debra beattie, general manager, m&gsq

SECURING FUNDING WORKSHOP

Toowoomba29 and 30 April 2010

PREPARING A BUDGET

Debra Beattie

General Manager

Museum & Gallery Services Queensland

The budget is one of the most difficult components of any grant application.

It is important to get it right or it could undermine the competitiveness of your

application, or even make your application ineligible.

Give yourself plenty of time to do the application and the budget.

You may have to spend time

getting estimates and quotes. You may also find that the grant

and other earned income doesn’t cover the project costs. If this is the case, you will need to make adjustments to the project (and therefore rework the budget and the written application).

Check whether the funding guidelines require your organisation to be

legally incorporated

(e.g. incorporated association, company limited by guarantee)

If your organisation is not eligible, you may be able to arrange for an

incorporated organisation to auspice your grant.

WHAT ARE YOU APPLYING FOR?

The budget must reflect what you have said in the written part of your

application.

If you have stated that you will undertake certain things in the project, there must

be evidence of any income or expenditure associated with that activity

in the budget.

Most funding agencies are unlikely to fund 100% of the costs of your project.

Some funding guidelines will state this.

They will expect to see some contribution from the organisation.

This could be in the form of: an ‘in-kind’ contribution (e.g. volunteer

hours) sponsorship earned income (e.g. sales of goods or

services) a cash contribution

Be realistic.

Don’t include outrageous amounts of earned income or sponsorship if there is little chance that you can

actually raise it.

If you can’t cover the costs of the project, you may have to downscale what you

are proposing to do.

WHAT DO I INCLUDE?

Read instructions very carefully.

If in doubt, phone or email the

funding agency staff.

You will need to be clear about

what you are asking them.

Different funding agencies may include different types of items

under each budget line.

Check the list carefully.

For example, do they want totals for groups of expenditure?

Or do they want detailed breakdowns?

Look at the budget form carefully.

If they only want totals, keep a detailed breakdown for your own records.

You will need to know how you arrived at those figures.

It’s a good idea to sit quietly with a notebook and pen or at your computer and imagine that you are carrying out all the steps in your project.

Write down all the things you will need to spend money on as you go along.

You can also look at the “How to complete a RADF Budget Sheet” in your resource folder – it gives you a checklist of

income and expenditure.

Include all of the costs of the project in your budget, not just the items you want the grant to

cover.

The funding agency will want to see how the grant amount fits into the overall budget.

Some applications will ask you to identify which components of the budget will be covered by the

grant. Even if they don’t it is a good idea to specify which components the grant will be used for.

Don’t send extra material such as written quotes unless you are

asked to do so.

It’s useful to get quotes so that you have an accurate costing on major items, but keep them for your own

records.

WHAT DO I NEED TO CONSIDER?

If the project is happening in the following year, ask providers to take this into account on any estimates

or quotes you obtain.

For example, there may be expenditure items that are affected by

rising fuel costs.

Note: The RADF guidelines state that “inflated budget claims may negatively affect the funding decision on your project”, so

ensure that projected increases are modest and legitimate.

If the grant amount is large, you may have to account for

interest on the income.

The grant guidelines usually tell you if this is required.

If the grant amount is over a certain limit, some funding agencies require a qualified auditor’s report on your

acquittal budget.

WHAT ELSE MIGHT I NEED?

Do you have an ABN

(Australian Business Number)?

You can have an ABN without being registered for GST.

If you do not have an ABN, the funding agency may have to withhold 46.5% of your grant and

pay it to the Taxation Office on your behalf.

More information on ‘ABN Withholding’ is available on the Australian Taxation Office website in the section for Non-Profit Organisations.

On the left hand menu, go to Tax Topics A-Z, click on ‘A’ and go to ‘Australian Business Number’ for an Introduction to ABN.

If you do not have an ABN, your grant could also be auspiced by an incorporated organisation with an ABN.

WHAT ABOUT GST?

Are you registered for GST?

If you do not know the answer to this question, you need to talk to your

accountant.

To be registered for GST, you will have lodged a form with the Tax Office (or registered online) and you will be

lodging Business Activity Statements (BAS) on a regular basis.

Decide whether the income and expenditure included in your budget includes GST or

excludes GST – and specify this clearly.

Check the guidelines to see if they require

GST-inclusive or GST-exclusive amounts.

For example, look at the RADF application budget, page 8.

It gives very clear instructions on what to do if you are

GST REGISTERED and what to do if you are

NOT GST REGISTERED.

If the funding guidelines don’t specify, you need to choose one method.

The best choice might be the one that’s most compatible with your bookkeeping

system.

How to work out the GST-EXCLUSIVE cost?

An item costs $100.

If this item has GST in the cost,

divide by 1.1 to get the GST-exclusive cost.

$100 ÷ 1.1 = $90.91

This means that $90.91 is the cost of the item

exclusive of GST.

It also means that the balance ($9.09) is the amount of GST included in the cost.

$90.91 + $9.09 GST = $100.

How to work out the GST-INCLUSIVE cost?

An item costs $200.

If this item does NOT have GST in the cost,

multiply by 1.1 to get the GST-inclusive cost.

$200 x 1.1 = $220

This means that $220 is the cost of the item

inclusive of GST.

The extra 10% ($20) is the amount of GST.

$200.00 + $20.00 GST = $220.

If you are registered for GST, checkwhether the funding agency

“tops up” for GST or whether GST comes out of the grant amount.

If the funding body “tops up”, this means they will pay 10% on top of the approved grant amount to

cover the GST component for registered organisations.

Example: If you applied for $30,000 – they will pay you $33,000.

$30,000 grant + $3,000 GST = $33,000.

If the funding body does not “top up”, you will have to pay the GST out of the grant amount. You

need to allow for this, otherwise it could leave you several thousand dollars short on your project.

Example: Out of a $30,000 grant

you will have to pay $2,727.27 in GST.

$30,000 ÷ 1.1 = $27,272.73

WHAT ABOUT PEOPLE WORKING ON THE

PROJECT?

If you or your colleagues are working on the project, remember to pay

yourselves –

at a proper rate.

Refer to your resource folder for

recommended rates of pay.

If the project budget can’t afford to pay the full amount at the recommended

rate, you might choose to provide some of your services ‘in-kind’.

Refer to pages 4–5 of the “How to complete a RADF Budget” sheet in your resource folder for examples of

in-kind contributions.

If you are employing people on the project on a salary basis, there may be associated ‘on-

costs’ such as superannuation, workers’ compensation, leave loading.

If you are employing people on the project who are consultants, they usually cover these

on-costs themselves out of their consultancy fee.

You need to check with each person you engage and determine who is responsible for covering

on-costs.

Some examples of ‘on-costs’:

Taxation, e.g. Pay As You Go (PAYG) withholding

If you have employees, you need to withhold amounts from their pay and send the withheld amounts to the Tax Office. This is called PAYG withholding.You must register for PAYG withholding before you withhold any amounts. All amounts your business withholds must be paid and reported to the Tax Office. How often you pay and report withholdings to the Tax Office will depend on whether you are a small, medium or large withholder.

How much you withhold depends on the amount you are paying your employee, as well as the employee’s individual tax circumstances. Employees should notify you of their tax circumstances on a Tax File Number (TFN) Declaration and/or a Withholding Declaration form.

For more information on PAYG go to the Australian Taxation Office website, http://www.ato.gov.au/nonprofit/

On the left under “What do you want to do?” click on ‘Pay Staff’ and go to ‘Employees, volunteers & other workers – essentials” for basic and advanced information on PAYG.

Some examples of ‘on-costs’:

SuperannuationIf you are an employer you have an obligation to pay super contributions on behalf of all your eligible employees. These contributions are in addition to your employees’ salaries and wages.This compulsory contribution is called the superannuation guarantee and it requires you to:･ pay super for your eligible employees･ contribute to the correct super funds, and･ pay contributions by the cut off date each quarter.

The minimum super amount you have to pay is 9% of each eligible employee’s earning base.

For more information on the Superannuation Guarantee go to the Australian Taxation Office website, http://www.ato.gov.au/nonprofit/ On the left under “What do you want to do?” click on ‘Pay Staff’ and go to ‘Employees, volunteers & other workers – essentials” for basic and advanced information.

Some examples of ‘on-costs’:

Workers’ CompensationWorkers’ compensation insurance covers you for the costs associated with compensating your workers who sustain a work-related injury or

illness. The policy is compulsory if you employ workers in Queensland and is available through WorkCover Queensland.

WorkCover Queensland calculates the amount of the premium by multiplying the total wages by your organisation’s premium rate. Your premium rate is influenced by your claims history, your industry and your business size.

For more information on workers’ compensation insurance go to the Workcover Queensland website, http://www.workcoverqld.com.au and click on ‘Employers’ for details on Accident Insurance.

Some examples of ‘on-costs’:

Leave loadingAn award or agreement may provide for an extra payment by way of a loading that is to be added to an employees’ ordinary current rate of pay during annual leave.

This is usually around 17.5% of the gross wages paid for the period of leave.

For example, an employee is paid gross wages of $700 a week for four weeks’ annual leave, plus 17.5% leave loading.

$700 x 4 weeks = $2,800 gross wages

17.5% of $2,800 = $490 leave loading

Total leave payment = $2,800 + $490 = $3,290

For more information on leave entitlements, go to the Fair Work Online website www.fairwork.gov.au and click on ‘Employers’.

…FINALLY

Make sure you keep notes of your budget calculations.

When you have to acquit the grant, you will need to know what you originally

included in each budget line.

It’s a good idea to keep a worksheet with a running total of your income and expenditure against each budget line.

This will make the grant acquittal much easier, and it also allows you to see if you have shortfalls or excesses against each budget item.

MAKE SURE YOUR BUDGET

ADDS UP!!

The funding agency will have no confidence in your ability to manage the project if you can’t balance the budget.

GET SOMEONE ELSE TO CHECK YOUR CALCULATIONS.

EVERY TIME YOU MAKE A CHANGE TO THE BUDGET

– EVEN A MINOR ONE –

ADD IT UP AGAIN.

GET SOMEONE ELSE TO CHECK YOUR CALCULATIONS.

OTHER USEFUL INFORMATION

Deductible gift recipients (DGR)

To receive tax deductible gifts, an organisation must be a deductible gift recipient (DGR). To determine whether your organisation can receive tax deductible gifts, you must:

• Check whether your organisation falls within a general DGR category and can be endorsed by the Tax Office. • Check the other conditions for DGRs. Your organisation may have to meet some or all of these conditions to be a DGR – including possible changes to your organisation’s constitution, e.g. ‘winding up’ clause.

Public art galleries, museums and libraries are approved by the Australian Taxation Office under another Deductible Gift Recipient category (Cultural Gifts Program).

More information on Deductible Gift Recipients can be found in your resource folder, or go to the Australian Taxation Office website, www.ato.gov.au/nonprofit/ On the left under “What do you want to do?” click on “Find out about tax concessions & endorsements”. It is important to refer to the full DGR Giftpack on the ATO website if you are considering applying.

Register of Cultural Organisations (ROCO)

Cultural organisations receive DGR status by applying to the Register of Cultural Organisations (ROCO).

ROCO assists qualifying cultural bodies to attract support by enabling them to offer donors the incentive of a tax deduction.

Cultural bodies listed on the Register are able to receive tax deductible donations to assist them with a wide range of activities, such as the creation of a new theatrical work, the publication of a literary magazine or the building of a community arts centre.

Cultural bodies eligible for listing on the Register are those whose main purpose is the promotion of a cultural activity such as: literature; visual, community, performing or Aboriginal and Torres Strait Islander arts; music; crafts; design; television; video; radio; film; or movable cultural heritage.

Refer to the information about the Register of Cultural Organisations in your resource folder or go to the Department of the Environment, Water, Heritage and the Arts (DEWHA) website, www.arts.gov.au/tax_incentives

Cultural Gifts Program

The Cultural Gifts Program provides tax incentives to encourage gifts of culturally significant items from private collections to public art galleries, museums, libraries and archives.Gifts can range from paintings, books, sculptures, manuscripts and personal papers to jewellery, ceramics, technological, mechanical, scientific and social history collections.The Department of the Environment, Water, Heritage and the Arts (DEWHA) administers the program.

For more information on the Cultural Gifts Program go to the DEWHA website, www.arts.gov.au/tax_incentives

The Australian Taxation Officewww.ato.gov.au

Go to the home page and follow the menus to the Non-Profit Organisations home page.

There are numerous fact sheets to download, including those that explain the ABN and the basics of GST.

The ATO also has a range of hard copy publications you can order.

Phone 1300 130 248For non-profit enquiries including income tax, Australian

business number (ABN), goods and services tax (GST) and fringe benefits tax (FBT).