Ridhi Shah
Ridhi is an Australian MPA who has done her Diploma in Financial Planning and excels in various financial and accounting services.
As tax accountants, we often hear questions such as “why does this agency give me a tax refund/payable estimate of this much, while yours gives me an estimate of that much?” Sometimes this is even accompanied with “Maybe I should just go to the accountant who will give me the bigger refund/smaller tax payable.” If you’re looking for a quality accounting practice to ensure you get the best result, this doesn’t necessarily mean ensuring you get the highest tax refund estimate. Here’s why such an assessment is too simplistic and potentially dangerous.
1. Estimates Are Only Based on the Figures You Provide.
A tax estimate is only as good as the information that is entered. Before a thorough review is conducted an estimate may not be correctly adjusted for tax laws. For example, non-deductible expenses such as fines, entertainment, and prepayments may still be included. Trying to compare basic estimates generated from raw information to the final results of a properly reviewed return is kind of like wondering why the egg, sugar and flour on your table don’t look like the cake that someone baked earlier.
2. A Dodgy Accountant may get you a “better” Tax Position By Making Incorrect Claims.
A poor quality accountant can look like they’re the best if you only assess them on your refund. However, this can leave you with a massive headache.
For example, a less professional accountant make simply take your totals and enter them in as tax deductions. A professional tax accountant will review a breakdown of your claims to ensure that the claims are legitimate and reasonable. They will ask questions to check unclear items and ensure you have appropriate records and receipts. This helps protect you by ensuring that you are following the law and not making fraudulent or ineligible claims.
Ultimately you are responsible for what is lodged in your tax return. If you go with someone who doesn’t do a proper review, you are at risk. You will have to pay any tax shortfall and can face fines and penalties.
3. Different Decisions Can Just Be a Matter of Timing.
When it comes to making tax claims, in limited instances you have a choice. For example, certain businesses can make elections about depreciation concessions, using cash or accruals, estimating the end of year stock on hand, or writing off bad debts. While making these choices appropriately can give you an immediate additional tax deduction, this is a pay off against what you will be able to claim next year. Ordinarily a tax agent will draw as many deductions into the current year as possible, however, there may be certain situations where an accountant can see an advantage to making different timing choices.
4. Your refund size will depend on your tax position compared to tax installments paid.
No accountant can create a refund from nothing. A tax refund is simply the excess of tax installments you have paid the ATO during the year, compared to your end of year tax assessment. It doesn’t matter how many deductions you have, if you didn’t pay any installments, you won’t get any tax refund.
5. Not everything in tax is black and white.
While you may think that there’s a black and white answer for each tax query, the reality is that there are plenty of grey areas. There are always new and unique situations to test the waters and complex regulations that require some judgment. There is an option to apply for a private tax ruling, however, sometimes it’s not worth the time and expense of following this avenue.
Where quality accountants don’t have a black and white answer, they will be able to identify complexities. Sometimes this means presenting the information clearly to you so that you can make an informed choice, other times it means advising that they cannot proceed with a claim without a private ruling. A less experienced or less up to date tax accountant may miss complex issues, or be unaware when certain claims need to be looked into further.
6. A good tax agent doesn’t just focus on your immediate tax position.
A quality tax agent will look at ways to help you prepare for the future. Additional services such as tax planning strategies, business performance analysis, and budget preparation can add more value to your business than the preparation of a historical return.
A good tax agent will optimise your tax position while providing value-added services for your business. They will also protect you by helping to ensure you are making legitimate claims and keeping you aware of any information you need to make informed tax choices for your business.
Judging an accounting firm purely on the estimated tax position they provide you is short-sighted and potentially puts you at risk.