Expense Allocation/Naming

Having a conversation with our Accountants and having an "interesting" time with very trivial matters....

Under the heading "Accountancy fees", we have three items

1. Fees paid to the Accounting Firm
2. Quick Books monthly charge
3. Rental Software yearly charge

We probably should have named it "Accountancy & Bookkeeping fees".... Anyhow, the Accountant is adamant that the QB and Software CANNOT be parked under this heading, and have created two different heading (Subscription and Subcontractor). We are not happy that this has expanded the Chart of Accounts with no real gain.... However we are getting nowhere and looks like they are going to just finlaise like that and I am sick of back-and-forth and waiting....

Curious to hear your thoughts, especially those trained Accountants.

Happy New Year!

 

I'm not sure if you're a company or individual or cash or accrual basis. Possibly they might want it separated for the purposes of identifying prepaid expenses vs cash paid.
If you're just an individual and just 3 transactions get recorded each year it's silly to split into so many accounts.
Have they explained why they want it split?

 

If its a company or trust i cant see how it would change anything.

Individuals need to break out tax agent fees at Item D10 but in the company or trust return both will be sitting under section 6S.

For analysis purposes it is probably better to break them down but to be honest if my client was content including them together for their analysis purposes it honestly wouldnt concern me.

You could actually argue for financial reporting purposes the quickbooks license fees are bookkeeping fees. Sounds pretty anal to me.

 

It has no impact. The only time I see this is if the accountants don't want the appearance of their fees being reported as higher than what was actually paid to them.

Many business reports now lump accountants, lawyers, IT, and recruitment agents all in the same box. And that is fine. And many businesses will use different accountants etc for different reasons.

Do the reports that make sense to you? If so that is what is done.

The tax form can be prepared around the business reports. Not the other way around.

 

That's the word!

It's a Trust, and Tax Agent Fee is already segregated.

Well essentially there was only 3 items, grouped under one category. Now we have one category per item....

 

They just said QB is a subscription, and so is the rental software...

 

Hmmmm, now it starts to makes sense!

Yes exactly my thought. If I let them do the bookkeeping (QB) and rental (software), the whole lot will come under Accountancy wont it? Ah so silly.....

 

That'd be like your property manager charging a lower % for management then adding fees for inspections, statements, postage, phone calls, internet usage, advertising, advert preparation, console/propertytree software licence, remote access fee, mileage on property inspections, wear and tear on ball point pens, chemical whitening for their teeth & dental work for that glistening smile etc.

 

The Perth ones already do this

 

They must use the same accountants

 

As an accountant, I would classify the QB & rental software under Subscriptions, and leave Accountancy Fees exclusively for fees paid to accountants (likewise if a bookkeeper was paid I would classify these separately under Bookkeeping).

However I wouldn't bother having a back and forth with a client over this; if they prefer to consolidate accounts the way OP has described there would be no sleep lost on my end.

 

Yes I would agree if we are working with a Huge company. But not for a mosquito like us...

On another note, I find the heading "Subscription" to be absurd. If we follow this logic, should we pay the realestate.com.au fees also under Subscription, instead of advertising? How about monthly fees paid to IT company for website? Move from Computer expense to Subscription? I tend to classify expense based on the function rather than payment type.

Exactly my thought. I am just trying to get thru what's in the brain of this person....

 

Writing this reminds me of another mystery I have... Perhaps another Accountant can enlighten.

Our accounts and tax are done on Accrual basis. So come EOY, we have unpaid bills from both sides, payables and receivables. The Accountants are quite happy for us to claim in full on all these income/expense, despite of the fact that they havent been paid/receive in our bank accounts.

However, the situation is totally different with the Accountant & Tax Agent fees. Example for FY 2016 (ended 30-6-2016), Accounts & Tax were finalised in Oct-2016 and we wanted to include fees in FY2016 Return. Was told No You Cant! So these are claimed in FY2017. Dont you find this absurb? The strange thing is we have two firms that told us this. I meant to look up ATO Rulings but just got worn out.......

My issue is, say we decide to retire in FY2020. So we will have no income in FY2021, but need to wear the Bill for previous year??? I have raised this question with them but was returned with blank face.

 

Depends ?

Did the accountant issue you an invoice prior to 30th june for work performed and that bill was unpaid at 30th june ?

Or did they issue an invoice prior to 30th june for work performed for the next financial year and so it was a prepayment but your turnover was less then 10m so as an SBE and the services for the next year were less than 12 months you could claim it ?

If you didnt have either of the two on 30th june then they are correct you cant claim for anything. If you didnt have an invoice for services to be performed then no i dont find it absurb at all that it isnt included.

 

So is the solution to get them to invoice us before 30-June?

My next question would be, do we need to pay for it to enable ourselves to claim it in that FY? I asked this because that's the impression I get. They seem to suggest that Tax Agent Fees are claimed on cash basis.

 

Yes if they issued an invoice prior to 30th june for works to be performed in that next financial year then it would be a prepayment and able to be deducted under the prepayment rules. So yes you just pay it before then.

 

This is what I meant about the inconsistency.
For other suppliers, we receive invoice before 30-June, but pay in July..... The Accountants need payment in June. That's not accrual basis....

 

Have a look at IT 2625 - Income tax: deductibility of audit fees (As at 11 April 1991) which governs audit fees for audits done in a subsequent year - so the 2017 audit is done in Sep 17 but tax deductible in the year ended 30 June 2017.

Basically you have to be fully committed to the engagement with the advice firm and unable to escape from the cost prior to year end.

 

It isnt inconsitent at all. They havent performed any work yet.

Lets say a surgeon was going to do an operation on your tumour that grew in 2016 but would be done in 2017. They billed you for the operation yet to be performed. Do you have a debt prior to the operation that cannot be escaped from ?

@Terry_w is the legal guy here but i would argue no you dont. No services have been performed so you dont have a debt you cant escape from. Now if there were all sorts of terms and conditions meaning you couldnt escape from it then it is different. The contract will determine whether it is a contingent liability or not.

Its quite consistent with the law.

Are you saying you claim for invoices from other suppliers for services not performed and not paid prior to year end? If so you may find yourself answering a few questions in an audit. You better make sure you had no escape from these bills if the services werent performed. If you did they arent deductible they are merely a contingent liability.

For 99% of accounts payable at 30th june the services have been performed and invoices unpaid.