Subscribe
Share
Share
Embed
Technical. Reliable. Fun.
BK Pod brings you the latest bookkeeping news, industry updates and conversations with industry leaders, Kelvin Deer, Peter Thorp, Kellie Powell and Darren Hagarty. From technical content to current events, BK Pod is an easy to listen to audio experience, packed with essential updates and insights for our bookkeeping community.
AustBook (00:01.006)
you
AustBook (00:09.176)
Hi, I'm Kelly Powell and welcome to this episode of the BKPod. This podcast will keep you up to date and informed from the latest news, legislation, changes and industry updates. There's always plenty for us to chat to you about. Today's episode, first up we will hear from ABN-ABA Director Kelvin Deer. In this session, Kelvin will take us through some of the issues around converting foreign currency income or expenditure into Australian dollars.
Kelvin will take us through two different methods of conversion. So if you have clients who deal with overseas transactions, you will find this very useful. Following that, we will hear from ABA Director Peter Thorpe for an update on the latest in representation space. Peter is joined this episode by fellow ABA board member, Kerry Jarius, and they will be discussing the fact sheet released just recently from Treasury, which outlines their initial view on what
the payday super initiative will look like. Finally, we'll hear from one of ABN's technical experts, Darren Haggerty. Darren will be taking us through a recent edition of the Getting Technical, where we looked at the interplay between the margin scheme and GST at settlement. So let's get into it. We hope you enjoy the episode.
AustBook (01:32.814)
Hello everyone. I'm Kelvin Deer, a director of Australian Bookkeepers Network and welcome to this edition of the BKPod, the podcast where we discuss all things bookkeeping, accounting, with a special focus on helping you manage the reporting for small and medium business. Now today we're going to dive into a topic that's becoming increasingly relevant in our interconnected world and one that sees a fair few helpline questions flow our way. And that topic is how to deal with foreign currency for businesses.
that either have some foreign income or foreign purchases or expenses. Now, before we get into the nitty gritty of foreign currency conversions and how to handle these transactions in Australian dollars, let's talk briefly about an alternative scenario called the functional currency rules. Now, for most businesses, the default currency for tax reporting or accounting reporting is the Australian dollar.
However, in some cases, a business might be allowed to use what they call a functional currency. And that's a currency other than the Aussie dollar, if it predominantly conducts its transactions in that currency. So if you've got a business that's predominantly using a certain currency to do its business, then that functional currency rules will allow that business to prepare its accounts in that foreign currency and then only convert that final income amount into Aussie dollars at the end of a year.
So to apply this, a business has to get approval from the ATO, they've got to meet specific conditions, and the rules are generally more relevant for those larger multinational businesses. So probably not a lot of that sort of stuff happening in our small, medium bookkeeping community. But anyway, that said, for the majority of small to medium businesses, especially those that are your clients, what they call is the general exchange rate and conversion process. So that's the method that applies
probably to most of our clients, and that's where we're going to focus our attention today. Now, when a bookkeeping business, or rather when a business earns income or incurs purchases or expenses in a foreign currency, you as the bookkeeper need to translate those amounts into Australian dollars for both tax and reporting purposes. Now, the ATO requires that all financial reports be prepared in Aussie dollars, so this conversion or currency conversion is pretty critical in the process.
AustBook (03:56.856)
Now there are two key scenarios that we're going to cover today and that's foreign income. So obviously when your client earns revenue in a foreign currency and also foreign deductions. And that's where your client incurs expenses, might be purchasing stock, supplies or assets in a foreign currency. So there are two things we're going to have a look at and we'll explore how to handle each of those scenarios and the key things to watch out for as you manage that foreign currency in your client's accounts.
Alright, so let's talk about foreign income first. Now this could be from selling goods or services internationally, earning interest on foreign bank accounts, or possibly receiving dividends from overseas investments. So when your client receives income in a foreign currency, you're going to need to convert that income into Australian dollars using what's called a reasonable exchange rate. Now the ATO, for the purposes of reasonable exchange rates, allow two approaches.
The first of these is what they call the spot rate method. And this is where you use the exchange rate on the day the income was received. Now this method is pretty straightforward, but it can be time consuming if there are many transactions to track for a foreign currency. The other method that they allow is a thing called the average rate method. Now under this method, you can use an average exchange rate for a set period. So that period might be a month, it might be a quarter, could be six monthly.
And so what you have to do there is convert all that foreign income received during that period at that average exchange rate. And that can simplify the process if your client has frequent foreign income transactions. Now, which method you use basically depends on the volume and frequency of the transactions. So if the business has a few large foreign income payments, then perhaps the spot rate may be more accurate. But if they're receiving regular
smaller payments, then the average rate can save time while still ensuring that accuracy. I guess one important thing to keep in mind is the timing of that conversion. You'll want to ensure that conversions align with when the income was either received or when it was reported in the accounts. And obviously, consistency is the key there. Now, where you get these rates, you can search the ATO website, and they will have a
AustBook (06:18.658)
spot rate and an average rate for a particular period there. All right next let's talk about foreign deductions. Now this could be anything from purchasing supplies from an overseas vendor, paying foreign contractors, purchasing assets from an overseas vendor or even just simply traveling overseas for business purposes and incurring expenses while you're overseas. Now similar to income these expenses need to be converted into the Australian dollar to ensure that accurate bookkeeping is maintained.
Now the ATO allows you to again use either the spot rate or the average rate method just as it does with the foreign income. So for instance, if your client is paying an overseas supplier in US dollars, then you'll need to convert the payment to Aussie dollars either on the day of the transaction or alternatively using the average rate for the period you're going to select. Now when it comes to foreign deductions or purchases, I think one thing to be careful about is again the timing and documentation.
You're going to need to ensure that any foreign expense aligns with the relevant period in your accounts. And you also want to make sure that you have the records of that foreign exchange rate used at the time the transaction was incurred. Now, one of the biggest challenges in dealing with foreign currency is that exchange rates can fluctuate. And sometimes that can be pretty dramatic. So this can create differences between the accounts recorded when a transaction is made and when
you know, the actual money flows either in or out of the business account. Now to manage these fluctuations, you might need to account for what they refer to as a foreign exchange gain or loss. And that's basically when the currency might move. So it's particularly important if your client has foreign currency bank accounts, holds foreign currency for an extended period of time, or they might have simply large contracts that are settled in foreign currency, you know, at a later date from when they were originally recorded.
So for example, let's say your client invoices a foreign customer for say $10,000 US dollars or $10,000 US dollars. Now by the time they receive, you know, the business receives payment for that, the exchange rate may have shifted. It might be now worth more or less in Aussie dollars than when the invoice was originally issued. So in these cases, you're going to need to adjust for the foreign exchange gain or loss and also record that in your accounts.
AustBook (08:43.842)
Now your accounting software can usually handle these transactions, but it is going to be important to review the accounts regularly to ensure that accuracy. Finally, I just want to touch on the reporting and compliance element. Now the ATO requires that all foreign currency amounts be converted to Aussie dollars, and they expect consistency in how you handle those conversions. So make sure you document the exchange rate used, maintain clear records of all foreign transactions, and additionally, if your client has substantial foreign income,
They may need to report certain transactions separately through what's called an international dealing schedule. So just to recap, if you've got foreign income and deductions, they all need to be converted into the Aussie dollar for reporting purposes. And that's going to be either at the spot rate or at an average rate to handle that currency conversion. And you have to stay consistent with that approach as well. So you have to document the exchange rates you use to ensure that accuracy of your reporting.
And of course, don't forget to account for any currency fluctuations that might result in a gain or a loss. And of course, lastly, stay compliant with that ATR reporting requirements by keeping clear records. So, foreign currency doesn't have to be overwhelming. By keeping principles in mind, staying organized, you can ensure your clients' accounts are accurate even when they are dealing with international foreign currency. So, thank you for tuning into the BKPod.
I hope this clarifies how to deal with foreign currency transactions for your client and I look forward to joining you again next month. Bye for now.
AustBook (10:22.028)
Okay, welcome listeners. Peter Thorpe and Kerry Jarry is here to chat with you about representation stuff that Australian Bookkeepers Association is currently involved in. Okay, Jay, it's good to speak to you again. Okay, Pete, what are we going to talk about this month? Well, Treasury have given us their first insight into the new payday super rules in the form of a fact sheet. So we're going to have a chat about that. And a detailed summary of that was scooted out to members on the 19th.
of September. I did see that come out. It was an interesting first public statement, albeit that was 16 months in the making of that fact sheet. Let's start with what was it all about, PT? Okay, look, the fact sheet is an overview. So as you say, it was a summary after 16 months of consultation. It's their position as to where
these rules are going to fall. There's some more meat to put on the bones as implementation phase starts. But let's have a bit of a look through some of the components. The actual consultation phase was populated by all of the accounting associations, bookkeeping associations, but also the other stakeholders. had the clearing houses, the super funds, government, the...
wage people, it was a pretty full on consultation event. So they've gone a fair way into the detail here. But I'm gonna go with a quick bullet point list of the features, just so that we're on the page. So super guarantee, first one, he's gonna be paid on payday. So the day wages are paid, super is also paid as an incidental part of the payroll. Payments are to be received by the Superfund within seven days. So the employer is still accountable.
for the passage of funds from payment to the super fund and there's a seven day window for that to happen. The super guarantee charge is gonna be remodeled with a more balanced approach to the penalty. So what we're seeing there is the hard edges knocked off the current system. Re-super guarantee charge, another pleasing plus is that the super guarantee charge will be tax deductible, not currently the case.
AustBook (12:38.926)
And it continues to have the calculation is going to be based on ordinary time earnings, which is a difference to the current situation. Current situation, if you're in super guarantee charge, you're paying it based on your total payroll. Now it's going to be calculated on the same basis as super guarantee. Other words, ordinary time earnings only. That was a bit unfair, wasn't it? Because when we've done superannuation guaranteed charges in the past,
the fact that you actually pay on OTE or ordinary times earnings and then you're actually penalised on the full payroll. We've got some clients that actually have a lot of overtime, so maybe 24 hour shifts, seven days a week. So they pay a lot of overtime to their employees. So the penalties were huge compared to what it would have been had they paid or paid on time or been seen to pay on time.
by when it actually received the super fund. Yeah, that's a good point. Yeah, so there's the punitive component to it, but there's also just the ease of admin. don't have to have two calculations in mind anymore. Just OTE is the critical part. And we tagged that through single touch payroll. it's a welcome change. The SGC still has a notional interest component to compensate the employee for loss of earnings on the super balance that would have been accruing.
We have seen the demise of what we used to call the part seven penalty, which had a really heavy component that could have been levied by the tax office, which was up to 200%. And the $25 per employee per quarter penalties are scrapped in favor of an administrative uplift penalty. That's got a maximum component of that of 60%. And that just depends on the voluntary disclosure levels in it.
they envisage a nil penalty in the case of voluntary disclosures. So that's a welcome pruning of the hard edges of the super guarantee charge. It's much fairer, isn't it? It is fairer, yeah. And it's a more reasonable and practical approach. The assessments of SGC will no longer be self-assessed, they're gonna be raised by the tax office. It'll be interesting to see mechanically how that works. Unpaid super guarantee charge will be subject to GIC.
AustBook (15:04.786)
and a SG charge payment penalty. And that's gonna scale up for the repeat offenders. That component is really there for those who have opted out of the system or deliberately not complying. those are the extreme penalty components and those two penalties will not be tax deductible. The super funds will have three days to process a super guarantee contribution or return them. Now, currently the...
the regime allows them 20 days to hold a contribution, find a home for it, or send it back. So now they're gonna have to get it done in three days. They're welcome- It's gonna be tough. It is gonna be tough and- Yeah, that's something that's gonna be really bad. So they're obviously gonna have to improve their systems, I would say, somehow in this equation. Some work to be done there. Absolutely. A welcome addition is there'll be a two week grace period for new employees.
So typically when you take on a new employee, often they don't have their super fund at the ready. You might find an employee gets paid a day after they turn up and they've got no super guarantee information available, meaning it's very difficult to So what's gonna happen now with stapled super because at the moment you actually have to pay somebody before you can see the stapled super fund. Is that gonna change?
Yeah, look, it's envisaged that there will be a change to the visibility on the stapled super information such that you can get it before the employee is employed. So you won't need a physical onboarded and payroll run before you can get your hands on it. that's, I don't know how they're going to do that. The fact sheet doesn't go that deep, but they envisage that information being available sooner, which is a good thing. The small and out of cycle payments, also were gonna be a problem for this thing because
we already know that under the payday super regime, there's going to be a lot more payments to be made. Someone that could be paying quarterly could actually be paying up to 52 times a week if they're on a weekly cycle. And it could be exaggerated by small and out of cycle payments. For example, a termination could happen on two days after a pay run. Then you have to go and do another super guarantee payment. So what they've said is with those small and out of cycle style payments that the next
AustBook (17:24.704)
regular payday event will be sufficient to make that super contribution, is a good thing. I think I would have a problem with the superannuation clearinghouse being scrapped because there's a lot of small businesses that do currently use that. And it is a very good medium for people with just a couple of employees. But also I know that it's used by bookies to correct superannuation that has been returned.
sometimes it's harder to return that in the software. So what you do is you actually put it into the superannuation clearing house, especially if it's only one or two employees, and then you can give the business owner a B pay. There's gonna be something to replace that somewhere along the line because I think it's actually a really good system. Yeah, that's the interesting and intriguing part is that the small business super clearing house is to be scrapped.
And that, as you say, it's served a purpose, even though I don't think it was necessarily built for massive contribution levels. And I suspect the reason they're looking to scrap it is that, you with an increase, let's say someone's on weekly, they could be going from four payments a year to 52. So the increase in volume would be massive. I think the concern is maybe the small business clearinghouse isn't gonna be able to cater for the volume. But anyway, look, let's...
consider the impact on our clients? I think there's gonna be a few impacts on clients. Bringing forward of cashflow has been something that we've been talking about from the beginning of Payday Super. Certain industries don't get paid every week. For example, building and construction, you might have a 60 day lag before you get paid. So I think that cashflow thing is still a concern. Yeah, it is.
Even seasonal, you think about some of those seasonal businesses out there and in construction industry, you might go months before you get a progress payment of sorts. So yeah, there's going to be a bit of a mismatching cash flow for some industries. And that's an industry that's been hit pretty hard at the moment with them coming out of all these fixed price contracts. So yeah, that impact will be harder on some industries than other. If you're a retail outlet where you're getting
AustBook (19:47.837)
income coming in every day, that's going to be easier. But yeah, definitely some of those industries will be impacted. I don't know what will happen with the consultation in the future. Hopefully they're going to have listened to some of those organisations and maybe things like master builders and some of those other organisations might put their hand up and put their two cents worth in. I'm sure they have already. The other thing is the administration costs because you know,
If you're paying quarterly at the moment, you've got four lodgements a year, as you said. If it's a weekly payroll, that's 52 lodgements a year. Add another monthly payroll in for for your managers or your senior staff if you're doing it that way. think we're going to see a lot of people moving away from weekly payroll and maybe going to fortnightly to reduce their admin costs. I think that's one thing that we will be recommending to people is that they actually reduce the number of pays.
back down to fortnightly and weekly pays may become less common. They're quite common now, particularly in retail and other industries. Yeah, I saw some talk out there that it could be a call to push everyone onto monthly. But I don't know that's realistic. A lot of awards are going to counter that to say, you've got a minimum payment cycle in there. But you're right, I can see some of those optional weeklies going to fortnightly for sure.
I don't know about monthly because I think it'd be harder to employees from weekly to monthly for cash flow. For personal cash flow, I think employees are going to push back on that. But certainly for salaried staff, you'll see a lot more monthly payrolls. there's still going to be accountability for the processing time. Now defined as seven calendar days. How's that going to work? We know that at the moment,
some of the software companies that take seven or eight days and the clearing houses are there to, that's where they actually make their profit is by using that money for that seven days. So that's really gonna decimate some of the super clearing houses and- Is it still gonna be viable do you think? Don't know, you look at it and say, if a good chunk of their profitability was based on the holding period,
AustBook (22:05.951)
and now they're gonna have to handle more transactions and hold them for less time. You gotta start to think that maybe some of the clearing houses, if there's still a place for them, gonna invoke some fees. It's probably the logical thing for their model. again, we're speculating on that one and we'll see how this unfolds. There's still a lot more, watch this space, isn't there? Yeah. So that's some of the negatives to it. So what are some of the positives and what are you like about the new blueprint?
Yeah, look, it's not all negative here. I think there's some good things in there. I think the tax deductibility of the super guarantee for sure. The simplified penalty regime with SGC, I like that. The use of ordinary time earnings as a calculator for both SG and SGC makes a lot of sense. The two week extension for new employees, a good one. And the deferral for the out of cycle ordinary time earnings payments, I think that was great. If we can...
Good to see how it goes, but the access to stapled super before an employee is on boarded is a tick. And interesting to see, but the tax office to raise super guarantee assessments. So I think there's some good things in there. KJ, what concerns do you might have based on what you've heard today, particularly on that fact sheet? I suppose the things that we've already discussed is the seven day requirement. I think that's going to be a big one.
Treasury flag new payments platforms direct to the super funds. So not sure where that's going to lead the clearing houses as we discussed and employers processing large volumes of SG within the seven day limit. I think there's going to have to be significant improvements in a lot of our systems so that we can do things in a more timely manner and can the software providers meet those things. There's going to be a lot of work in the background for software as well.
So that's going to be an issue. And will Bass Agents have ready access to SGC account information, which is something we've been fighting for for a long time. It would be nice to use this platform to actually get some information for bookies and more clear vision on SG and what situation these clients are in.
AustBook (24:27.755)
tax officer been pushing back on the access to accounts pending payday super. So now we know what it's gonna look like, a lot more volumes of transactions, a greater need to see that account information than in the past. So I think we've now got every reason to push hard on this thing. And probably the thing that disappoints me most is as you said, the seven day thing, the employers are still held accountable for the passage of the super, even though part of the time it's outside their control and to get at the other end within seven days.
That one is still probably the disappointing part for me. But look, that's probably enough for us. So thanks, KJ. It's important to remember that the information supplied by Treasury and the stuff we've spoken about today from that fact sheet could change a little bit as the tax office move into the implementation phase. And I guess the hard work for us as associations has just begun with a much, there's gonna be a lot of consultation to happen over the next 21 months.
had a lot to do with the Treasury and you've done the hard lifting on this one. So I'm sure all the associations need to get behind us on that and come together and hopefully we can make some improvements and some suggestions as well. But you guys have certainly done a great job with Treasury as well. Thanks for that. We'll see you next time. See you then.
AustBook (25:50.219)
Hello and welcome to the BK pod. My name is Darren Haggerty and I'm a director of ABN. I'm also a tax agent and chartered accountant in my own right. Today I want to spend a few minutes telling you about a recent edition of one of our technical publications, Getting Technical. This edition is entitled Bass Reporting and the Interplay between Margin Scheme and GST at Settlement.
Anecdotally, we are aware that there is some level of misunderstanding across the Bass Agent community in relation to the Bass reporting of sales and purchases under the margin scheme, particularly in instances where the GST at Settlement regime applies to the same transaction. Both the margin scheme and the GST at Settlement regime have been the subject of past Bookkeeper Knowledge Basis, Editions 46 and 109 respectively.
However, in this edition of Getting Technical, we focus on the interplay between the two from a BAS reporting standpoint. We start by recapping on the margin scheme itself, how it works and the basic requirements to be able to apply it. Next, we recap the GST at settlements regime, and then we bring the two together to look at how BAS reporting needs to work when we have both of these regimes in play. After describing the approach needed, we then deep dive into a comprehensive example.
Enjoy the raid.
AustBook (27:17.749)
Well, that's a wrap for us today. I'd like to thank all of our guests for joining us. Just a reminder to not forget about all of the resources available to you and your member centre. There's a breadth of resource available any time of day or night. Hopefully you're not working too much at night though. Also to let you know, Leanne from our wonderful member services team is always available to give you a tour of the website if you need a refresher or just need to know where things are easily found.
please don't hesitate to reach out either by phone or email or you can book a time direct with Leanne by heading to the website. Thanks so much for joining us again today. Take care and until next time, cheerio from the ABN team.