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what does your tax return tell you?

What does your tax return tell you..... not much really

Your farm business annual tax return is a legal requirement. However the problem with a tax return and the Profit and Loss statement that goes with it, is that they are completed using the ATO guidelines and rules and therefore do not provide a very good set of accounts which are needed to more effectively manage the business.

A tax return gives you a rear view or historic view of your business that doesn’t help you to plan for the future if your going to need this, your going to need accurate and current financial reports and develop good farm budgets

The tax returns primary functions are to undertake an assessment of your tax liability and does not present vital business info like management profit, business equity and business efficiency.

However, as we have to have tax returns, we might as well understand what they are telling us about your business. Unfortunately, this is not very much. 

Here is what they will tell you:

  • Cost of your assets
  • How much tax to pay 
  • Total debt
  • Losses carried forward 

Here is what they don't tell you: 

  • They don’t show market value of assets so it is not possible to determine farm net wealth, 
  • They don’t show financial performance for a farm season. In many cases, especially for broad acre farmers, they will have a combination of information for multiple seasons presented in one report. For example, income from two or three growing seasons and the expenses for the next season are all combined.
  • They don’t show the profitability for each enterprise in the farm, for example profitability from crop, wool production or livestock. 
  • They don’t show actual cash movements. 
  • They don’t allow for meaningful comparisons with previous years due to tax adjustments that either accelerate expenditure or defer income. 

A tax return at the very best can only give you a rough estimate of business profitability plus how much tax you have to pay.

So, if you are paying a lot of money to prepare your annual financial statements or balance sheets, then that is an expensive way to simply work out how much tax you have to pay.

It does not need to be this way.

Give us a call and we will show you a better way to get more from your accounting spend.