| When the typical new business operator starts a | | | | exempt from this. The total revenue or income is |
| business, they concentrate on making the business | | | | usually low. It is often below the thresholds where the |
| succeed. That is necessary but not the only thing that | | | | business has to register for GST or VAT, so that the |
| a business operator should concentrate on. A business | | | | business owner may be tempted to not register for |
| depends on cash flow to exist and grow, so business | | | | GST or VAT, thereby saving on administration (in filing |
| operators would do their business a good turn by | | | | the returns) or accounting costs.If the business owner |
| looking at sources of cash flow provided by the | | | | contacts their local taxation authority, they will be |
| Government.We are talking about the taxation | | | | correctly advised of the income thresholds for |
| authorities such as Inland Revenue Department in New | | | | registration and the decision will be left to them to |
| Zealand (IRD), the Australian Taxation Office in | | | | make. It would not be appropriate for a taxation officer |
| Australia (ATO) and Inland Revenue in the United | | | | to advise the business owner on how to manage their |
| Kingdom and the Inland Revenue Service in the USA | | | | taxation affairs, and there is a case of the Privy |
| (IRS). All of these taxation administrations, along with | | | | Council (UK) that confirms the Inland Revenue cannot |
| those in Canada and South Africa for example, have | | | | tell a business owner how to run their business. It is |
| both income tax and goods and services tax (GST) or | | | | certainly not obligatory on the taxation authority to |
| value added tax (VAT) that present opportunities for | | | | advise a business owner on a course of action that |
| refunds when a business' expenses exceed its | | | | would contravene their charter of "protecting the |
| income in the early stages of its life.Initially, the start-up | | | | revenue" of the State.This is why a business owner |
| capital may come from savings, family and friends and | | | | should seek the advice of a suitably qualified |
| salaried employment. The last source of finance - | | | | accountant who is experienced in taxation and |
| salaried income - means that the business operator still | | | | business advice. A proactive accountant is more likely |
| works full-time for a salary and part-time on their | | | | to provide this advice than a compliance accountant. |
| business. This presents particular opportunities to | | | | The compliance accountant's role is more likely to |
| receive extra cash flow to fund the growth of the | | | | involve complying with tax laws, rather than optimising |
| business - from value-added taxes and income tax | | | | tax situations. The compliance accountant's mind is so |
| refunds.It should be noted that even where the | | | | attuned to complying with tax laws that they often do |
| business owner does not have other salaried (tax | | | | not see the opportunities for optimising a client's tax |
| paid) income, they might have a husband or wife who | | | | position.Once the business owner has been convinced |
| does have salaried income. If they become a partner | | | | that it is in their interests to register for GST or VAT, |
| in a partnership conducting the business, or a | | | | the next question is for what filing period to opt? The |
| shareholder in a Loss Attributing Qualifying Company | | | | more regular a filing period, the sooner the GST or |
| (LAQC) in New Zealand only, then they can share in | | | | VAT refunds will improve the business cash flow. So |
| the business losses and receive income tax refunds.In | | | | they may decide to opt for monthly or two-monthly |
| Australia, there was an ATO income tax ruling (IT | | | | GST or VAT returns. There will be an administration or |
| 2218) that allowed a partner to receive a salary - as | | | | accounting cost that needs to be weighed against the |
| long as the partnership agreement recorded it in writing | | | | benefit of a quicker cash flow.The income tax refund |
| - and this presented an opportunity to maximize the | | | | is an annual event that cannot be changed, except for |
| loss for one partner (the salaried partner), thereby | | | | where the business owner is leaving the country |
| maximizing the income tax refund. That income tax | | | | before the end of the tax year and applies to have a |
| ruling was withdrawn on 22nd May 2002. Australia has | | | | tax return processed sooner. There will be extra |
| no LAQC equivalent entity. However, there is nothing | | | | forms to complete and information to provide, and it |
| preventing a partnership agreement specifying a | | | | usually means that the business is closing down. Even |
| partnership split other than 50/50, so that one partner | | | | that income tax return should be lodged as early as |
| can receive more of the loss than the other. It would | | | | possible after the tax year ends, rather than being left |
| be prudent for the partnership agreement to record | | | | to be filed with other taxpaying business owners, so |
| the reasons for the ratio used.So, how does it work? | | | | the income tax refund is received soon rather than |
| Most businesses start off making losses, and small | | | | later. |
| businesses and home-based businesses are not | | | | |