Barefoot Investor: Scott Pape on tax bills and debt collection
A MEDICAL professional now has a tax bill to the tune of $120k, despite paying an accountant to file tax returns for 20 years. Barefoot Investor Scott Pape has an antidote for a painful business activity statement.
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A MEDICAL professional who paid an accountant to file tax returns for 20 years, now has a tax bill to the tune of $120,000. Barefoot Investor Scott Pape has an antidote for a painful business activity statement.
TAMMY ASKS: For over 20 years I have had my tax returns filed professionally by an accountant.
Now he has retired and the new accountant, who took over the business, has informed me I have unpaid GST to the tune of $120,000!
I have returned to work as a medical professional and can earn a lot — around $25,000 per month. So, should I redraw on my already huge mortgage? Or pay the Australian Taxation Office in instalments?
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BAREFOOT REPLIES: I’m whistling as I write this, and cocking my head to one side.
There’s a bit of a difference between “you’re all paid up!” and “you owe $120,000!”
So which is it?
Well, the tax office operates on a self-assessment regime, which means you (or your accountant) work out how much tax you owe, and then you pay it.
But if you get audited, the ATO will then do their own tax assessment (with pliers, masking tape and a baseball bat).
Given you work in healthcare, it’s possible that your old accountant thought you were exempt (anything covered by Medicare is generally GST free). Perhaps your new accountant is now questioning that.
Listen: you need to get a second opinion on your situation, preferably from your accountant’s boss (and if he is the boss, from a partner at another firm).
Here’s what you need to do:
First, have them check your old BASs. If it works out that your old accountant has given you the wrong advice, you have four years to amend any lodgement.
Second, if there is GST owing, have the accountant arrange a payment plan. For matters under $100k you can actually arrange a plan over the internet without having to discuss it directly with the ATO.
In your case I’d have your accounting firm arrange it on your behalf. Third, if your old bean counter has stuffed up, I’d (forcefully) demand that they cover your incidental costs, i.e., general interest charges, any other ATO penalties, and especially any accounting fees they may want to charge to sort out this shemozzle.
If they give you any lip, tell them you’ll perform surgery on them … without anaesthetic.
NOT A GRAND FRIEND
NADIA ASKS: I feel like a fool. I lent a friend $1000 in 2013 (very stupidly on my behalf) and have not had a cent back.
She says she is going to pay me back when she gets her tax return (third time now). I know it is not very much money, but it is a lot considering I need it to go on my credit card!
What are your thoughts on debt collectors? I am sick of asking and she just does not give it back. Please help!
BAREFOOT REPLIES: No reputable debt collection agency is going to take this on. Reason being, I doubt you have a formal loan agreement, and the amount is just too small (and stay away from any crackhead who offers to collect the money for you — that’ll get you in a world of trouble).
So, what would I do if I were you? First, I’d face reality. You’ve been asking her for the money for three years, without payment. You are not going to get the money. She does not intend to pay you back.
This person is not your friend. Second, I’d learn from it and move on. From this point on, never ever lend money to family or friends. It always muddies the relationship and causes resentment.
If you truly care about someone and want to help them out, just give them the money. Emotionally, it will be much easier on you.
Finally, think of this as a $1000 lesson. You spent a grand and got this user out of your life. Money well spent.
Your next step is to rid yourself of your credit card debt — it could cost you far more than $1000!
NO BUNNIES, PLEASE
TESS ASKS: I love your column and have bought your book for my son, which he has taken to heart.
But I have some friends whose daughter, age 29 and living at home, borrows from Nimble and is out of control financially. Each time it becomes a problem they bail her out. Is there any way they can block her borrowing?
BAREFOOT REPLIES: For those readers who haven’t heard of Nimble ... congratulations!
They’re loan sharks (with a hipster rabbit as a mascot) who prey primarily on young people.
A short-term loan from Nimble can be as high as over 200 per cent per annum.
Their catchline is “smart little loans” — which is their first lie — there’s nothing smart about being financially kneecapped by payday predators.
(Incidentally, the people behind Nimble have made their fortune and are reportedly in the process of selling the business this week for a rumoured $100 million.) Rant over.
So what can her parents do?
Resist the temptation to bail her out. She’s almost 30. It’s time for her to stand on her own bare feet. Instead, they should get her to call the National Debt Helpline on 1800 007 007 to see if they can help her out.
And what can we do as a community to stop these rabbits?
Plenty. In fact, after an extensive review in 2016, the government agreed to crack down on payday lenders. The main point was legislating that lenders limit their repayments to 10 per cent of a client’s net income.
Of course, the payday lobbyists are all like, “This is, SO unfair!”
No doubt they’ve been pleading their case to Assistant Minister to the Treasurer Michael Sukkar.
And maybe it’s working? It seems the legislation has been mysteriously delayed. Or maybe Michael Sukkar (hello to his press secretary, who is reading this over a coffee in Canberra) is planning on pulling a rabbit out of his hat?
Be Nimble, Michael.
PLIGHT OF POSTCODE POVVOS
SOMETIMES my inbox feels like a confession box.
After years of doing this, people tell me things they wouldn’t say to their family or friends.
Like Sarah, who says she feels trapped in her home:
“Scott: I have just finished reading your book and I realise we are ‘postcode povvos’. Combined, we earn $230,000.
“However, we live in a tiny house we can’t afford in a suburb we can’t afford. We hate it. The kids hate it. We have never been so unhappy. After two years we have had no capital growth, meaning we will be lucky to get our money back, not to mention the $42,000 stamp duty. What do we do?”
Here’s the thing: to the outside world, Sarah has it made. She owns a nice home (tick), in a nice suburb (tick), and earns a nice income (tick) .… and yet her family have never been so unhappy. (Boom!)
In this property-obsessed country, you rarely hear about the plight of postcode povvos.
(That’s what I call people who hock themselves to the hilt so they can live in a fancy latte suburb — and thereafter can only afford to drink homemade Nescafé.)
So let’s you and I decode the killer line from her email: “After two years we have had no capital growth.”
What she’s saying, at least subconsciously, is that she bought this pokey little joint expecting to only stay in it for a couple of years, watch it rocket in price, and then trade up and buy something better.
And now reality has set in and the family feels trapped in a home they probably never wanted to stay in long term.
Look, Sarah isn’t really trapped. Yes, she’s sunk money on stamp duty, but the house is close to break-even, and she’s earning good money. She’ll be okay.
What I worry about are the future postcode povvos.
See, right now the number of first-home buyers is going through the roof, for a couple of reasons:
First, prices (especially in Sydney and Melbourne) are falling as investors pull back.
Second, governments are beefing up their first-home buyer bribes — by cutting stamp duty and allowing young people to access up to $30,000 of their super.
Cameron Kusher, of property analysis firm CoreLogic, argues that first-home buyers shouldn’t be sucked in to buying at the peak of the market because of these government bribes.
I wholeheartedly agree.
Now more than ever, if you’re a first-home buyer you need to ensure you have three ducks in a row:
A 20% deposit, the ability to cope with higher interest rates (factoring in that you may go down to one wage when a baby comes along), and a home you can happily live in for at least 10 years.
Tread Your Own Path!
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as Barefoot Investor: Scott Pape on tax bills and debt collection