Introduction to Accounting for Business Tax and Corporate Governance

1. BUS106Accounting for Business Tax Corporate Governance&Introducing Budgets Lecture #5 Presented by Dr Greg Laing https://www.youtube.com/watch?v=ejBAlJXtoZg

2. Taxation • Federal Government • State Government • Local Government

3. Federal Government • GST (goods & services tax) • Personal Income tax • Company tax • Fringe Benefits tax • Capital gains tax

4. State Government • Payroll Tax • $1,100,000 taxed at 4.75% • Land Tax • Individuals - $600,000 or more • Companies, Trusts - $350,000 or more • Exemptions • Principal Residence • Primary Production • Caravan Parks • Charitable Organisations • Stamp Duty

5. Local Government • Council Rates • Under the authority of the State Government • Building Approvals • Signage • Waste Fees • Environmental Levy

6. GST • ABN • Registration - Generally $75,000 - Not for Profit $150,000 • Tax Invoice • $82.5 incl. GST min • Specific requirements such as ABN, date, “Tax Invoice”

7. GST cont • As a business you use an activity statement to: • report and pay to us the GST your business has collected • claim GST credits. • Your reporting and payment period is shown on your activity statement and it will be one of the following: • monthly • quarterly • annual. • Most businesses report and pay their GST quarterly and have a choice each year about how they do this. If your activity statement shows that you have options available, you need to choose one.

8. GST (goods & services tax) • 10% charge

9. Personal Income tax • Tax on individuals • Australian Residents • $0 to $18,200 no tax • $18,201 to $37,000 19% • $37,001 to $80,000 32.5% + $3,572 • $80,001 to $180,000 37% + $17,547 • $180,001 and over 45% + $54,547

10. Personal Income tax • Tax on individuals - Foreign Residents • $0 to $80,000 32.5% • $80,001 to $180,000 37% + $26,000 • $180,001 and over 45% + $63,000

11. Medicare Levy • 2% standard rate payable • Surcharge for higher incomes ($90,000 Singles, $180,000 Families) • Private health insurance exempts surcharge

12. ATO Important to lodge your documents on time • Fines $170 for each 28 days late up to a maximum of $850 per form. Larger entities can be a lot more. • Interest • Audit risk

13. HELP

14. PAYG Withheld • PAYG tax withheld is the amounts you withhold from payments to employees. You may also have to withhold an amount from payments to: • other workers such as contractors • company directors (if you conduct your business through a company) • other businesses if they don’t quote their ABN to you on an invoice or other document if required. • You send all withheld amounts to us with your activity statement.

15. Employees • WorkCover • Superannuation – 9.5%

16. Company tax • The company tax rate (also known as the corporate tax) is 30%.

17. Capital gains tax • Capital gains tax (CGT) is the tax you pay on any capital gain you make and include on your annual income tax return. There is no separate tax on capital gains, it is merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate. • Your net capital gain is: • your total capital gains for the year • minus • your total capital losses (including any net capital losses from previous years) • minus • any CGT discount and CGT small business concessions to which you are entitled.

18. Fringe benefits tax (FBT) • FBT is a tax employers pay on certain benefits they provide to their employees (including their employees’ family or other associates). The benefits may be in addition to or part of their salary or wages package. FBT is separate from income tax. • If you had to pay FBT of $3,000 or more in the previous year, you need to pay the tax quarterly by instalments with your activity statement.

19. Luxury car tax (LCT) • LCT applies to cars whose GST-inclusive value exceeds the LCT threshold ($57,180 for the 2008–09 income tax year). • LCT is payable in addition to GST, but it is not payable on the full value of the vehicle it is payable on 33% of the GST-exclusive value that exceeds the LCT threshold. • You account for LCT when completing your activity statement for GST, using the same tax period. You complete the LCT section of your activity statement using the following labels: • 1E – Luxury car tax payable • 1F – Luxury car tax refundable.

20. Taxing Real Estate • In 2000, REIA received a commissioned report from Access Economics which demonstrated a clear economic case for cutting State taxes on real estate. The key findings of the report were that: • Reducing stamp duties on conveyances of non-residential property would result in gains to economic welfare, economic activity and investment many times greater than the gains from reducing payroll taxes by the same amount, and • Reducing any of the State taxes on property individually would provide economic benefits greater than the benefits that would be achieved by reducing payroll taxes by the same amount. • stamp duty on conveyancing • land tax • tax on land sales.

21. Trust Account (Rent) • Collection of rents • Done on behalf of owners • The agent enters into a contract with the owners of a property the conditions of which determine what obligations the agent owes the owners and actions the agent may take. • Compliance allows the agent to deduct a commission

22. Trust Account (Rent) Cont • Typical contract conditions • Collect the rents • Deposit net funds into owners account at end of month • Commission rate determined

23. Rental Commissions • Can be earned for just rent collection • Collect • Deduct • Account to owners • Fee for finding a tenant and owners to manage • Bond sent to Rental Bond Authority

24. Rental Commissions cont • May involve full or partial management • Arrange periodic inspections • Arrange & oversee repairs & maintenance to an agreed amount. • Plumbing • Electrical • Mowing • Pay for repairs and again account to owners

25. Rental Commissions cont • Emergency Maintenance • Even if the contract states that the owners will perform all maintenance exceptions should be made to cater for emergency situations • In the event of an emergency the agency is normally the first contact point and if the agent can not contact the owners they should be given authority in the contract to act

26. Trust Account Sales • The agent holds the purchase’s deposits in trust for the sellers. • Successful Sale • At the instruction of the solicitors • agents pay out to the sellers. • deduct selling commission. • Unsuccessful Sale • At the instruction of the solicitors • Refund deposit to purchasers

27. Trust Account Sales • Forfeiture of deposit • At the instruction of the solicitors • agents pay out to the sellers. • deduct selling commission

28. Business Sustainability “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Brundtland (1987) • Key Concepts in the above quote • Needs of the world’s poor • Limitations of the environment

29. Business SustainabilityKey Drivers • Competition for Resources • Climate Change • Economic Globalisation • Connectivity and Communication

30. Theories of Business SustainabilityCorporate Social Responsibility • Corporate social responsibility (CSR) refers to the responsibility an entity has to all stakeholders, including society in general and the physical environment in which it operates. • Reasons? • Profitable to do so • Reduce interference from government and lobby groups • Desire to do the right thing

31. Theories of Business SustainabilityShareholder Value • A corporation has many stakeholders • Individuals or groups who have an interest in the corporations affairs. • Shareholder Value • Shareholder (owner) returns are the primary focus of an organisation • Agency Theory • Managers act on behalf of shareholders

32. Theories of Business Sustainability(Cont) • Stakeholder theory holds that the purpose of the entity is to work for the good of all stakeholder groups, not just to maximise shareholder wealth. • Stewardship theory • Directors act in the interest of a group(s) of stakeholders and not shareholder value • Contributes to the rise of independent non-executive directors

33. Corporate Governance • Corporate governance refers to the direction, control and management of an entity. This includes the rules, procedures and structure upon which the organisation seeks to meet its objectives.

34. Structure of Corporate Governance

35. Corporate governance principles,guidelines and practices

36. Ethics

37. Ethical Theories • Teleological theories • Consequences of decisions and actions • Deontological theories • Examine the decision and/or action in terms of morality • i.e., is this the right thing to do?

38. Ethics • The key to governance for sustainability may be determined by the extent of ethical consciousness. • Morality vs Prudence • Prudence • Acting in one’s self-interest. • Morality • Acting as one ought to by taking into account the interests of other people

39. Ethics, regulation, sustainability and politics • There are no hard and fast rules when it comes to ethics in business. • Four key responsibilities of business • Economic • Legal • Ethical • Discretionary

40. Ethics, regulation, sustainability and politics • Why consider the role of ethics? • The free market vs the community • Nordberg’s Framework

41. BUDGETING BASICS • A budget is a formal written statement of management’s plan for specified future time period, expressed in financial terms • The budget is used as a basis for: • Controlling operations • Evaluating performance • A budget promotes efficiency and serves to deter waste and inefficiency

42. The budgeting process • The development of next year’s budget begins before end of current year • The budget starts with a sales forecast which should consider: • General economic conditions • Industry trends • Market research studies • Anticipated advertising and promotion • Previous market share • Changes in prices • New products • Technological developments

43. COMPONENTS OF THE MASTER BUDGET • The master budget is a set of interrelated budgets • It consists of: • Operating budgets (sales and production) which lead to the budgeted income statement • Financial budgets (cash budget and budgeted balance sheet) that are concerned with cash resources for expected operations and capital expenditure

45. Preparing the operating budgets • Sales budget • Production budget • Direct materials budget • Direct labour budget • Manufacturing overhead budget • Selling and administration expense budget • Cash budget

46. Sales budget • This budgetis based on the forecast of sales revenue for the budget period • It acts as a starting point for master budget • It shows expected unit sales volume times anticipated unit selling price • It sets activity levels for other functions (e.g. production, purchasing)

47. Example: Mapleton Juices • Mapleton Juices produces bottled apple juice from fruit concentrate purchased from suppliers in Tasmania and Victoria. • The juice is blended, pasteurised and bottled for sale in 250 ml plastic bottles. The process is automated with five machines involved with the mixing and bottling. Each machine has one employee and can process 10 bottles of juice per minute, or 600 bottles per hour. • The juices are sold for $1.05 per bottle, in cartons of 50 bottles. The forecasted sales are:

48. Mapleton Juices cont. • Note: 10% of next month’s sales forecast is desired to be held in inventory at the end of the month! Beginning inventory for January is given – 25,000 finished units. • It takes 1 litre of the apple concentrate to make enough juice to fill 32 bottles! The cost per litre of apple concentrate is $4.80. • Note: 20% of next month’s materials of apple concentrate is desired to be held in inventory at the end of the month! Beginning inventory for January is given – 1,609 litres of apple concentrate.

49. Mapleton Juices cont. • Bottles are purchased from an outside supplier and cost $0.10 per bottle. • Note: 20% of next month’s materials of bottles is desired to be held in inventory at the end of the month! Beginning inventory for January is given – 51,500 bottles. • Direct Labour is paid at the rate of $15.00 per hour – if the production does not allow for full utilisation of a worker and the machine then they are temporarily moved to another department. • Note: divide the labour rate of $15 by the time required per bottle shows that the amount for direct labour is $0.025 per bottle ($15 ÷ 600 bottles).

50. Mapleton Juices - Sales Budget • The Forecast Sales figures are used to prepare this budget!