If your accountant doesn’t propose many changes to your MYOB or Xero file at year-end, there are a few plausible explanations; either you have a very good bookkeeper, nothing much happens in your business or your accountant has fallen into the trap of ‘mindlessly processing’ what you give to them.
No matter what the explanation, it could be costing you real money! Consider this recent, real-life example:
(By way of background – the business is new; it operates a franchise; the structure is a company; start-up was funded by the shareholders who took out loans over property they own.)
1. Interest deductions
The shareholders borrowed money from the bank and loaned it to the business. Each month, they drew money from the business to make the bank repayments. This was being accounted for as drawings. A thinking accountant knows that a portion of this should have been treated as interest.
Impact – the business was able to claim ~$16,000 in interest deductions
2. Overpaid franchise fees
Buried away at the back of the franchise agreement was a clause that said the fees would be reduced to 60% of the full amount in the first year of trading. The franchisor had mistakenly billed the full amount and the client had paid it.
Impact – the business was able to claw back ~$29,000 in overpaid franchise fees
3. GST refund
Only 4 of the 5 progress payments to the fitout contractors appeared in the accounts. The missing payment had been made by the shareholders and not taken up in the Xero file. That meant that the GST component of the other progress payment had not been picked up either.
Impact – the business was able to claim back ~$12,000 in GST payments
4. Loan funds
By picking up the items at 1 and 3 above, we were able to establish an accurate shareholder loan balance, which was much higher than what the Xero file suggested it was.
Impact – the owners can pay less tax by drawing down on the loan rather than taking income
The client had acquired a rental property in their own name. No depreciation or capital allowances were being claimed. We suggested the client obtain a quantity surveyors’ report, which cost around $400.
Impact – the client can access ~$220,000 of deductions over the next 40 years
So, what are the lessons here?
- These things only come to light if your accountant is being very thorough
- No bookkeeper should be expected to know everything your accountant knows
- Any of these things could have been missed by a ‘mindless processor’
- That would cost you real money
- You deserve an accountant that thinks!