Correction: CCH iTax is available as a standalone package, as is GovReports.
Xero has today released the complete version of Xero Tax, its online tax program which was first shown to the market in April 2013. Xero has finally added the last tax return forms to make a complete set for 2014 and 2015.
Wolters Kluwer (CCH Australia) beat Xero to the punch with the launch of its own online tax program in May. CCH iFirm’s tax module can be bought separately for A$46 a month. GovReports, another standalone online tax program for Australian tax agents, has been available since 2011. It claims to have a number of patents in this area.
The advantage of online tax programs over desktop equivalents is that the software company is responsible for updating the tax tables whenever the federal tax office changes them. These updates are usually carried out invisibly to the user.
This removes the burden from accountants who in the past have had to update desktop software with patches supplied on CDs or by download.
Xero has fashioned its tax software as a hook to bring firms across from server-based practice management software to Xero’s cloud suite, Xero Practice Studio.
Xero Tax is in fact a module within Xero Practice Manager, the workflow management tool at the heart of Practice Studio. In the standalone version of Xero Tax, Xero Practice Manager has turned off the workflow and jobs modules.
Once a firm is happy with Xero Tax they can turn on Xero Practice Manager and start assigning jobs using the same client list within Xero Tax.
Xero says that 95 percent of tax returns are the current financial year or immediately previous. This is the first time Xero Tax has had forms for two consecutive financial years. Firms will most likely still keep their desktop tax software for returns lodged before 2014, however those that move to Xero Tax will no longer need to keep updating the tax tables.
Xero Tax is free to accountants and bookkeepers with more than 30 clients on Xero (silver status). Otherwise it is available as part of Xero Practice Studio for A$149 a month.
What is different about Xero Tax?
I had a chat with the head of Xero’s tax program, Anthony Migliardi, known internally as Mr Tax, and Matthew Prouse, senior account manager for Xero’s financial advisor channel. “What separates us is the look and feel and the workflow. And the fact that the accountant can prepare a return from anywhere,” Migliardi says.
The most visible difference is that Xero Tax can be used on any device with a browser, including tablets. The interface follows the same design aesthetic as Xero’s business accounting software which is optimised for touch screens.
This is not just for the cool factor. Prouse demonstrated how you can complete a tax return on the iPad for a client in your office, largely by auto-filling the form with data in Xero Practice Manager. Once the return was finalised you can open it as a PDF in a digital signature app on the iPad such as Echosign or Docusign.
Then you hand over the iPad to the client, they sign with their finger on the screen and the signed return is stored by the digital signature app or a cloud storage service. The tax agent then lodges the original return with the ATO through Xero Tax.
(The same process works on a desktop browser. Printing a return in Xero Tax opens it as a PDF in a new tab in the browser. The digital signature apps use browser extensions to automatically add it to their workflows.)
MYOB and Handisoft already use their own digital signature software, cutting out the need for Docusign or Echosign. Xero is working on a similar solution but is first looking for agreement from industry bodies about what constitutes a digital signature, Prouse says. “One of the things you can sign with in the future is your fingerprint.”
Prouse, a former accountant, says the flexibility of working on iPads or other mobile devices will bring a lot of much needed flexibility to tax agents.
“It’s not just the workflow benefit it’s the work-life benefit. Tax agents have to stay back after hours checking returns in the office or going into the office on a Saturday morning. A lot of tax agents are making choices like do I want to get paid or do I want to see my daughter’s netball game,” Prouse says.
“Now they can quickly review it on the iPad at the netball game and make a decision. Accountants have the ability to lodge returns with no restrictions about where they are.”
Prouse admits that desktop tax programs can be viewed on tablets using VPN software. However, the desktop interfaces are not designed for this.
Solving errors with integration
Xero does data well and Xero Tax is no exception. An accountant can import the active client list from the ATO for all entities associated with their tax agent number.
Xero has looked for ways to maximise the integration between its client accounting, practice management and tax programs to cut down manual data entry. The pre-fill BAS has been out since 2013 and can be lodged directly through Xero Tax with a BAS agent AusKey.
This saves BAS agents from printing out reports from the client’s file and manually entering the results into the tax program.
Xero will release auto-filled tax returns in Xero Tax at the Australian Xerocon in August, which will save tax agents a similar amount of data entry. Competing desktop programs already promote this feature however the integration is unreliable and frequently creates errors, Migliardi claims.
“We want to put in place an integration that allows a firm to import client accounting data onto a tax return with confidence about where all the data goes on the return,” Migliardi says.
“The integration is going to be a lot smarter and more seamless and far more accurate.”
Xero has also used data integration well within Xero Tax itself. It uses the client list as a single source of truth for Xero Practice Manager as well as tax. The client list is in fact closer to a lightweight CRM with custom fields where accountants can record their clients’ favourite sports team, for example.
Relationships within the client list are reflected through all the tax forms. If you update a client’s details, they are automatically updated throughout all forms for that client.
For example, you can add two individuals as beneficiaries of a trust with one receiving 60 percent and the other 40 percent. When you add the two names of the individuals to the trust form Xero Tax will automatically prepare distribution statements for them with the appropriate percentage distribution.
If you then later update the percentage distribution to 50/50, for example, Xero Tax will automatically update those percentages in both individuals’ beneficiary statements.
“This minimises the risk of errors. Most other programs don’t sync the client modules with the return so you end up finding the beneficiary partners in the return are different to what’s in the client’s module,” Migliardi says. “There’s only one source of truth. Whatever is in the client’s module flows through to the tax returns.”
Other smarts worth mentioning; Xero Tax picks the largest deduction by default when presented with options. For example Xero Tax will determine which of four calculation methods will give a client the biggest claim for a motor vehicle expense and save that figure in the form.
Xero Tax also lets you have two tax returns open at once. This can be useful for comparing returns for a husband and wife so you can validate that data is flowing correctly between the two.
All the 2015 tax return forms are individual, partnership, company, trust and SMSF are included. Tax agents can lodge returns electronically with the ATO from 1 July.
If you used Xero Tax or Practice Manager to prepare a client’s 2014 tax return, previously entered details, schedules and carried forward amounts will rollover automatically onto the 2015 tax return.
The competitive landscape
Xero is the only standalone online tax program on the market. It won’t have this lead forever. MYOB and Reckon are working on their own online tax programs as part of the migration from electronic lodgement service (ELS) to standard business reporting (SBR) mandated by the ATO.
MYOB has previewed elements of its online tax program although neither MYOB or Reckon have committed to release dates. Both companies are also working on cloud versions of their practice management suites which have required updates to keep in line with the ATO’s SBR initiative.
Disclosure: Sholto Macpherson has consulted to accounting software companies including Sage Australia and Xero.