A Guide To Performance Reviews

When carried out effectively, formalised performance reviews can be beneficial for both you and your employees.

It is an opportunity for you to demonstrate how much you appreciate your employees' contributions and undertake collaborative reflection on potential business improvements.

However, there are a lot of potential pitfalls that can undermine the effectiveness of performance reviews, sometimes even resulting in negative outcomes. If the review is unfocused it will fail to bring about any tangible results, which can lead to anxiety, confusion and occasionally even job dissatisfaction. Additionally, unproductive performance reviews can be a waste of valuable resources.

Here are some guidelines to help ensure that your performance reviews are as rewarding as possible:

A Review Is Part Of An Ongoing Process

Performance reviews cannot provide the same benefits as having continuous channels of communication between management levels. It is problematic when performance reviews become the designated time in which issues are addressed. If an employee has been underperforming then you should not wait until their scheduled review to address the problem. Your company will benefit from creating a culture in which there is an ongoing informal review process, with managers and subordinates communicating effectively about expectations, difficulties and outcomes.

Be Specific

Every aspect of the performance review should be specific to the individual employee and their responsibilities. Your comments and questions should be targeted, drawing on and requesting examples to back up any claims. The performance indicators you use do not need to be uniform, and should be individualised to staff members.

Turn Your Findings Into Actions

The information you collect throughout performance reviews can guide you in many business decisions. For example, you may see the need to make changes to remuneration packages, redefine job descriptions, or pursue further staff training.

Most importantly, the review process is a chance for you and your employees to take some time out from the day to day operations of your business and reflect on the bigger picture.

The ultimate end goal should be to reach a consensus on future aspirations and cement milestones that are both challenging and achievable.

Harris Black Top 20 Favourite Songs

On Friday 18th July the Harris Black team held their annual staff day.

Each team member presented on the day with the theme focused on 'time saving tips'.

To keep the day on track we played a game based on our favourite songs. Here is our eclectic mix:-

  1. A Team by Ed Sheeran;
  2. All In by Lifehouse;
  3. Beer In The Headlights by Luke Byran;
  4. Bigmouth Strikes Again by The Smiths;
  5. Dancing On The Ceiling by Lionel Ritchie;
  6. Don't Stop Me Now by Queen;
  7. Full Circle by Half Moon;
  8. Girls Just Wanna Have Fun by Cyndi Lauper;
  9. Great Southern Land by Icehouse;
  10. Hidden Ones by Missy Higgins;
  11. High by Peking Duck;
  12. I'm A Freak by Silverchair;
  13. Love Runs Out by Onerepublic;
  14. Miss Trouble by Tower Of Power;
  15. Nut Bush City Limit by Tina Turner;
  16. Only You Can Love Me This Way by Keith Urban;
  17. Stolen Dance by Milky Chance;
  18. Sultans Of Swing by Dire Straits;
  19. Treasure by Bruno Mars; and
  20. White Sky by Vampire Weekend.

Issuing Electronic Payslips

Electronic payslips are becoming an increasingly attractive option for employers as they allow for ease of delivery and can significantly reduce administrative costs.

Employers are required to provide employees with a payslip within one day of the end of the previous pay cycle. If you fail to meet your payslip and record keeping requirements, you may face a fine of up to $510 per contravention for individuals and $2550 per contravention for a body corporate.

If you wish to begin using an electronic payslip system then there are several compliance issues that you should be aware of:

  • electronic payslips are required to contain all of the same information as a paper payslip;
  • the payslips must be issued to each employee confidentially. For example via email or some form on online account; and
  • the electronic payslips must be easily accessible from outside the workplace and be in an easily printable format.

Additional advantages of electronic payslips include a reduction in paper consumption, the ability for employees to review their payslip history easily, and instant remote access to payroll information.

Changes To Credit Card Payments

From 1 August 2014 Australians will no longer be able to use their signature to verify credit card purchases.

Chip reading and PIN will become the only ways to use a card at point of sale, but there will be no changes to online purchases.

This has been undertaken as an initiative to reduce card fraud, which currently costs Australians approximately $81 million per year, but may pose some initial challenges to businesses.

Around 800 000 electronic payment terminals will have their software updated to no longer accept signatures as a form of payment. The roll-out is expected to take several weeks from the official start date.

It may be necessary for some businesses to invest in new portable EFTPOS machines, which can be a significant cost if your business uses multiple terminals.

It is also advisable to have a machine that can recognise chips, which some of the older models cannot do.

There are also some issues related to the new payment system that are specific to the hospitality industry. Industry representatives have expressed concern that there will be a significant reduction in tips left after a card payment, which constitutes a hefty portion of many hospitality workers' incomes.

Adjusting To Higher Fringe Benefit Taxes

Offering employees competitive salary packages can be key to the success of a business.

It will ensure that you have the capacity to attract the right talent, increases employee productivity and may help to minimise your staff turnover.

As a small business, it can be harder to gauge what a competitive salary package is, as the responsibilities of an employee are inevitably more varied in smaller organisations. Fringe benefits are an excellent option for employers seeking to make a salary package more attractive.

There are a lot of different things you can offer to employees as salary sacrifices,
including the use of a car, healthcare, school fees, entertainment and cheap loans.

Typically, the employer will reduce the employee's salary by the cost of providing the benefit, which is usually the direct cost of providing the benefit plus the associated fringe benefit tax (FBT).

From April 1 2015, the rate of FBT in Australia will be increased from 47% to 49%, in order to prevent individuals earning over $180,000 from salary sacrificing into fringe benefits to avoid paying the 2% debt levy.

This increase in FBT means that employers should reconsider all current fringe benefits arrangements. It is important to ensure that the arrangement is still as beneficial as possible, for both the employee and the employer.

FBT will return to normal on March 31 2017, to align with the FBT year and the end of the temporary debt levy. The nine-month window in between the introduction of the debt levy and the raising of FBT represents an opportunity for high-income earners to minimise their tax burden, by increasing salary sacrificing during this period.

Collecting And Writing Off Debts?

If your business has a bad debt, that is a debt that you have taken all reasonable steps to recover, but appears unlikely to be paid, then it is possible to write it off as a tax deduction.

While this does pose a small consolation, it is obviously preferable not to find yourself in this situation.

Therefore, if unpaid invoices are an ongoing problem for your business, it may be worth reviewing your debt collection processes.

Recovering Debts

If you have a debt that has not been paid, it is usually worth negotiating directly with the client. If the client indicates that they will be able to pay within a reasonable time frame, it is usually in your best interests to grant them this leeway.

In some cases, it may also be advisable to negotiate a discount. Although this can be frustrating and disappointing, you may end up with a larger portion of the full amount than you would have if you had sold the debt to a debt collection agency.

Selling A Debt

Selling a bad debt can be a good option if you do not think you have a decent chance of recovering the amount.

This means you will sell the debt to a debt collection company for a small portion of its total value, but will not receive any additional payment if they are successful in recovering the full amount.

It is also possible to enlist the services of a debt collection company without selling them the debt. This means that they will attempt to recover the debt on your behalf for a commission fee. Using a debt collector is an effective way to show your debtor that you are serious about recovering the amount.

Writing Off A Debt

If you are planning to write a bad debt off as a tax deduction then the amount owing must have been included in your assessable income.

You must also be able to provide the ATO with proof that you have taken reasonable steps to recover the debt.

A bad debt cannot come from an associated party, such as a family member, and it needs to have been formally written off in your accounts.

If you have received a tax deduction for a bad debt that is subsequently recovered, you must then declare this debt as normal business income

Changes To Pay As You Go Withholding Cycles

From 1 July 2014 a number of Australian businesses will have their pay as you go (PAYG) withholding cycles changed, based on the amount of PAYG withheld by the ABN in the 2012-13

financial year.

The ATO awards businesses small, medium or large withholder status according to the amount of PAYG that can be expected to withhold from their employees. Small withholder status applies to businesses withholding less than $25 000, with businesses withholding between $25,000 and $1 million having medium withholder status. Large withholder status applies to businesses withholding over $1 million, or with an annual turnover of more than $20 million.

Small withholders are required to report and pay their PAYG on a quarterly basis; however, a small withholder may also elect to pay their withheld amounts monthly. Medium withholders are now obliged to report to the ATO on a monthly basis. There are also currently no provisions allowing businesses to contest the requirement to report their PAYG monthly.

In order to remain compliant, large withholders are required to report weekly and to make electronic PAYG payments twice weekly. This may place a significant human resources drain on businesses that only just exceed $1 million in withheld PAYG. All businesses that will experience changes to their PAYG withholder status should receive written communication from the ATO detailing the changes.

Important Tax Dates

21 July 2014

June 2014 Monthly Activity Statement – Due Date for Lodging and Paying.

28 July 2014

Quarterly Activity Statement, Quarter 4, 2013-14 – paper –Due Date for Lodging and Paying; and
Super Guarantee Contributions for Quarter 4, 2013-14.

21 August 2014

uly 2014 Monthly Activity Statement Due for Lodging and Paying.

25 August 2014

Quarterly Activity Statement, Quarter 4, 2013-14, Due Date for Lodging.

Budget Levy From 1 July 2014

The Government's Temporary Budget Repair Levy is now law. The levy is be payable at the rate of 2% of each dollar of an individual's annual taxable income over $180,000. The levy is active for three financial years, starting on 1 July 2014 and ending on 30 June 2017. That means the top marginal tax rate is effectively 49% (including the 2% Temporary Budget Repair Levy plus the 2% Medicare levy).

For example: Individuals with taxable income of $200,000 will pay 2% of $20,000 (i.e. a levy of $400). Those with taxable income of $300,000 will pay 2% of $120,000 (i.e. $2,400 of levy).

A number of other taxes are also affected by the levy. According to the Government, these other changes are important to maintain integrity and fairness in the tax system. Notably, the fringe benefits tax (FBT) rate will be increased from 47% to 49%. As the FBT year commences on 1 April and concludes on 31 March, the increase in the FBT rate is to be applied from 1 April 2015. The increase in the FBT rate will cease on 31 March 2017.

High-income earners may want to review salary sacrificing arrangements and the possible effect of the levy. Please contact our office for further information.

Pay As You Go Instalment Threshold Changes

The ATO has confirmed the Government's recent announcement that the pay-as-you-go (PAYG) instalment thresholds will change with effect from 1 July 2014. Following the Minister's announcement, the ATO advised the following instalment threshold changes:

  • the business or investment income threshold is increased from $2,000 to $4,000;
  • the balance of assessment threshold is increased from $500 to $1,000;
  • the notional tax threshold is increased from $250 to $500; and
  • the requirement for entities registered for GST to remain in the system even if they have a zero instalment rate is removed.

As a result, many taxpayers will no longer have to pay PAYG instalments. According to the Minister of Small Business, around 32,500 small businesses that have no GST reporting requirements will no longer have to lodge a business activity statement (BAS) where to date lodgements have been made only to report PAYG instalments. In addition, around 340,000 small businesses with modest or negative income which are required to lodge a BAS, will no longer have to interact with the PAYG instalment system.

TIP: If taxpayers still wish to pay instalments towards their end-of-year tax liability, they may voluntarily re-enter PAYG instalments by contacting the ATO. Please contact our office for further information.

ATO Mining Data To Find Offshore Tax Evaders

The ATO says it is mining data to identify individuals with undisclosed offshore income and assets. "The net is closing for people who have undeclared offshore income – we're looking at all our data and will be in touch with financial institutions, advisers and thousands of people over the coming months," said Deputy Commissioner Michael Cranston. As at 30 June 2014, the ATO's Project DO IT initiative to encourage voluntary disclosure has received 166 disclosures, raising an additional $13 million in tax liabilities. The ATO has also obtained more than 250 expressions of interests from taxpayers indicating that they will be making a disclosure.

TIP: The last day to make a disclosure under Project DO IT is 19 December 2014. The ATO had previously warned that, until it receives a disclosure, its normal compliance activities will continue. Individual taxpayers detected first by the ATO will not be able to participate in Project DO IT.

Damages Assessable To Director Personally

The High Court has affirmed that damages received by an individual following a failed joint venture project were assessable to him personally. Broadly, the individual and others had sought for the company of which they were the directors to become an equity participant in the project and become the ultimate purchaser of the golf course. However, the other joint venturers in the project disputed this and made other arrangements to purchase the golf course.

The individual then successfully sued the other joint venturers and was awarded damages by the Victorian Supreme Court for the loss of a business opportunity. The Commissioner then assessed the individual on this amount (around $860,000). The individual argued that he had received the money as trustee of the company and it was therefore assessable to the company.

The High Court held the individual was liable to income tax on the damages received in satisfaction of the Supreme Court judgment. It was of the view the individual did not receive the amount as a constructive trustee of the company.

Winemaker Not Taxable On Property Sale

The Administrative Appeals Tribunal (AAT) has held that an individual taxpayer who was the controller of several trusts through which he operated a winemaking business, and who was also a beneficiary of the trusts, was not presently entitled to an amount of over $480,000 in profit that one of the trusts made from the sale of business premises.

The profit had been deposited into accounts which the taxpayer controlled for his personal benefit. The Commissioner had issued an assessment to include the profit in the taxpayer's assessable income on the basis that the amount represented revenue profit of the trust and that, as a beneficiary of the trust, the individual was presently entitled to the amount under certain rules concerning the tax treatment of trust income.

However, the AAT did not agree with the Commissioner's decision. It concluded that another of the trusts (of which the taxpayer was trustee) was beneficially entitled to the profit as a beneficiary of the trust that made the profit from the sale, and not the taxpayer in his personal capacity.

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Since 1994, Harris Black has been providing accounting and advisory services to our valued clients to help them achieve their business and personal wealth goals.


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