#57 How to Avoid Getting Audited by the ATO: Advice for Allied Health Professionals

Transcript:

Ameeta
Hello, Arpana. Welcome to the podcast. I’m so glad that you could be here with us today to share all your expertise with our audience.

Arpana
Thank you so much, Ameeta. It’s really wonderful to be on your podcast.

Ameeta
I’m excited. Arpana, before we get into everything, accounting, helping our clients, I would love for you to just let the audience know a bit about yourself.

Arpana
Sure. So, I help poor time allied health professionals and lawyers to get on top financial systems, either on onsite or offsite. So, we only serve lawyers and allied health professionals.

Ameeta
Okay. And that’s a very specific niche, which is fantastic. With getting into working with that specific niche with allied health professionals, for you, what have you found to be the five biggest mistakes that they make when it comes to their businesses?

Arpana
Yeah. So, I’ve been working in this allied health industry, which is more exposed to ideal audits. We have found that the five biggest mistakes, and I’ll go through one at a time, explain a little bit about it.

Arpana
So, the number one mistake that we find when most clients come to us after living their current accountant is there’s a presumption that is no GST on any psychology fee, any social work, or speech pathology.

Arpana
I can extend it is correct, but there’s a second layer. So, in theory, I’m just gonna go a little bit detail. I mean, there’s some points to understand this. Absolutely. So, allied health services is specifically exempt from GST by our legislation.

Arpana
Okay. Usually, if you look at the GST Act, allied health services are not exempt from GST, but then the government has introduced this new legislation and saying that all allied health, because to promote mental wellness in the society, they say that allied health services will be GST free.

Arpana
So, the most common thing that a lot of allied health professionals are making is thinking that counseling fee is GST free, it’s not. Counseling is not a GST free. To have a GST free health service, you have to be part of, I’ve forgotten the name of it, but the standard counsel, which most of the psychologists are, and they are called doctors, while counseling is not a registered service.

Arpana
So, if you are providing counseling services, you immediately have a look at your helixi or power drive diary and get a proper advice from an allied health accountant and determine whether it is GST free or not.

Arpana
And then the second layer, so we have established that social work, psychology and speech is GST free. Then the second layer that ATO puts on allied health is the first thing is you figure out whether your service is GST free.

Arpana
But the second is who the supplier is. So, if your service is providing, if you are providing your service to an end consumer, and what I mean end consumer is your patient or your client.

Arpana
And just for this purpose, we are going to say patient. So, if you are giving direct services to your patient, it is GST free.

Arpana
If your fees are covered by private health insurance or through NDIS, it is definitely GST free. However, if you are providing your psychology service or speech or any sort of allied health service to a school or to an organization like sporting, or to in corporations, to promote the well being, it is not adult, it is GST free.

Arpana
And this is where a lot of people are making mistakes. ATO is smarter. Like, I mean, look, ATO wants money.

Arpana
You know, what happens is it’s our human nature. We see the first part and we go, there you go. It’s not GST free, but we do not go to the second and the third test.

Arpana
And that’s why it makes a difference to make sure that you go to a tax advisor who is specializing in a certain industry.

Arpana
That’s our most common mistake that we see with GST. Now, another mistake that they make with GST is reports and non-attendancy. Reports are sometimes not GST free. Now, I’m not going to go more into detail, but sometimes reports are written for some other purpose, which is not part of your NDIS plan.

Arpana
Reports do occur in GST. So the matter is quite complicated. So you have to sit with a clinic and just go through each and every service and determine who the supplier is.

Arpana
And you know, so I think that is quite overwhelming for any clinic to even understand just the basic GST act. The second mistake that the clinics are making is usually most of the clinics, the way they are structured.

Arpana
They either have employees and subcontractors. In this market at the moment, because human resources are quite tight, lot of clinics are employing subcontractors. So this is the second and third mistake, which I’m going to combine together.

Arpana
So the second and third mistake that the psychologists or the allied health clinics are making is they’re not understanding the proper relationship between a subcontractor and the clinic. So for example, if I am a contractor of say holistic clinic, right,

Arpana
and I’m providing a service to the patient. So the best thing to understand in here is who is invoicing the patient? Is it the clinic invoicing the patient or is it the subcontractor invoicing the patient?

Arpana
And this will determine whether GST applies and what kind of contract it is.

Ameeta
Okay.

Arpana
Right. So most of the time, a lot of our subcontractors are not directly invoicing to the patient, but they are employed by the clinic to provide a service to the clinic’s patient.

Arpana
It’s very, very critical to understand this relationship. What happens is the clinic, so what happens is the subcontractor will invoice the clinic for the work. Usually the range is between 65, 30, 70, 30.

Ameeta
Yes.

Arpana
But when the clinician or when the subcontractor is invoicing the clinic, what they are doing is they are only putting GST on the 30%, which is the management fee. It’s truly wrong.

Arpana
The GST actually goes on the 70%. And this is the biggest shocking thing when we tell our subcontractors and they are going, hang on, we have lost all this money.

Ameeta
Yeah.

Arpana
Yeah. And this kind of information either a specific tax lawyer can tell you or a specific accountant who are specializing in that area.

Ameeta
Okay.

Arpana
And we have, and I do run a lot of workshop for psychology clinic, for speech clinics, explaining to the subcontractors, because it is quite a shocking when they learn that the GST is on the 70% not on the 30%.

Arpana
it’s very, very important to understand that. And as I said, I’m combining the second and third. So the third one is usually as an employer as a contractor, we have contracts between the employer and the employee.

Arpana
So that’s called employment contract. Yes. The same contract between the clinic and the subcontractor. Yeah. What does a contract do? A contract defines the terms and condition of the clinician in the clinic.

Arpana
Right. And it got all sorts of terms. Now, ATO is very smart. So year, this major case came, and actually, I wrote the name somewhere and I’ve forgotten the name, but it is on my document that I’m going to give you.

Ameeta
Okay, I’ll share that.

Arpana
Yeah, it was a major case, and ATO actually lost that case. So what happened? ATO was, and failed to declare that the contractor and the relationship was it was a pure subcontractor.

Arpana
So they failed to prove that in the court. So naturally, it made ATO very angry. And ATO has taken out another legislation from last year. And the legislation specifically said that if your subcontractor contracts are not tight, and it does not take consideration of those seven elements that should be in the subcontractor contract, then ATO will deem your contractor as an employee.

Arpana
Okay, so then people ask, well, what’s the difference? Well, the difference is, if your subcontractor is deemed as an employee, then you have to pay superannuation. So you are in breach of superannuation act, then you have to pay workers comp, so you’re in breach of workers compensation act, then you might be, you might have passed the threshold and you are, you have to pay payroll tax according to the state, you’re a breach of payroll tax, right?

Arpana
Then there will be a PAYG, ATO, so you’re a breach of PAYG.

Ameeta
So it adds up.

Arpana
Exactly. And once it’s deemed an employee, you are kind of in a very, very, very worse situation. Because now it’s one act after another act, you can be sued.

Ameeta
Yes.

Arpana
And the biggest act is superannuation because, you know, Australia promotes superannuation. Yeah. You haven’t paid superannuation for God knows how many years the contractor has been with you. So everything is backpated.

Arpana
So if you had a contractor for 10 years, I mean, you can imagine how much money they are looking.

Ameeta
Yes. Yeah.

Arpana
And then all this audit work and all that is the cost raises, right? So this is the third mistake that we see. So usually we, I’m not sure whether you’re aware, but we do have a legal division.

Arpana
Yes. Our sister company who specifically does contracts only for allied health, making sure that those seven elements are in place. Seven elements are in the contract because of the last year’s case that the in the high court, now ATO cannot go beyond the contract.

Arpana
So if you have those seven elements, you are pretty much in a safe environment. Even if they take you to the court, the court

Arpana
will prevent them to look outside the contract.

Ameeta
Okay. Well, that’s really good to know. Yeah.

Arpana
So that was like a biggest advantage for people, for allied health clinics and for lawyers and who it was hiring subcontractors. They just have to make sure, the employer just have to make sure that the contracts are pretty much tight and then they cannot go beyond the contract.

Ameeta
Yeah.

Arpana
So this is the most important thing, having that understanding between your subcontractor and your Yeah.

Ameeta
Extremely important.

Ameeta
Yeah. And I definitely think that there would be a lot of clinics that don’t understand the intricacies of that or are not even having that open conversation with their accountants and getting that detail of information that’s going to help them make the right decisions for their business and prevent them from, you know, later down the line being sued by the ATO or being audited and having to go through that stress as well.

Arpana
All right. Correct. Because it is quite a lot of stress when you are caught under the mistake two and three, because that’s, that’s just, you are like literally, you have to shut your cleaning just to pay all these things.

Arpana
And then again, you know, there’s other penalties. We haven’t even gone into penalty side of things.

Ameeta
Yeah.

Arpana
And it’s very important. And you know, the thing is we are not specializing in everything. So I wouldn’t expect a clinician or a clinic to know everything.

Ameeta
Right.

Arpana
Exactly. And that’s why we all specialize in all our fields. So you should definitely get the right advice from the right person.

Ameeta
Person. Yeah. Yeah. And so we’ve gone through four of those mistakes. Number three. So what is number four?

Arpana
Number four is the reconciliation part. So usually our clinics use either power diary or helixy. Helixy is like a dominating.

Ameeta
Yes, it is very popular. Very popular.

Arpana
A lot of my clients are just using helixy or power diary.

Ameeta
Yeah.

Arpana
So what happens is when we take over accounts from other clinics who have come through us, we have seen that previous accountants have not reconciled between helixy income and, and between zero and biode, depending whatever the bookkeeping system is, because you have to understand your helixy is not a bookkeeping system. You have to keep a separate book.

Ameeta
Yes. Okay.

Arpana
Yeah. Like a purchaser side of things. So what happens is say, for example, if there’s an ATO audit, right. And we say to the ATO, the ATO will say that, okay, I want to see specific invoices.

Arpana
How did you reconcile the income received in the bookkeeping system? I’m just going to use zero. How did you reconcile the income that all the money came through the bank in zero?

Arpana
And how do you match it with helixy? Right. So helixy is your sales kind of system. We have raised invoice where we can do the testing. Zero is more of a reconciliation type.

Arpana
So ATO is not much interested in the zero side of the things. Right. But we still have to show that, okay, if helixy says for the whole year, your income was say half a million and

Arpana
you go on zero, which should be a mirror of your helixy is showing only 250,000. Boom. Where’s the other 250,000? Right. And it can go the other way around too, of course.

Ameeta
Yeah.

Arpana
But so this is where, you know, our team always every end of the month, we pull reports out from helixy and we match it with the money that is coming from the bank.

Arpana
Because helixy doesn’t receive F pause, it comes in the bank.

Ameeta
Yes.

Arpana
And the bank is connected with zero and whatever systems you are using.

Ameeta
Yeah.

Arpana
So it’s very, very important not just to credit sales and not do any reconciliation on the sales side. Because if there’s an audit, we will need to prove that zeros half a million matches with helix is half a million.

Arpana
You know, we have either done the GST wrong or we have done something wrong. So that’s very important. And a lot of people take this lightly, but it’s a good check.

Ameeta
Yeah. Yeah. Yeah. And then at least you know, you’re safe, you’ve done all the right things and everything matches up as well. Because then even at the end of financial year, it makes things a lot easier if that’s been tracked every month as well.

Arpana
Yeah. Yeah. And you are mirroring your bookkeeping system with your helix, only the sales part I’m talking about. Yes. You know, so you’re mirroring, so you think, okay, yes, we can show you.

Arpana
If these are less than $1,000 difference, it’s acceptable, but you can’t have like a half a million or 20, 30, 40,000 difference.

Ameeta
Yeah.

Arpana
And also another reason you would do a check is to ensure that all the money that is in helixi marked as paid, we’ve actually received the money. Right. How would you check?

Arpana
Yes. So you have to check through bank account, right? The bank.

Arpana
Exactly. Sometimes we have admins who have, maybe they are new admins who just marked some invoices as marked.

Ameeta
Yeah.

Arpana
And yet we haven’t received the money. Yeah. And every month this check will say, we usually get to the psychologist or the clinic owner and say that, hang on, you know, it’s not matching because we have, we’ve only received 10,000 and you are saying you have received 12,000.

Arpana
We haven’t. So, you know, it’s kind of a good check for them.

Ameeta
So it’s, it’s good to have that second set of eyes. And I think that as, as allied health professionals or any business owner for that matter, you know, it makes a difference when you don’t feel like you have to manage it all.

Ameeta
And you have to be that accounting expert. You have to be the tax expert. You have to be the law expert. You’ve got somebody else there that understands exactly what your business is about and can support you day to day with managing all of that.

Arpana
Yeah, correct. And, you know, it just helps because the clinic is growing this number of transactions going, having a second set of eyes makes it easy.

Ameeta
Definitely, definitely. There’s so much to manage within your business as it is. So one less thing to worry about is a great help.

Arpana
Exactly. And the last mistake, self promotion, I think. The last mistake that usually see, and I’m talking from experience and not only one or experienced, you know, we have had 20 years of experience doing this.

Arpana
And I always say that choose the right accountant for the right industry. And, you know, because if you have chosen the right accountant, then four mistakes above will be eliminated. Right. And I always say that only choose the accountants, you know, interview your accountants as well.

Arpana
You know, you both choose the right fit for each other. Accountants are long term relationships. You can change a bookkeeper quickly, but to change an accountant, it is quite a process. Because, you know, they know your history from the start.

Ameeta
Yes, correct.

Arpana
Yeah. So I always say that, you know, choose an accountant. If somebody says that I only specialize in allied health and legal, there’s a reason why they specialize in that because they only know that industry.

Arpana
So if you take my example, I have no tradies on my database. And if somebody goes, I would say, I have no idea about industry, about construction or anything like that. I have no idea.

Arpana
I won’t be able to add any value to your business. And therefore I don’t take clients.

Ameeta
Yeah.

Arpana
If I can’t add value, then there’s not much point. I mean, text advice, anyone can give it to you. But if specific specialized industry advice, it’s value.

Ameeta
And, you know, that’s a good point to open up, because I think that as business owners, again, we realize that there can actually be a relationship where there’s added value from your accountant.

Ameeta
We just expect that all it is, just do my books, do, you know, send everything to the ATO, get all of that done. But to actually get more value from your service, I think that that’s something that needs to be spoken about a bit more.

Ameeta
And I would love for you to, you know, give us a bit of an insight of what that could look like in terms of added value. What would be an example?

Arpana
Okay. So I’m just going to talk about myself because I’m not sure. Most of our clients are on monthly packages. We are all allied health professionals. So, you know, what do we want?

Arpana
We want a stress-free life. We want a peaceful night’s sleep, right?

Arpana
So for me to have, for my client to have that, they outsource all their entire financial services, whether it’s bookkeeping, payroll, best, everything. So every month we are kind of working with the client.

Arpana
There’s emails going, there’s quarterly checking happening. You know, I would just usually send them an email and I say, look, hi, hello, you know, it’s been quota. Is there anything you want?

Arpana
Is there anything I can help you with? And it’s all included in our packet. So all the services, so there’s no extra, you know, it’s a fixed money every month. So it’s better.

Arpana
But what I have heard from my clients, the feedback that we have received is that it’s very instant. So if you send an email to us, instantly your question is answered. So there’s no like wandering around or googling on internet, trying to navigate to your website, you know, that’s what you need.

Arpana
Like, I think there is a price you pay for a fantastic advisor. So there is obviously your cost will go up if you do go for that premium kind of service where you want all your stress to be taken away.

Arpana
Yes, then I’ve always noticed that the benefits outweighs the cost. Because as an accountant, I know your ins and outs and not because I met you once in a year. I meet you every month, either via email, Zoom, or whatever.

Arpana
I’m meeting you. I exactly know what’s happening in your business.

Ameeta
Yeah.

Arpana
And we usually work with only small amount of clients. It’s not very easy to just work with me. I work very closely with my clients. So we have a very small number of clients.

Arpana
I’m more passionate what I can add value before I can charge. So if I cannot add value to a client, I usually tell them that, look, I don’t think I can add value.

Arpana
But if I can add value, I would, and I would use them as my client. And another reason we have found is a lot of accountants are stressed out. They don’t have the time to give to their client, just listen to them, whatever their thing is.

Arpana
So working with small number of clients, we treat our clients as humans, not just a number on database that you have to deal with them once a year. It’s more like a human approach.

Arpana
We have psychologists, they have speech talking to about human resource constraints, talking to us about how do I manage employees or how do you reduce cost and all that stuff. So we are quite familiar with the struggles.

Arpana
Even if I can’t help them, I would say, okay, I’m listening to it. Let me see what my other clients are doing. And let’s just mediate and see if we can find solutions for each other.

Ameeta
Yeah. And that’s great to be able to use your clients as a source of resources as well for each other. And to be able to learn from those experiences and share that knowledge.

Ameeta
I think that that also is another aspect where don’t see that often with accountants. I don’t see that relationship building. And like you said, that once a year visit at the end of the financial year, that’s normally the standard process.

Ameeta
Whereas the way that you’ve described that, or being in contact once a month, once a quarter, understanding the ins and outs and the intricacies of their specific business and how that works does definitely leave you with a feeling of, okay, Arpana understands what I’m going through.

Ameeta
She knows what’s happening. And you can definitely feel more confident moving forward as well with your business and the decisions that you’re making.

Arpana
Yeah. Yeah. And I think that really adds value to a lot of things that sometimes we can’t understand or something like that. And with God’s gift, I do have the capability to explain a lot of things in plain English.

Arpana
So I don’t use it. Okay. This, this, and this, this, and that’s what it is. When the other day I client emailed and she goes, I’ve done this. And I said, don’t worry, I’ll take care of it.

Arpana
And that’s what they want to hear because they are so busy at looking after their own patients and trying to run their clinic. They just need to go, okay, I know I’ll send it to Arpana’s team.

Arpana
It will be taken care of. And if we need information, we just send a gentle email that, okay, we need the information. We do train our clients so that the processes are standard.

Ameeta
Yes.

Arpana
Because educating, a lot of people say sometimes clients don’t do things, but we believe in education, not only for our team, but we also educate our clients that if you start doing this, a lot of processes, unnecessary processes will be cut and be more efficient.

Ameeta
And everybody wants that efficiency, right? To reduce the amount of hands-on time with those types of tasks is a godsend. So that’s fantastic to hear the detail that you’ve gone through and the way that you’ve mapped out that process for your clients to make it as easy as possible.

Ameeta
Arpana, I know that there’s, you know, our audience are going to really just lap all of this up because it’s so useful and so relevant to many of them. So thank you so much for sharing all of this.

Ameeta
But before we go, and we’ve gone through those five fatal mistakes, is there other pearls of wisdom that you wanted to leave our audience with?

Arpana
I think the only thing I usually say to people is, Keep your focus on the dollars, not on the sales, have a plan behind your dreams, and just have the right set of advices. Because once you have the right team behind you, it’s

Arpana
pretty easy to scale your business. You don’t have to struggle all the way. You can just scale your business with the right team. Because your team, whether it’s external or internal, they will promote your growth to a level even beyond your expectation.

Arpana
And I’m only giving this advice or suggestion or whatever, because I have done it myself. I have scaled my business from zero, from six figures to seven figures. I know how it’s done.

Arpana
As an entrepreneur or as a business owner, when we first started our business, it’s like a little baby and we have control issues. I mean, right? And we think we are the masters of all the trades in the business.

Arpana
When that bubble busted for me, I realized I was the biggest roadblock for my own business. Because that’s when I realized to scale a business, you need to have people that will compensate your weakness or compensate what you don’t have.

Arpana
So I’m very much into education and building team. So have the right team, focus on the dollars, not on the sense how much you are paying them, because whatever you pay them, they are going to bring double the value, right?

Arpana
So you have to, if you are thinking of scaling from six figure to seven figure, I suggest focus on those things, building a team.

Ameeta
Yeah, really, really important advice. Thank you. I think, again, the way that you frame that of focusing on the dollars and looking at it from the perspective of what are they going to bring as a team member to your business and the growth being exponential from that as well is, again, something I think that we tend to not think about enough and realize the impact of our own fears and our own inhibitions of holding on so tightly and that control-freakness within us, you know, of thinking that we have to do everything, we are responsible.

Ameeta
And that’s, like you said, holding you, it’s held you back, you’ve realized that and it holds so many of us back. I know that’s been, you know, my case over the years with business as well.

Ameeta
But there’s so much value from people who are experts in those other areas. Correct.

Arpana
And, you know, I’ve been holding my business for the last six, seven years and then last three years when I started making change, I just realized that you have to accept your weakness and appreciate and then do something about it so your weakness turns into strength.

Arpana
And now I have, it took me two years to build this team, but we have built. And I know that they know me, I know I’m visionary, they are integrators, they know their place, they know how hard I will run.

Ameeta
Yeah.

Arpana
Sometimes they just like ignore me and sometimes they’re like, okay, I should calm down.

Ameeta
Yes. Picking the right team members that understand you and can work with you.

Arpana
Yeah. And realizing that you are sometimes the obstacle or roadblock, because we are so, I wouldn’t say egoist, but we are so critical in, you know, we are so in great long business and attached.

Arpana
Yes, we are so attached. We don’t want to let go of our baby and let them walk by themselves.

Ameeta
Yeah.

Arpana
You know, that realization really took me a long time.

Ameeta
Absolutely. And hopefully, this little piece of advice will spark something in our audience, listening out there. If this is you, remember that you might be the obstacle standing in your own path to success and growth.

Ameeta
And it’s time for change and building that team that’s going to support you and the vision that you have.

Arpana
Have that business, have that world, have that peaceful life.

Ameeta
Enjoy, just enjoy your life. Yeah. Fantastic. Thank you again, Arpana, for all your expertise and for being so open and generous with your sharing today.

Arpana
My pleasure. Thank you.