which Business Structure is Right for You?

Leave a Comment / Accounting, Uncategorized / Raval Harshil

Discover the key differences, benefits, and responsibilities in this essential guide, and learn which structure best suits your goals. Are you confused about how to structure your business to protect your assets, attract investors, or reduce taxes? Deciding between a trust and a company can shape your financial future and long-term growth. Keep reading to discover the strengths and weaknesses of both structures and understand how to choose the right one for your business in 2025 and beyond. What Is a Trust? A trading trust is a business setup where a trustee manages and owns assets on behalf of the trust. The trustee, who can be an individual or a company, is responsible for running the business. The trustee: Can buy and sell assets; Manage the trust’s assets; and Distribute income or capital to beneficiaries or unitholders. The trust itself is not a separate legal entity – the trustee is. The trustee: Manages and directs the trust’s activities; and Assists in full legal liability for its debts and liabilities. In many cases, the company acts as a trustee, which helps limit personal liability for business owners. There are several types of trusts commonly used in business, such as: Discretionary trusts: allow for flexible income and capital distributions. Unit trusts: operate like companies but have unitholders instead of shareholders. Specific trusts: have set beneficiaries and fixed distribution rules. Hybrid trust: combines features of both discretionary and unit trusts. What Is a Company? A company is a separate legal entity, separate from its directors and shareholders. It has its own rights and liabilities – just like a person. A company can buy property, sign contracts and act under its own name. When a company incurs debt, the debt belongs to the company, not its directors or shareholders. This separation provides strong protection for owners while giving the business a professional, scalable structure. Why Is Your Business Structure Important? Whether you are starting a new venture or restructuring an existing business, choosing the right setup is essential. The business structure you choose will: Affect how much tax you pay; Determine how well your personal assets are protected; and Impact your ability to attract funding or investors. Regularly reviewing your structure ensures that it still fits your business goals and personal circumstances. Both trusts and companies offer unique benefits but also have different legal and financial responsibilities. Always consult an accountant or advisor before setting up or changing your structure to avoid hidden costs or compliance issues. Advantages of a Company Business Structure Limited Liability A company operates as its own legal entity, separate from its owners. The profits and debts of the company belong to the business, not the shareholders. This separation protects shareholders from being personally liable for the company’s debts or financial obligations. In simple terms, if the company borrows money, the personal assets of the shareholders are protected. Taxes Companies receive lower corporate tax rates compared to personal tax rates. This means that the business pays less tax on its profits than a sole proprietor. For example, a sole proprietor pays tax through their personal income, while a company pays tax independently under the corporate tax system. This structure can help reduce the overall tax burden for profitable businesses. Disadvantages of a Company Business Structure Complexity There are more legal and regulatory duties involved in running a company. The Corporations Act outlines a number of responsibilities for directors – such as acting responsibly, being honest and avoiding misuse of their role or company information. In addition, companies must comply with ATO regulations, which include filing annual tax returns and making superannuation payments for eligible employees. Companies must also meet ASIC requirements by keeping financial records up to date and notifying the company of any major changes. Due to these legal demands, it is advisable to seek help from professionals who can ensure compliance and smooth registration. Costs Forming and running a company involves both set-up and ongoing costs. Set-up costs include business name registration, legal assistance and professional advice. Ongoing costs include routine administrative costs such as filing annual company tax returns, which can cost hundreds of dollars each year. In addition, ASIC annual review fees (previously $267 for private companies in 2020) add to the annual cost of maintaining a company. Advantages of Trust Business Structures There are many advantages to operating a business through a trust: You can distribute income among beneficiaries to reduce overall taxes using the most tax-efficient rates. Trust structures offer greater privacy than other setups. Beneficiaries do not directly own the assets, so business assets are protected from the beneficiary’s bankruptcy. However, unit trusts can be treated as personal assets and can still be used by creditors in bankruptcy cases. Disadvantages of Trust Business Structures A major disadvantage of operating through a trust is that there are mandatory income distributions each fiscal year. Trusts must distribute profits to beneficiaries annually; otherwise, undistributed income may be taxed at the highest marginal rate. Trusts also need their own tax file number and must file an annual tax return. Other disadvantages include: High setup costs and complex ongoing administration. Complications when changing or dissolving a trust. Limited borrowing options. The trustees outlined in the trust deed have limited powers. Business losses cannot be distributed, and profits may be subject to higher taxes. A trust can only operate for a maximum of 80 years. A trust is only personally liable for debts unless a corporate trustee is used, which limits liability. Company vs. Trust: Which Business Structure Suits Your Needs? Deciding between a company or trust structure can have a significant impact on your business – legally, financially, and strategically. Your best choice will depend on your personal objectives, financial plans, and how you want to manage profits and liabilities. If your goal is to have flexibility in the distribution of profits and potentially take advantage of the 50% capital gains tax (CGT) discount, a trust structure may be an ideal fit. This structure often works well

Accounting, Cash Flow Essentials, GST, Managing a Business, Uncategorized

Sole Trader vs Limited Company in Australia: Key Differences & Which Is Better

Leave a Comment / Accounting, Cash Flow Essentials, GST, Managing a Business, Uncategorized / Raval Harshil

Are you interested in the exchange? Choosing between a sole trader and a company structure can be overwhelming because each option has its own advantages and disadvantages. Every business has unique goals and financial priorities that influence the best choice. Many entrepreneurs start out as a sole trader because it is easier and cheaper. However, as their income grows and their tax liabilities increase, they often begin to reconsider whether switching to a company structure will provide better financial and legal benefits. The most important difference between the two structures is how taxes are applied, specifically the company tax rate. In this article, we will explore the key differences between operating as a sole trader and forming a company. Understanding these issues will help you decide which structure is best for your business’s current situation and long-term plans. What Is a Sole Trader? A sole trader is someone who independently owns and operates their business. They manage everything from day-to-day operations to strategic decision-making – giving them complete control and flexibility over how the business runs. This structure is straightforward and cost-effective, making it ideal for individuals starting out with a small business. However, it also carries more personal risk because there is no legal separation between the business and the owner. As a result, any debts, financial liabilities or legal issues that the business incurs are the personal responsibility of the owner. If the business suffers losses or is sued, the owner’s personal assets – such as their home, car or savings – can be used to pay off those debts. What Is a Pty Ltd Company? A Proprietorship Limited Company (Pty Ltd) is one of the most common business structures in Australia. It offers key advantages compared to running a business as a sole trader. In a Pty Ltd setup, the company is treated as a separate legal entity from the individuals who manage it. This means that it can enter into contracts, own property and even face legal action in its own name. The biggest advantage is that if the business owes money, the owners are not personally liable for those debts. Their personal belongings, such as their car, home or savings, remain safe. A Pty Ltd company offers stronger personal protection and tax savings opportunities than operating as a sole trader, although it involves higher costs and stricter regulations. Setting up this type of business requires registration fees, regular paperwork and compliance with legal obligations. Despite the additional costs, many business owners choose this model because it attracts investors and allows for long-term financial planning. Sole Proprietorship vs Company in Australia: Key Differences When starting a business, choosing the right structure is one of your first and most important steps. In Australia, the two most common options are operating as a sole proprietorship or registering as a company. Aspect Sole Trader Company (Pty Ltd) 1. Initial Setup Costs Setting up as a sole trader is simple and inexpensive. You don’t need an ACN or ASIC registration. Getting an ABN is free, and a separate bank account is optional though useful. Starting a company costs more — around $474–$597. You must register with ASIC and obtain an ACN. Opening a dedicated business bank account is required and may include maintenance fees. 2. Record-Keeping Requirements Managing records is easier with less compliance. You include business income in your personal tax return. Keep financial records for a minimum of five years. Update your business details within 28 days when changes occur. Record-keeping is more detailed and regulated. You must file a separate company tax return. Maintain tax documents for 5 years and financial records for 7 years. Companies must complete ASIC’s annual review and document major meetings. 3. Ease of Starting You can register quickly with just an ABN. A business name is needed only if you don’t use your personal name. Having a separate bank account is recommended for financial tracking. A company requires ACN registration with ASIC. You’ll also need an ABN and possibly a registered business name. A dedicated business account is mandatory. You must register for GST if turnover exceeds $75,000. 4. Business Revenue Handling All profits go directly to you as personal income. You can claim business expenses to reduce taxable income. Withdraw funds freely as personal drawings. The company owns the revenue, not individuals. Directors receive payments through salaries or dividends. The company files its own tax return. Company and personal funds must remain separate. 5. Setup & Operating Costs An ABN is free to obtain. Registering a business name costs $44 yearly or $102 for three years. You can use your personal bank account, though separate accounts are ideal. Name reservation costs around $61. Company registration ranges between $474–$576. A separate bank account is mandatory. Expect higher setup and ongoing compliance costs. 6. Liability for Business Debts You carry full personal liability for all business debts. Creditors may claim your personal assets like your car or house. Liability is limited to the company’s assets. Directors aren’t personally liable unless duties are breached. The company may liquidate assets to cover debts. 7. Control vs Liability You make every decision and have complete control. You also take on all financial and legal risks. Directors and shareholders share control. Company laws and governance rules must be followed. Personal assets are generally protected from company debts. 8. Taxation Business profits are taxed at your personal tax rate. The rate increases as your income grows. You report business income on your personal tax return. The company pays corporate tax at a fixed rate (25–30%). Directors and shareholders pay personal tax on income they receive. Can be more tax-efficient if profits are high. 9. Insurance Needs You must arrange your own insurance. Workers’ compensation isn’t automatic. Consider public liability and income protection coverage. Companies must provide workers’ compensation for staff. Directors can take additional coverage for liability protection. The company handles employee claims through its insurance. 10. Access to Bank Funds You can use business funds anytime

GST, Managing a Business

Non-Commercial Losses: What Are & How to Defer Them? (A Guide)

Leave a Comment / GST, Managing a Business / Raval Harshil

Running a business as a sole trader in Australia brings both excitement and challenges. A key hurdle that many business owners face is managing non-trading losses. These losses occur when a business activity – often not your main source of income – records a financial loss that you cannot immediately deduct from your other taxable income. The Australian Taxation Office (ATO) has strict rules on this, which is why it is important to know how you can defer such losses until your business becomes profitable. The non-trading loss rules exist to prevent individuals from offsetting losses from activities that do not have a genuine commercial purpose against income from other ventures or sources (refer to the ATO’s detailed guidance). The positive aspect is that if you operate as a sole trader, you can defer these losses and apply them to future years when your business makes a profit. What Are Non-Trading Losses? Non-commercial business losses occur when you, as a sole trader or partner, suffer a financial loss from a business activity that is not related to your primary source of income. To qualify, your activity must exhibit business-like characteristics and have a commercial purpose. These losses cannot be offset against other taxable income in the same year unless certain exceptions apply or the business makes a profit. If you cannot deduct your business losses in the current year, you can carry them forward and claim them once your business becomes profitable. This rule applies whether the losses are from an Australian or overseas source. Understanding The Non-Commercial Loss Rules According to the ATO, losses from activities that do not meet the requirements of a business cannot reduce your taxable income in the same year. Unless your business activity meets certain conditions, you must defer the losses and carry them forward to future years. This process is known as non-trading loss carryforward. These rules ensure that only activities carried out with the intention of generating a profit can claim an immediate loss deduction, which is not used solely as a tax offset. For many sole traders, understanding these rules is essential – not only to manage current tax liabilities but also to guide future business planning and growth strategies. Deferred Non-Commercial Losses If you are unable to claim your business losses in the current financial year, you may have the option to carry them forward for future use. When your business makes a profit in the next year, you can apply some or all of your deferred non-commercial losses against that profit up to the amount of the profit. You can also claim deferred losses against other income in a later year if: You meet the ATO’s non-commercial loss criteria, and The Commissioner allows you to apply the losses. Carry Losses Forward Indefinitely There is no set time limit on how long you can carry your losses forward. You can carry forward losses indefinitely as long as one of these conditions applies: Your business makes a profit, allowing you to offset the losses carried forward against those profits, You meet the conditions for non-commercial losses, or The Commissioner authorises the losses to be offset. Advantages And Challenges of Carrying Forward Non-Commercial Losses There are both advantages and disadvantages to carrying back non-commercial losses. On the positive side, it allows you to carry forward losses indefinitely until your business becomes profitable, providing potential tax relief in future years. This approach can be beneficial when your business generates enough profit to absorb those accumulated losses. However, it also poses some challenges. It can be difficult to meet the ATO’s strict requirements, and claims can be rejected if your business is not truly commercial. It is essential to keep detailed financial records and a clear, profit-focused business plan to demonstrate the purpose of your business. Additionally, if you receive income from other sources or have other tax losses, combining these with deferred non-business losses can complicate your tax situation. This makes regular tax planning and professional guidance important for proper compliance and management. Read Next: Company vs Trust: Which Business Structure is Right for You? Four Non-Business Loss Tests Meeting the income and business activity requirements alone does not automatically qualify you for non-business loss reimbursement. You must also meet at least one of the four non-business loss tests: Assessable Income Test: Your business must have earned at least $20,000 in assessable income, including gross earnings and capital gains. If your business has been in operation for less than a year, you can make a reasonable estimate of income for the entire year. Profit Test: If your business has been in operation for more than five years, it must have reported a profit in at least three of those years, including the current one. Real Estate Test: You meet this test if your business uses real estate worth $500,000 or more. This includes land, leasehold interests, and fixed buildings, but does not include private residences and fixtures owned by tenants. Other Asset Test: If you have at least $100,000 worth of business assets (excluding real estate and vehicles) that are used in your business on an ongoing basis, you are eligible. This may include plant and equipment, trademarks, inventory or leased assets. Key Points A non-trading loss is when your business incurs losses that cannot be immediately offset against other income. As a sole proprietor, you can defer these losses indefinitely until your business makes a profit. To use a deferred loss, you must either make a profit, comply with the non-trading loss rules, or seek the Commissioner’s discretion. Keeping accurate financial records, evaluating your business strategy and seeking advice from tax experts can help you optimise the management of deferred losses. Stay informed through government platforms such as the ATO and ASIC for current tax laws and compliance updates. Continue Reading: What Is The Tax Free Threshold in Australia: What You Should Know Frequently Asked Questions Q1. Who decides whether my business qualifies for deferred non-trading loss deductions? The Australian Taxation

Accounting, Cash Flow Essentials, GST, Managing a Business

ATO Directors’ Fees: What Are & How To Pay Them (Everything You Need to Know)

Leave a Comment / Accounting, Cash Flow Essentials, GST, Managing a Business / Raval Harshil

Paying directors’ fees can often seem complicated, especially when you’re trying to get your business fully compliant with ATO requirements. Many business owners have similar concerns: should directors be paid? And if so, what’s the right way to handle those payments? It’s important to get this right because directors’ fees can be claimed as a tax deduction, helping you to reduce your business’s overall tax burden. However, paying directors’ fees isn’t as simple as just transferring money. There are a few steps you need to follow, and the ATO has specific tax rules for how to report and claim these fees. If you skip these steps, you could miss out on valuable deductions or run into compliance issues. In this guide, we’ll explain the rules around directors’ fees, how they should be paid, and the right way to claim them for your business. What Are Directors’ Fees? Before diving into the rules and procedures, it is important to understand how directors can receive payment. Typically, directors are compensated in one of the following ways: Salary Directors’ fees Dividends Each method rewards directors for their work but involves different tax implications and compliance requirements. Why Do Companies Pay Directors’ Fees? Companies pay directors’ fees to ensure that board members are appropriately compensated for their leadership, insight and strategic decision-making. This remuneration structure ensures transparent and balanced compensation for directors’ valuable input while providing flexibility in both financial management and tax planning. It also helps companies avoid the stringent rules of Section 7A of the Income Tax Assessment Act, which creates a more tax-efficient way for directors to earn income. Essentially, directors’ fees help align the company’s financial goals in a way that is consistent with and beneficial to the directors’ legitimate access to the company’s funds. How Are Directors’ Fees Structured And Paid Under Australian Law? Executive Directors In Australia, the structure of directors’ fees is based on the director’s level of involvement in the company. For executive directors involved in day-to-day business, fees are often paid in addition to their regular salary and must include mandatory superannuation contributions. This setup ensures fair compensation for both their executive duties and board responsibilities. Non-Executive Directors Non-executive or non-executive directors, who focus on strategic oversight rather than day-to-day management, usually receive only a director’s fee. However, these fees must also include superannuation contributions in accordance with the Superannuation Guarantee (SG) requirements set out in Australian law. All payments made to directors – whether executive or non-executive – must comply with corporate governance rules and Australian tax laws. This includes the correct calculation and payment of Pay As You Go (PAYG) withholding tax and reporting to the Australian Taxation Office (ATO) via Single Touch Payroll (STP). In addition, the company’s board must formally approve all director fees and record them in meeting minutes, ensuring that the remuneration is consistent with the company’s constitution and shareholder agreements. By following these rules, companies maintain transparency when remunerating their directors, meet legal obligations and adhere to strong corporate governance standards. Director Fees And Salaries: What’s The Difference? Many business owners often confuse director fees and director salaries or wages. It is important to understand this distinction because each is treated differently when it comes to taxes, legal obligations and retirement. Director Fees: These are payments made solely for their role as a director on the board. Directors may not have any other day-to-day work or management duties in the company. This is especially common for non-executive or independent directors who focus solely on governance, not performance. Director Salary or Wages: When a director also serves in an executive or operational position (such as CEO, managing director or other senior role), they receive a regular salary or wage for those duties. These payments are processed in the same way as any other employee’s salary. Sometimes, directors may receive both types of payments – a director’s fee for board work and a salary for management responsibilities. For example, a managing director in a private company often earns both. Always record these separately in your company’s accounts to keep things clear and consistent. Continue Reading: How Far Back Can the ATO Audit You? Can They Be Avoided? How Are Director Fees Determined? The process for determining director fees depends on the structure, size, composition of your company and whether it is privately held or publicly listed. Private And Small Companies: In small or private businesses, the board usually determines the amount and how it is paid. This may also be set out in the shareholders’ agreement or company constitution. Directors can set their own fees, provided they are consistent with these governing documents. Public Companies (e.g. ASX-listed): For listed companies, shareholders must approve the total pool of director fees during the AGM, as required by the Corporations Act and the company’s constitution. It is important to ensure that director remuneration is consistent with company policies, market standards and is clearly disclosed to shareholders (and sometimes the public). A transparent and consistent process helps prevent conflicts and supports long-term governance integrity. Formalising this framework in your constitution or shareholders’ agreement is not only best practice – it also protects your board from future disputes as the company expands or new directors join. How to Pay Director Fees: A Practical Guide When paying director fees – whether for yourself as a founder or for non-executive directors – it’s important to follow the correct legal and tax steps. Get Approval: Review your constitution or shareholders’ agreement to confirm the appropriate approval process. Then, pass the necessary board or shareholder resolutions. Set The Amount: Decide the amount of the fee and how often it will be paid. Process Through Payroll: All director fees should be passed through Payroll, even for owner-directors of the business. Register for PAYG withholding if not already done. Report to The ATO: Include director fees in your Single Touch Payroll (STP) reporting and issue an income statement or PAYG payment summary. Think About Superannuation: If super applies, make contributions

Accounting, GST, Managing a Business

What Is The Tax Free Threshold in Australia: What You Should Know

Leave a Comment / Accounting, GST, Managing a Business / Raval Harshil

The tax-free threshold determines how much income you can earn in a financial year before you start paying tax. For Australian residents, the current tax-free threshold is $18,200, which means you don’t pay tax on the first $18,200 of your income. Any income earned above this limit is taxed at a progressive rate. This forms the basis of Australia’s progressive tax system, where higher income attracts higher tax rates. What Is The Tax-Free Threshold? If you are an Australian resident for tax purposes for the whole financial year, you will not pay any tax on the first $18,200 you earn. This amount is known as the tax-free threshold. Adjusted Tax-Free Threshold If you become an Australian resident for tax purposes during part of the financial year, your tax-free threshold will be adjusted accordingly. In this case, your threshold will be lower than the full amount available to residents for the whole year. Your adjusted tax-free limit is divided into two parts: A fixed base amount of $13,464 An additional $4,736, which is divided proportionally based on how many months you were in Australia during the income year, including any months you visited. The Australian income year runs from 1 July to 30 June of the following year. To calculate your adjusted limit, count the months from the date you became a resident to 30 June. How The Tax-Free Limit Works Australia operates a progressive tax system, which means that your tax rate increases as your income increases. The tax-free limit forms the starting point of this system. Here’s how it works: Any income over $18,200 is taxed at progressively higher rates. You pay no tax on your first $18,200 of income. For example, if you earn $30,000 in a year, the first $18,200 is tax-free, and you only have to pay tax on the remaining $11,800. This system ensures that people with lower incomes keep a larger share of their earnings, while those with higher incomes contribute a larger share of the country’s tax revenue. Eligibility For The Tax-Free Threshold To claim the full tax-free threshold you must be an Australian resident for tax purposes throughout the financial year. If you become or cease to be a resident during the year, you are eligible for a pro-rata tax-free threshold. For part-year residents, your threshold is calculated as follows: A flat amount of $13,464 Plus up to $4,736, adjusted for the number of months you were an Australian resident. This proportional system ensures that people who live in Australia for part of the year still receive a fair share of tax-free benefits. How to Claim Your income can come from one or more sources, such as an employer, a government agency, or work done under an Australian business number. If you are an Australian resident for tax purposes, you can claim the tax-free threshold each financial year. You can decide whether to claim the tax-free threshold on the Tax File Number (TFN) declaration you provide to your payer (including Centrelink). If you choose to claim it: Your payer will withhold tax when your income exceeds $18,200. You won’t pay tax on income up to $18,200 Find out what to do if you have multiple jobs or change jobs during the financial year. You may also like: Non-Commercial Losses: What Are & How to Defer Them? (A Guide) If You Are an Australian Resident For Part of The Year If you are an Australian resident for part of the financial year, you can claim the part-year tax-free threshold. The part-year tax-free threshold has two components: A flat rate of $13,464 An additional amount of up to $4,736, which is calculated pro-rata based on how many months you were in Australia during the financial year, including the months you were in. If you are a non-resident for the whole financial year, you cannot claim the tax-free threshold. This means you pay tax on all income you earn in Australia. Find out more about the tax-free threshold for newcomers to Australia. Your Income And The Tax-Free Threshold You can have income from multiple payers at the same time. Payers can include employers, government agencies, or work done as a sole trader. You can choose whether or not to claim the tax-free threshold ($18,200) on your earnings. If you claim the tax-free threshold: You won’t pay tax on income up to $18,200 Your payer will withhold tax when you earn more than $363 per week, $726 per fortnight, or $1,573 per month. When to Claim The Tax-Free Threshold If you have more than one payer, you usually claim the tax-free threshold from only one payer. Typically, you claim it from the payer that pays you the highest salary or wages. You can claim income from two or more payers if you: Have a second or multiple jobs Work part-time and also receive a taxable pension or government allowance Operate under an ABN as a contractor, sole trader or other business structure. Tax Is Withheld From All Sources of Your Income When you file your tax return, we review all earned income and the tax withheld. Sometimes, the total tax withheld may be different from your year-end tax liability if: Your income is $18,200 or less, so you can claim the tax-free limit If you had too little tax withheld, you may owe a balance. If you had too much tax withheld, you may get a refund Depending on your situation, you can request a change to the tax withheld from your income. This helps align it more closely with your year-end tax liability. Conclusion Understanding and claiming your tax-free allowance can have a big impact on your tax liabilities and the money you take home. By following the right steps and constantly reviewing your finances, you can avoid unexpected tax problems, maximize your take-home pay, and reduce the likelihood of paying a tax bill at the end of the year. For advice customized to your individual circumstances, consider consulting a registered tax agent or

Accounting

How Far Back Can the ATO Audit You? Can They Be Avoided?

Leave a Comment / Accounting / Raval Harshil

An ATO tax audit is an official examination conducted by the Australian Taxation Office (ATO) to review a business’s financial statements, tax returns and overall compliance with Australian tax laws. The audit ensures that businesses are complying with their tax obligations, accurately declaring income, expenses and deductions, and complying with tax regulations. Depending on the risk level, an ATO audit can include a simple compliance review or extend to a full-scale tax investigation, requiring detailed scrutiny of financial documents. The scope of an ATO audit depends on factors such as the size of the business, industry and financial activity. Businesses with a high risk profile or irregularities in their tax filings are more likely to face an in-depth audit. The ATO relies on data-matching technology to uncover inconsistencies, which can trigger targeted reviews. Maintaining accurate tax records and reporting is important for businesses to remain compliant and reduce audit risks. Understanding an ATO Audit Let’s break down what an ATO audit really means in simple terms. Think of it as the tax office checking whether your claims are accurate. The ATO checks that the income you claim and the deductions you claim are correct, and that you have supporting evidence. It’s important to distinguish between the levels of review: ATO review: This is often a quick, automated check on specific claims that seem unusual. It may include requesting receipts or additional details. ATO audit: This is a full review of your financial records. The ATO will closely examine your tax return, looking for inconsistencies in multiple areas. Adjustment: This is the outcome, not the process. If the ATO finds errors during a review or audit, it issues a revised assessment adjusting your tax liability. This level of scrutiny can affect anyone, from employees claiming work-related expenses to homeowners, small business owners and cryptocurrency investors. How Far Back Can an ATO Audit Go? The ATO can review tax records from two to four years ago. For individuals with simple returns, this is usually limited to two years. For businesses or people with more complex financial matters, the ATO can examine up to four years, covering everything from asset sales to dividend payments and PAYG reporting issues. The ATO often examines over several years if it sees a consistent pattern or discrepancy. Key triggers for a multi-year audit include: Sudden Income Changes: A large change in income from year to year for no apparent reason may not attract attention. Unverified Asset Sales: Failure to report income from property or share sales can result in serious penalties. Significant Deduction Variances: Claiming very different deductions over the years, especially if they don’t match your income or lifestyle, can trigger an audit. Large Deductions or Credits: Claiming large deductions or credits without the right documentation can raise concerns. Inaccurate Business Records: Incomplete or mismatched records compared to your tax return can alert the ATO. Anonymous Reports: Tips from third parties can trigger an audit. High-Risk Industries: Industries such as property, construction and self-employment are audited more frequently. Late Tax Filings: Regularly late tax filings can indicate attempts to conceal information, leading to a multi-year review. Foreign Assets or Income: If you have foreign income or assets, the ATO may investigate your reporting. Social Media Activity: Posts about expensive expenses or undeclared income can lead to a full ATO investigation. Cash-Heavy Businesses: Businesses that deal largely in cash often face greater scrutiny due to potential underreporting. Recommended to Read: What Is GST in Australia? A Complete Guide for Small Businesses Real-World Situations And Consequences Understanding the rules is one thing, but the risks become more tangible when you look at real-life examples. Honest mistakes can trigger an ATO review more easily than you might think. Example 1: An employee in a new sales position claims $10,000 in car expenses but lacks a logbook to justify the business-use portion. The ATO considers this unusually high for their role, which triggers a review. Example 2: A homeowner refinances a rental property loan, taking out $50,000 to buy a car. They continue to claim 100% interest on the entire loan, which is incorrect. The ATO identifies the discrepancy by matching the data with the bank. Example 3: A small business owner claims that all fuel and meal expenses are entirely business-related, even though they use the vehicle for personal trips and often go out to eat with family. If the ATO finds errors, they issue a revised assessment reflecting the revised tax and interest. Penalties can also apply, ranging from 25% of the deficit for negligence to 75% for deliberate disregard of tax laws. And what if you ignore an ATO audit letter? Ignoring it is the worst option. The ATO will act on the information it has, possibly rejecting all claims and issuing a default assessment with penalties. This could lead to legal action and debt recovery. For guidance, read our detailed resource on what to do when you receive an ATO audit letter. ATO Audit Penalties The ATO understands that tax laws can be complex and that real mistakes can be made. If you handle your tax affairs carefully and voluntarily report any errors, you may be able to avoid a penalty (although this is not a guarantee). Many taxpayers take advantage of the ATO’s Safe Harbour rules, particularly where they have followed the advice of registered tax agents or made a good faith effort to do so. However, if there are errors or deliberate non-compliance, the penalty can be significant: Failure to exercise reasonable care: 25% of the tax shortfall Reckless conduct or repeated omission: 50% of the tax shortfall Willful evasion or deliberate omission: 75% of the tax shortfall Plus a daily compound general interest charge (GIC) on any unpaid amount The ATO may reduce this penalty if you voluntarily disclose errors before any audit begins. They also take into account factors such as your past compliance and personal circumstances when determining the final penalty. Key Points While no one likes to face an

NDIS Bookkeeping: Why ‘Good Enough’ Isn’t Good Enough for Compliance