A fridge should last far more than 3.5 years and thankfully Good Guys/Samsung realise this and ‘have come to the party’
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Unclaimed vouchers actually make up a fairly large amount of the economy.
In this case, it may actually be a means of reducing taxes for 2019-20. As at 30 June, the company has a liability of $x, based upon the vouchers it has promised to customers. As none of the vouchers can be redeemed until 1 July, that liability cannot be reduced during 2019-20. On 7 July the company can identify how many vouchers have not been claimed, and get rid of the entire liability.
Quite ingenious as a once-off tax offset. Not something you could really benefit from long-term, though - as last year’s hit to profitability becomes this year’s gain.
- Not a tax accountant, so cannot say for sure that this is how the vouchers are treated for tax purposes.
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Are they really a voucher for tax purposes or just a promise of a future discount on a purchase, highly conditional given the time constraints?
iTunes card, Coles gift Card etc they are not.
Only if they are redeemed, they they would be taken as a debit against the books.
This could be a very drawn out discussion. Will it have an outcome?
It’s a change of topic and distraction.
The ATO, TGG and any competent business tax consultant may know with some certainty, whether there is any tax advantage being gained by TGG as speculated by @postulative.
It seems unusual we are responding without the full facts to consider.
P.S.
I’ll simply note that the TGG vouchers appear to be a free promotional giveaway. They are not a voucher such as a $100 store gift card provided for consideration. For tax purposes they are not the same.
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The vouchers are not a discount but rather have a value for which reserves would be put in place to cover. So the liability would be on the books, it is considered part of the owners equity so is a liability to the company.
They could repeat this year after year, and as a business carry any book losses forward many years.
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Thats correct. And where they are redeemed they stay on the ledger and if they aren’t redeemed, they fall off.
It is likely that they are not placed on the accounts ledger until redeemed. They may have a sales item for bonus credits and when they are redeemed, they are processed and added to the ledger at that time. This method is more likely since they have a short term residual value.
When they are added to the ledger they would be a business cost which would come off their bottom line…no differently to say advertising or goodwill.
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Reserves come off the bottom line as profits would be reduced by the amount of the reserve, thus lowering their tax liability. As a voucher is redeemed money is taken out of the reserve and placed in most likely cost of sales, again a liability and again reduces the end of year profit. Both working to reduce Tax liability. The reserve could be done in the current Tax Year and depending on when the voucher amount was used the cost of sales could be in the following Tax Year. The reserve could be carried for a lot of years, after all they may issue more vouchers, they could even increase the reserve by any vouchers redeemed or to increase it’s holdings…
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So for a business accounting for tax purposes on a non-cash basis (accruals), it is suggested this is everyday accepted accounting practice. IE Nothing unusual or to complain about as credits accrued for many different reasons carry forward across tax years. It’s really just everyday business.
It was suggested,
Is it really a successful tax offset strategy if the business has to meet the liability so shortly after the original sale, (as for @NubglummerySnr example)?
In hard cash companies have nearly 12 months to lodge and complete payment after the EOFY. IE the saving in deferred tax is likely less than the cost incurred when the credit/voucher is redeemed. Compare the scenario to one where the redemption occurred in the same tax year?
For the customer one would hope the tight restrictions for redemption should be made very clear prior to the initial purchase being agreed. Is the store using the incentive to clear both stock at end of FY, and encourage further carry over sales in the following first week/s of the new FY?
Are the offer/s just another way to boost sales and turn over to a business?
No it can’t be used as a tax offset strategy like outlined, where vouchers which don’t require any monetary transaction is concerned. These are just pieces of paper until such time they redeemed and then they have a value/debit against the business. A business could issue $1B in such vouchers but it won’t have any effect on the ledger until they are redeemed. Hopefully the business has enough cash in reserves to cover any future commitments. It also should have a budget item for planned future business costs, but this is not used for tax purposes and does not has tax implications, only cashflow and forward planning purposes.
It is a bit like having an asset which has a loss on paper, but until the asset is sold, the paper loss isn’t realised. If paper losses could be used for tax offsets, then this would be a massive loophole in the tax system and exploited (think a pyramid scheme where each year the losses are increased to cover tax liabilities).
Note: If money is paid for the voucher, like a traditional gift card, tax treatment is different as the transaction has been accrued in the ledger and needs to be accounted for for tax purposes.
I’m easily swayed, if for no other reason that it seems a purely academic if engaging discussion. We really do not know how or what TGG at store or corporate level account for in these transactions. You only need to look at the myriad of ATO explanations and rulings on accruals, provisioning, and handling gst on credits, vouchers, cash backs or volume rebates to ask, are we just guessing?
I’d suggest as outlined it might not be an effective strategy given the likely differences in real cash flow outcomes.
Yes, there are some for employee gift vouchers and monetary type gift cards (cash paid for cards).
If the printed Good Guys vouchers have tax implications, then every discount docket with percentages off or any other form of price reduction or gift (when voucher is redeemed) would also need to be treated in the same way. This doesn’t occur and things like shopper dockets would be a logistical nightmare to manage.
TGG can’t rewrite tax legislation for its own purposes.
A voucher like this involves a future obligation from a past event (the basic definition of a liability in accounting). The business would have to record a provision based upon the forecast use of these vouchers, in the same way as it records provisions for doubful debts and employee entitlements. Slightly different calculation, but same basic effect on the balance sheet and profit and loss.
You book them based upon expected redemption, not on face value. Most entities only update their provisions annually.
For more information you can refer to the relevant Australian Accounting Standard.
If the customer was required to take a further action (such as spending $x) when redeeming the credit then it may not be treated as a provision.
Uncertainty, confusion and mayhem… my work here is done 
.
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It may or may not. Just because a voucher is issued, there is a potential for a future obligation. There is no guarantee. One can’t accrue a potential, these can only be budgeted for using estimate for interal cashflow/planning purposes. One can’t claim a tax offset for something which is a potential. The government possibly would love to do this as it could overestimate one’s income stating it is potential income of the individual or business and then tax accordingly…this would be wishful thinking.
In our own business we offer discounts but these come off the income generated when redeemed. I would love to use potential total discounts to offset tax liabilities by minimising current income (which the tax system is based on). A way for me to avoid taxes if we use a pyramid type scheme where the amount offset escalates each year to past liabilities and potential liabilities. This may work for a few years if legal but in the end would be a house of cards ready to fall.
If a business gave $100 in cash instead of a voucher, then this would be very different as the ‘potential’ no longer exists and the liability happens when the cash is given.
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Indeed it is an effective tool. Consider that the voucher is a promise to pay some value an IOU if you like. The business then sets aside a budget for the possible redemption of that IOU, this is the reserve in the ledger. Then the voucher is redeemed, the reserve has that value deducted from it and the cost is moved to advertising or similar Cost of Sales item. Both the reserve and the COS are able to be used to reduce profits thus reduce Tax paid. A single voucher of $80 has little impact but let us take that in the year the reserve was created the Company had a large profit likely to occur. The creation of the reserve creates a liability for the company (Owners Equity) that then reduces the level of profit. If the vouchers are used in that same year then the reserve becomes less but COS goes up thus again reducing Profits and reducing Tax impact, even possibly creating an on paper loss.
If the reserve is not depleted they can maintain that reserve into the next several financial years as provision for similar future offers. If by creating the reserve or by redemption of the vouchers they help create a paper loss this loss can also be carried forward to help reduce future profits thus again reducing their future tax liabilities as a Company. It would depend on how much tax it saved as to whether this is worth doing. Also note that as the reserve is Owners equity it can be returned to shareholders as a dividend if the reserve is later closed.
This is similar to the 4c per litre (or whatever discount they offer) on petrol, it is a tool to get more sales so is generally taken out of the Ad budget but before that the value was likely held in a reserve to cover those costs. They know roughly how much will be redeemed so that’s a starting figure but they can certainly set aside more particularly if they want to shield themselves from Company Tax.
Some of this is how businesses avoid taxes…the costs of doing business are pure tax write offs. The provision for those costs is both prudent and tax wise and Accounting practices would encourage this. If the vouchers aren’t redeemed then the Owners Equity is boosted or the value is injected back into the business operations. It might be used to buy more goods for sale, to purchase assets, to expand the business, to provide more advertising (both subtle and unsubtle) among other costs that a business should expect. Some similar type provisions for cost are provision for Long Service Leave, provision for Sick Leave, provision for Holiday pay that may or may not be realised in any particular year or in fact that may never be paid out to the employees but it in the end will boost the Owners equity if it isn’t used for the purposes it was originally appropriated for.
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Just to quickly distract from all the tax and equity talk, I thought I’d throw in an update on the item we initially purchased that gave us the $80 voucher with a 1 week expiry date.
O…M…G… We never thought a boring old clothes dryer could be so amazingly amazing. Should have upgraded from the old one years ago. Well worth the wait for it to arrive from the mainland. Can thoroughly recommend the Haier 8kg condenser dryer.
And now,… back to the tax talks, which I’m finding rivetingly boring. Sorry. 
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