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Master Member
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Hi,
I originally mentioned this in a multi-subject post. In hindsight, that was a mistake and it is much clearer to use separate posts for these items.
I originally posted:Profit and loss report: profit/loss section
Since the actual fund income tax is split between instalments paid and provision for income tax (ie an increase in instalments paid will decrease the provision for tax) the item Less: Tax Instalments Paid should be applied as part of the Equals: Profit After Tax calculation - so that the full fund income tax is deducted from profit - otherwise the instalment payment is incorrectly increasing the profit after tax (by decreasing the Provision for Income Tax).
and you replied:Tax installments paid is already part of the tax liability calculation so adding it again would cause it to be double counted. You can see how the software caclulates income tax expense by ticking the 'Show detail' and 'Show income tax calculation' options on the Report Tool screen. The full breakdown of the calculation is usually located on the last page of the report, under the heading "Income tax expense calculation"
You rather missed my point here, I don't have a problem with the MySF accounts or the way that they are calculated - just the way the P&L is reporting this.
Let me put it this way - imagine two funds that are identical except that due to previous years tax have been raised very different PAYG installments - to keep it simple lets say that this years returns are identical and both have $100k taxable income and are liable for $15k tax. Both have no non-assessable income, non-deductible expenses or non-distributable amounts. The only difference is that fund A has paid no tax installments and fund B has paid $15k tax installments - leaving fund A with a current tax liability of $15k and fund B with a current tax liability of nil.
Now I would say that both have a taxable income of $100k, a profit after tax of $85k and an Amount available for distribution of $85k.
The current MySF P&L report would agree for fund A - however for fund B, since the provision for income tax is $0 (already covered by the installments) it would say that the profit after tax is $100k before deducting the $15k installments paid to give the same $85k Amount available for distribution.
My point was just that the real tax to be subtracted to give the profit after tax should include both the tax already paid (installments) and the tax still to pay.
I was not suggesting that the tax installments paid be added in twice or double counted - just that they should be applied before the profit after tax is totaled rather than after. The amount of tax that has been pre-paid as an installment does not actually change the total tax for the year or the profit after tax - but under the current P&L format it does change the reported profit after tax.
Neil H.
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MySF Administrator
Group: Administrators
Last Login: 4/11/2010 3:24:01 PM
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Hi Neil,
We will look through this to see if a change in the program is needed. Please note that the end profit figure shown in the p&L is actually the amount available for distribution and is therefore affected by the amount of tax that had been paid in the past. As such two funds with identical figures will end up with different amounts available for distribution if their PAYG instalments were different. This is not ideal for comparing the performance of funds, but that end amount for distribution figure is what is required by auditors.
Regards,
MySF
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Master Member
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Last Login: 2 days ago @ 9:53:37 PM
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Hi,
We will look through this to see if a change in the program is needed. That's good to hear, thanks.
Please note that the end profit figure shown in the p&L is actually the amount available for distribution and is therefore affected by the amount of tax that had been paid in the past. I'm not sure I follow you here. Of course different tax paid in the past will have affected distributions in the past, I just posed that as one way that you might end up with different PAYG installments for a fund with the same figures - another would be the timing of lodging a return that resulted in a change to the PAYG installment rate.
As such two funds with identical figures will end up with different amounts available for distribution if their PAYG instalments were different. I would disagree here - as I showed in my examples the bottom line amount available for distribution is the same. What I was saying was inconsistent was the profit after tax figure, higher up the report.
The bottom line amount available for distribution stays the same because as the tax installments increase, the provision for income tax decreases. The profit after tax figure (as currently shown by MySF in the P&L ) changes because it is calculated with the provision for income tax included but before the tax installments are accounted for. As I saidI was not suggesting that the tax installments paid be added in twice or double counted - just that they should be applied before the profit after tax is totaled rather than after. The amount of tax that has been pre-paid as an installment does not actually change the total tax for the year or the profit after tax - but under the current P&L format it does change the reported profit after tax.
Neil H.
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Master Member
Group: Forum Members
Last Login: 2 days ago @ 9:53:37 PM
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Just to clarify - when I say the total tax for the year doesn't change I mean that the sum of the provision for income tax and the tax installments paid doesn't change - and that this is effectively the total tax for the year and so is what should be considered when stating the profit after tax figure
Neil H.
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