20 FEBRUARY 2019
Single Touch Payroll (STP) changes
From 1 July 2019 small employers (with less than 20 employees) are required to report to the ATO using Single Touch Payroll (STP) software at the time they process their payroll. STP is a way of sending employees’ tax and superannuation information to the ATO.
Large employers (with 20 or more employees) commenced STP from 1 July 2018. The new law will extend STP to all employers and will help ensure Australians receive their full superannuation entitlements and that PAYG (Withholding Tax). Other benefits of STP are greater transparency, faster streamlining business reporting and the ATO being better informed whether employers are complying with their PAYG(W) and superannuation guarantee obligations.
By reporting through STP, employers need not complete payment summaries at the end of the financial year, because payment summaries will be available to employees through MyGov.
Implementing STP and lodging reports may take some time for small employers and the ATO will assist by:
- Offering micro employers (with 1 to 4 employees) help to transition to STP and other alternative options (for example by allowing those who rely on a registered tax or BAS agent to report quarterly for the first two years, rather than each time payroll is run);
- Allowing for small employers to start reporting any time from the 1 July to 30 September 2019 and granting deferrals to any small employer who requests additional time to start STP reporting;
- No penalties for mistakes and missed or late reports for the first year; and
- Providing exemptions from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.
Employers may need to choose new payroll software if their current software does not offer STP reporting. The ATO recommends employers speak with their registered tax agent/accountant to establish which product best suits employers’ needs.
The ATO requested software developers to build low-cost STP solutions at or below $10 per month for micro employers – including simple payroll software, mobile phone apps and portals. A register of suppliers who intend to build these solutions is available at Low-cost STP solutions on the ATO’s website. Currently 31 software companies offer low-cost STP solutions which are time efficient to complete the STP report for each pay period and which will not require the employer to maintain the software.
For assistance with payroll, tax and superannuation obligations, please speak to your Nexia Adviser.
13 FEBRUARY 2019
BAS Lodgement Dates
Quarterly Business Activity Statements (BAS) are usually due on the 28th day of the month following the end of the reporting period. However, for the quarter ended 31 December 2018 the BAS is due on 28 February 2019.
The BAS due dates for the year ending 30 June 2019 are:
The above lodgment and payment concession dates are only available for electronic lodgment of eligible quarterly activity statements. Quarterly activity statements lodged by paper must be lodged by the original due date.
6 FEBRUARY 2019
Here is what you need to know for the end of the FBT year
31 March, being the end of the fringe benefits tax (FBT) year, is fast approaching and now is the time to ensure that certain obligations under the FBT law are being satisfied before the end of that year.
In this week’s Top Tax Tips, we discuss the FBT implications of employers supplied food and drink to their employees.
1. Meals and Fringe Benefits Tax
The provision of meals by an employer to an employee gives rise to several types of fringe benefits:
- A meal entertainment fringe benefit;
- An exempt property fringe benefit;
- A meal fringe benefit that is reduced to nil under the otherwise deductible rule; and
- A board fringe benefit.
2. Meal entertainment fringe benefits
An entertainment fringe benefit arises where an employer supplies entertainment:
- by way of food, drink or recreation; or
- accommodation or travel in connection with that entertainment.
In most cases, the supply of meals by an employer will be an entertainment fringe benefit unless the exempt property fringe benefit rules, the otherwise deductible rule or the board fringe benefits rules apply (see below).
A meal entertainment fringe benefit can be calculated using any of the following three methods:
- The actual cost method;
- 50-50 split method; or
- 12-week register method.
Employers must elect to use one of the above methods for the FBT year. Employers are permitted to choose the most tax efficient method.
Your Nexia adviser can assist you in deciding which calculation method is best for your business.
3. Exempt Property Fringe Benefits
Food and/or drink supplied to an employee is an exempt benefit if food and/or drink is both provided and consumed on the employer’s premises on a working day. Examples of exempt benefits are morning and afternoon tea, light meals and food prepared in an in-house dining facility.
This exemption does not apply to:
- Employers that are exempt from income tax where entertainment arises as a result of providing the property benefit (tax-exempt body entertainment fringe benefits)
- Employers who choose to use the meal entertainment method and calculate the taxable value under the 50-50 split method or the 12-week register method.
- Meals provided under a salary sacrifice arrangement.
A fringe benefit may be supplied by another person on behalf of an employer or to another person on behalf of an employee (for example to employee’s relative).
4. Otherwise Deductible Rule
Meals provided by employers are not subject to FBT, if the meal would be otherwise deductible under the income tax law if the employee had incurred the expense directly e.g. meals when employees are travelling overnight on company business. The employee must sign a declaration to this effect.
5. Board Fringe Benefits
The value of board fringe benefits is limited to $2 per meal per day under the FBT law. To qualify as a board fringe benefit the following conditions must be satisfied under the FBT law:
- At least two meals per day are supplied under an industrial award or employment arrangement;
- the meal is supplied by the employer;
- the meal is cooked or prepared on the employer’s premises; and
- the meal is supplied on the employer’s premises.
For further information regarding meals and FBT speak to your Nexia Adviser today.
16 JANUARY 2019
Loans from Private Companies: New Rules
The Government proposes to change the current rules relating to loans from companies to their shareholders and associates. Loans from such companies are a common alternative to shareholders withdrawing profits in the form of taxable dividends.
A loan from a private company is subject to strict requirements under Division 7A of the tax law. That Division requires the loan to be documented and to have specific terms. Failure to do so causes the amount of the loan to be a taxable dividend.
The proposed changes are:
- Simplified Division 7A loan rules to make the law easier to comply with;
- A self-correction mechanism to allow breaches of Division 7A to be promptly rectified;
- Safe harbour rules to give certainty and simplify compliance for taxpayers; and
- Clarification that unpaid present entitlements (UPEs) owing by trusts to companies come within the scope of Division 7A.
These amendments are expected to apply from 1 July 2019.
1. Changes to Loan Rules
Under the new rules, Division 7A loans will have a maximum term of 10 years with a variable interest rate and payments of both principal and interest in each year. The Government says that the new ten-year model will be simpler than the current apportionment model and will be more closely aligned to commercial practice for principal and interest loans.
Currently, the rules allow Division 7A loans to have a maximum term that must not exceed:
- 7 years for an unsecured loan; or
- 25 years for a secured loan.
The current benchmark interest rate is defined as the ‘Bank variable housing loans interest rate’ published by the Reserve Bank (5.20% for 2018-19).
The new rules will be as follows:
- Maximum loan term – 10 years;
- Surprisingly, no requirement for a formal written loan agreement (however, evidence showing that the loan was entered into must exist by the lodgement day of the private company’s income tax return);
- The minimum yearly repayment amount must consist of both principal and interest;
- The minimum yearly repayment amount reduces the balance of the loan each income year;
- Interest is calculated for the full income year, regardless of when the repayment is made during the year (except in Year 1);
- The new benchmark interest rate will be the ‘Small Business; Variable; Other; Overdraft – Indicator’ rate published by the Reserve Bank (currently 8.30%); and
- Repayments of the loan made after the end of the income year but before the lodgement day for the first income year are counted as a reduction of the amount owing even if they are made prior to the loan agreement being finalised.
2. Transitional Rules
Existing 7 and 25 year loans will be transitioned to the new 10 year loan model under following rules:
- 7 year loans existing at 30 June 2019 must comply with the new proposed loan model including the new benchmark interest rate to remain complying, but they will retain their existing term.
- 25 year loans existing at 30 June 2019 will be exempt from the majority of changes until 30 June 2021. The interest rate applicable to these loans during this period must equal or exceed the new benchmark interest rate.
- On 30 June 2021, the outstanding value of the loan will give rise to a deemed dividend unless a complying loan agreement under the new loan model is put in place prior to the lodgement day of the 2020-21 company tax return.
Pre-December 1997 Loans
When Division 7A was enacted to apply to loans made by private companies from 4 December 1997, loans made prior to that date were mostly unaffected by the then new law. The grandfathering of these loans will effectively cease with the proposed new rules.
Shareholders of private companies will have until the lodgement day of the 2020-21 company tax return to either pay out the amount of those loans or put in place a complying loan agreement; if either of those events does not occur, the loan will be treated as a taxable dividend of the borrower shareholder in the 2020-21 income year. The first repayment will be due in the 2021-22 income year.
4 JULY 2018
Employee share scheme reporting obligations coming up
Companies that have employee share schemes (ESS) must provide information about the ESS to both:
- the employee by Monday 16 July 2018 – in the form of an ESS statement that contains information necessary to for the employees to complete their tax returns.
- the ATO by Tuesday 14 August 2018 – in the form of an ESS annual report that contains more information regarding the ESS plan and the employees partaking in the ESS plan.
Speak to Nexia so that we can help you with these reporting obligations.
11 APRIL 2018
Mineral exploration companies to take action from 16 April 2018
Small Australian mineral exploration companies that want to participate in the Junior Minerals Exploration Incentive (JMEI) program for the 2018 income tax year, must lodge application forms between 16 April 2018 and 15 May 2018 (detailing their estimated 2018 minerals expenditure, tax loss, corporate tax rate and amount of capital to be raised).
The JMEI replaces the Exploration development incentive program that ended on 30 June 2017.
The benefits of partaking in the JMEI program is that participant companies can provide exploration credits (i.e. a type of offset from converting a portion of the company’s tax losses) to their investors to encourage investments in such Australian prospecting companies.
Because allocation of such credits will be done on a first-come, first-serve basis until the 2018 cap of $15 million is reached, companies must lodge their application forms before the cap is used up.
Please contact us if you are interested in partaking in the Junior Minerals Exploration Incentive program or need assistance in preparing and lodging the application form.
21 FEBRUARY 2018
Beware of dividend washing
The ATO has warned taxpayers not to engage in dividend washing transactions where attempts are made to claim franking credits twice. A typical example of a dividend washing transaction is where:
- A taxpayer sells shares ex dividend (i.e. shares are sold after the dividend is declared with the seller being entitled to the dividend and the buyer not so entitled); and
- The same seller later buys back similar shares cum dividend (i.e. shares are bought that will entitle the same seller – although now in the guise of a buyer - to receive a dividend for a second time).
Persons seeking to claim franking credits twice (i.e. firstly as the seller and secondly as the buyer) need to be aware of specific anti-tax avoidance rules in the income tax law that will prevent the taxpayer from claiming any franking credits attached to the second distribution.
30 AUGUST 2017
Mineral exploration companies to take action before 30 September 2017
Small Australian mineral exploration companies that want to participate in the exploration development incentive (EDI) program in respect of the year ended 30 June 2017, must lodge their exploration development incentive participation form by 30 September 2017 (detailing their estimated 2017 exploration expenditure and tax loss).
The benefits of partaking in the EDI program is that participant companies can provide exploration credits (i.e. a type of offset from converting a portion of the company’s tax losses) to their investors to attempt to stimulate investments in such Australian prospecting companies.
Please contact us if you are interested in partaking in the exploration development incentive program or need assistance in preparing and lodging the application form.
9 AUGUST 2017
Early stage innovation companies (ESIC) have to report by 31 August 2017
To stimulate investments in innovative start-up companies, investors who purchase new shares in such ESICs will generally be entitled to:
- a non-refundable carry forward tax offset equal to 20% of the amount paid for the shares (subject to certain restrictions) when they invest; and
- a CGT exemption for capital gains on investments held for at least 1 year but less than 10 years when they sell the investment.
An ESIC needs to report all such investments for new shares issued in the 2017 income tax year by 31 August 2017. We would be happy to assist you with this reporting obligation.
Furthermore, the requirements to qualify for this innovation incentive are complex. We recommend that you contact us if you are a new business, if you are involved with innovative activities or if you are an investor in businesses involved in innovative activities and would like to know more about this new incentive. We can also advise you on whether you should restructure your business to be able to qualify for this incentive.
12 JULY 2017
4% Uplift in PAYG instalments
PAYG and GST instalments are calculated by reference to a taxpayer’s most recently lodged income tax return or annual GST return respectively. For this new 2018 income year, the instalments will be based on 2017 income tax and GST paid plus a 4% uplift factor on the assumption that income will increase in the 2018 year. The reason for the uplift factor is to prevent shortfalls of tax leading to a higher than expected tax liability at the end of the year.
If a taxpayer’s circumstances change in the 2018 income year compared to the information in the taxpayer’s 2017 tax return (e.g. a current year may not be as profitable as the previous year) the taxpayer can choose to reduce their PAYG instalments for the current year.
However, if such a downward variation results in a greater than 15% shortfall of the actual amount of tax payable when the 2018 tax return is assessed by the ATO (i.e. there was an underestimate of the instalment rate or amount for the current year), the taxpayer may be subject to the general interest charge (GIC) on the difference. Therefore, a reasonable degree of certainty of the changed circumstances must exist before varying the ATO’s PAYG instalment rate.
Please speak to your Nexia representative if you believe the amount calculated by the ATO is too high (or too low) so that we can correctly calculate your tax instalments and avoid a tax bill shock at the end of the year and having to find the cash to pay the tax bill.
14 JUNE 2017
Reduced corporate tax rate and imputation problems
For the year ending 30 June 2017, the company tax rate is calculated based on that year’s turnover measured at the end of the year (i.e. if the turnover in that year is less than $10 million, the company tax rate will be 27.5% provided the company is carrying on a business).
However, the franking percentage (i.e. the amount of credit for tax paid by the company that will be passed on to shareholders when dividends are paid) will be calculated based on the turnover in the previous 2016 income tax year (but applying the 2017 threshold of $10 million.
This can lead to the following different franking percentages:
- if the turnover in 2016 is less than $10 million, the franking percentage will be 27.5%
- if the turnover in 2016 is $10 million or more, the franking percentage will be 30%.
This may result in over-franking or under-franking by 2.5%.
Your Nexia contact will be pleased to advise you more on the new franking rules whose application will be reflected in completed financial accounts and tax returns for the year ending 30 June 2017.
17 MAY 2017
Raft of tax concessions now available for companies with turnover < $10 million
For the current 2017 income tax year, the small business entity threshold has been increased to $10 million turnover (for the 2016 income tax year the small business entity threshold was only $2 million).
Therefore, such small business entities (e.g. entities with a total turnover of less than $10 million) will qualify for the following concessions in the 2017 income tax year:
- Companies will have a reduced corporate tax rate of 27.5% (instead of the 2016 tax rates of 30% (for companies with turnover of more than $2 million) or 28.5% (for companies with turnover of less than $2 million);
- $20,000 instant asset write-off (i.e. an immediate write-off for depreciable assets costing less than $20,000);
- Access to the small business depreciation pool (i.e. accelerated depreciation rates of 15% or 30%) for depreciable assets costing $20,000 or more;
- Simplified trading stock rules (i.e. no need to do a stocktake if there are no significant variations in stock levels in a year); and
- Shorter amendment period for tax assessments for taxpayers and the ATO (i.e. 2 years instead of 4 years).
Note however that access to the small business CGT concessions will remain limited to entities with either a total turnover of less than $2 million (i.e. this test is not increased to the $10 million turnover threshold) or total net asset value of less than $6 million.
The increase in the small business entity threshold to $10 million offers significant tax saving opportunities for businesses – please contact us if your business has a turnover of less than $10 million so that we can discuss in more detail how your business may benefit.
11 MAY 2017
Beware of wine industry R&D schemes
The ATO and the Department of Industry, Innovation and Science (DIIS) are concerned about schemes where grape growers and wine producers are incorrectly claiming the money spent on the compulsory Wine Grapes Levy as R&D expenditure (and therefore attempt to claim the R&D offset) – as opposed to correctly claiming this levy as an ordinary business deduction (because the levy bears no connection with the R&D activities carried on).
Although you may not have been involved in such schemes, we are obliged to alert you in case you are ever contacted to enter into such schemes. Expect the ATO to be very vigilant in detecting these schemes to avoid tax.
3 MAY 2016
The importance of knowing if your worker is a contractor or an employee
Employers must know whether their workers are employees or contractors because the tax, superannuation and other government obligations are different depending on the worker’s status:
- If a worker is an employee, PAYG withholding will need to be withheld from wages. The employer must report and pay the withheld amounts to the ATO, pay superannuation at least quarterly for eligible employees, and report and pay FBT if fringe benefits are provided to employees.
- In contrast, if a worker is a contractor, usually PAYG is not withheld from payments - unless they have not quoted their Australian Business Number (ABN) in which case PAYG withholding must be deducted at the top marginal tax rate. FBT is not payable if non-cash benefits are provided to a contractor. However, depending on the labour services contract or arrangement, especially if the contract is principally for a contractor’s labour, superannuation guarantee contributions must be made to a complying superannuation fund.
A recent ATO private binding ruling found that that based on the specific facts in that situation, a commission-only salesperson was deemed to be an independent contractor and the contract was not principally for the salesperson’s labour. Therefore, there was no obligation to pay 9.5% in superannuation contributions on the commission paid to the salesperson.
Establishing whether a worker is an employee or contractor may be difficult. The whole working arrangement should be examined to determine whether the worker merely works in the business (i.e. an employee) or whether the worker operates their business and performs work for the business (i.e. a contractor).
Incorrectly treating employees as contractors can subject businesses to PAYG withholding penalties and superannuation guarantee charges. Please contact us if you are unsure of the correct status of your workers.
Lastly, avoidance of workers compensation premiums can also result in significant penalties.
26 APR 2017
Insolvency advances are subject to superannuation guarantee
A company in liquidation is liable to make superannuation guarantee contributions in respect of payments of owed wages for services rendered prior to the company going into liquidation.
If the company in liquidation is subject to the superannuation guarantee charge, the liquidator or external administrator is not personally liable to pay the superannuation guarantee charge from his/her own funds.
ATO’s continued focus on Phoenix activity
The ATO’s Phoenix Taskforce have been conducting raids on pre-insolvency advisors, investigating whether they are providing advice to struggling companies on how to “phoenix a company” - i.e. where directors of a debt-laden company transfer that company’s assets to a new company (with the same directors) and then liquidate the original company to avoid paying employee entitlements, creditors or outstanding tax liabilities (GST and income tax).
If you have been affected by such Phoenix activity, we can assist you in a number of ways which may include representations to ASIC and the ATO.
18 APR 2017
Prepare for Single Touch Payroll
Under the new Single touch payroll (STP) system, employers will be able to report salary or wages, pay as you go (PAYG) withholding and superannuation information directly to the ATO at the same time they pay their employees.
The STP system will therefore streamline reporting obligations because information reported through STP will be pre-filled into business activity statements and it will no longer be necessary for employers to provide payment summaries to individuals or a payment summary annual report to the ATO.
From 1 July 2018, it will be compulsory for all substantial employers (i.e. employers having 20 or more employees measured as at 1 April 2018) to adopt STP – however, businesses with a STP enabled payroll business may use the new STP system from 1 July 2017.
Please come and talk to us so that we can assist you to transition to STP (i.e. to explore what you can do to ensure your systems are capable of STP reporting).
29 MAR 2017
Lodge your 2016 research and development (R&D) claims by 1 May 2017
Certain companies can claim a tax offset for expenditure incurred on R&D activities. The aim of this offset is to encourage companies to invest in R&D work to create new or improved materials, products, devices, processes and services.
Lodging your claim on time may give rise to the following benefits for you:
a cash injection (e.g. a cash rebate equal to 45% of the amount spent on R&D activities) for companies that have a turnover of less than $20 million a year; or
a non-refundable tax offset of 40% for companies with a turnover of $20 million or more a year (i.e. the offset reduces tax payable and therefore can only be used in years when the company has taxable income).
We note that the deadline for the lodgement of the 2016 R&D tax concession claim is 1 May 2017 (because 30 April 2017 is a Sunday). We can assist you with lodging your claim.
22 MAR 2017
An overseas incorporated company may still be an Australian tax resident
A company that is incorporated in Australia will be a resident for tax purposes and accordingly its total world-wide income will be taxable in Australia. [Note: only Australian sourced income of a non-resident company will be taxable in Australia).
A recent court decision (Bywater Investments and Hua Wang Bank) confirmed that even a company that was incorporated overseas would still be an Australian tax resident if the company carried on business and had their central management and control (CM&C) in Australia.
Generally, a company’s CM&C will be where the proper governance of the company takes place (i.e. the place where board meetings are held and the directors can make real decisions to act in the best interest of the company – as opposed to directors only acting as mere “rubber stamps” for decisions already made).
Companies that carry on a business in Australia and that have their proper CM&C in Australia will therefore be a tax resident of Australia – even if the company may have been incorporated in a foreign country.
8 MAR 2017
Employers & superannuation guarantee
Employers are obliged to make contributions to complying superannuation funds under the superannuation guarantee law. The contributions must be a minimum 9.5% of ordinary time earnings in respect of all eligible workers (e.g. usually employees, company directors who receive payments in their capacity as a director, and also contractors in certain circumstances).
Ordinary time earnings are generally what employees earn for their ordinary hours of work (e.g. commissions, shift loadings and allowances, but do not include overtime payments).
Superannuation guarantee contributions are usually made quarterly via SuperStream (i.e. a system whereby payment is made either through electronic funds transfer or BPAY). Employers qualify for a tax deduction this financial year if such contributions are made to a complying superannuation fund before 30 June 2017.
Note that superannuation guarantee contributions for the month of June 2017 or for the June 2017 quarter may not be required to be made until 28 July 2017. But to qualify for a tax deduction in this 2017 income tax year, the instalment due by 28 July 2017 will need to be paid before 30 June 2017).
The penalties for failing to pay superannuation guarantee contributions are quite severe (i.e. the superannuation guarantee shortfall amounts, interest on those shortfall amounts, an administration fee of $20 per employee per quarter and the loss of a tax deduction for the shortfall amounts that must now be paid).
Please contact us if you are uncertain about the correct earnings amount on which the 9.5% contribution must be paid or of you have discovered that correct contributions have not been paid. Making a voluntary disclosure to the ATO is better than the ATO determining that a shortfall has occurred.
1 MAR 2017
What is the difference between allowances and reimbursements?
Employers often pay an amount to an employee for expenses incurred by the employee whilst performing their duties. The amount paid may be an allowance usually paid before the expense is incurred or a reimbursement after the expense is incurred. The payment of an allowance or a reimbursement may have a different tax consequence.
Allowances are amounts paid to cover anticipated costs regardless of whether an employee actually incurs the expense. An allowance is generally included in the assessable income of an employee, but the employee may be able to claim a tax deduction for the expense. An exception to this treatment is a living-away-from-home allowance which is dealt with under the fringe benefits tax (FBT) law.
In contrast, a reimbursement is compensation paid by an employer for actual expenses incurred by an employee. Reimbursements are generally dealt with under the FBT law. The amount of the reimbursement will not be included in the employee’s assessable income and the employer (as opposed to the employee) may claim a tax deduction for the expense. Any private component of the expense may also be subject to FBT.
Because the tax consequences of allowances and reimbursements differ for employers and employees depending on how the payment is classified, advice should be sought before embarking on such arrangements.
ATO continues scrutiny of R&D claims in Agricultural & IT sectors
As mentioned in our 15 February 2017 Top Tax Tip, the ATO is continuing to focus on whether the R&D incentive has been claimed correctly.
In particular, companies conducting agricultural activities would not be able to claim the R&D incentive in respect of ordinary farming activities (e.g. using different irrigation or pruning methods that are not experimental but are already established).
Likewise, companies conducting software development activities would not necessarily be able to claim the R&D incentive on the entire project - only the parts of the project that relate to experimental activities would qualify for the R&D incentive (e.g. the purchase of “off-the-shelf” software and subsequent modification may not qualify as innovative activities).
The ATO also has concerns about certain people who charge to prepare R&D claims on the amount of the R&D claims instead of the more traditional hourly rate basis. The ATO has noted that the former basis has led to inflated claims. Please speak to us regarding eligibility of your R&D claims.
15 FEB 2017
ATO spotlight on R&D claims: Let us help you determine whether you are eligible
Under the R&D incentive, a company that conducts innovative activities (and spends at least $20,000 on R&D activities) may qualify for an incentive on eligible R&D activities (i.e. for 2016, companies with a turnover of less than $20 million will qualify for a 45% cash rebate on eligible R&D expenditure while companies with a turnover of $20 million or more will qualify for a 40% non-refundable offset on eligible R&D expenditure).
Broadly, eligible R&D activities can be either core R&D activities (e.g. systematic experimental activities conducted for the purpose of generating new knowledge) or supporting R&D activities (e.g. activities that relate to the core R&D activities).
The ATO recently warned that some companies attempt to claim the R&D incentive on ordinary business activity expenditure (e.g. ordinary production costs of products sold to the market in the ordinary course of business) even though such expenditure clearly does not relate to core or supporting R&D activities.
Because the ATO will be focusing on R&D claims, please contact us if you have any concerns about your R&D claims.
We can assess the eligibility of your company’s business and projects to the R&D concessions (e.g. determine whether activities are core or supporting R&D activities) and register the R&D activities with AusIndustry by 30 April 2017 (for companies with income years ending 30 June 2016) so that when the company lodges its company tax return and R&D schedule (and quoting the registration number), the correct tax offset/refund may be claimed from the ATO.
7 DEC 2016
Issues to think about when hiring people over the Christmas season
In last week’s Top Tax Tips we stressed the importance of being able to distinguish whether a worker is an employee or contractor because the status of the worker determines various tax, superannuation and other obligations.
Such a distinction is especially important over the festive season where a business may be busier than usual (e.g. especially retail) and especially where workers are hired on a casual or temporary basis.
Because of the severity of the penalties for incorrectly classifying a worker’s status (i.e. whether the worker is an employee or contractor), please contact us so that we can assist with the correct classification of workers hired over this festive season and advise you on PAYG(W), superannuation guarantee, payroll tax and workers compensation obligations.
30 NOV 2016
Are your workers employees or contractors?
Business owners must know whether their workers are employees or contractors because the tax, superannuation and other government obligations are different depending on the worker’s status:
- If a worker is an employee, PAYG withholding tax must be deducted from their wages, reported and paid to the ATO. Superannuation guarantee contributions must be paid (at the rate of 9.5% of wages) at least quarterly for eligible employees. FBT must be reported and paid to the ATO if an employee receives fringe benefits.
- In contrast, if a worker is a contractor, PAYG withholding tax need not be deducted from payments to them unless they have not quoted their Australian Business Number (ABN). FBT is not payable on benefits given to a contractor but the contractor will be taxed on the value of the benefits. However, depending on the arrangement with the contractor, superannuation guarantee contributions for the contractor may be payable if the contract is principally for a contractor’s labour.
In some situations, determining whether a worker is an employee or contractor is difficult. The whole working arrangement should be examined to determine whether the worker merely works in the business (i.e. an employee) or whether the worker operates their own business and does work for your business (i.e. a contractor).
A business that treats employees as contractors may be subject to PAYG withholding penalties and superannuation guarantee charges and in a worst case scenario, prosecution in a Court. Please contact us if you would like us to determine the correct status of your workers.
23 NOV 2016
What are your superannuation obligations if you send employees to work overseas?
In today’s interconnected world, Australian businesses commonly send their employees on temporary assignments overseas or foreign businesses send their employees to Australia.
Both the Australian and foreign employer may be required by their domestic laws to make superannuation contributions (or its equivalent) for the employee. However, with a certificate of coverage from the ATO – i.e. proof that superannuation is paid in Australia (i.e. for outbound employees) – the foreign employer will be exempted from having to pay superannuation (or its equivalent).
Likewise, if a foreign employee is sent to Australia (i.e. for inbound employees) the Australian business will be exempt from Australian superannuation obligations if the employer can provide a certificate of coverage to the ATO (i.e. confirming that superannuation or its equivalent have been paid in the foreign country).
Your Nexia contact will be pleased to obtain a certificate of coverage.
9 NOV 2016
Issues that attract the ATO’s attention
The ATO warned that family businesses displaying the following types of “red flags” may expect a visit from the ATO:
- the business recently concluded a large one-off or unusual transaction;
- the business has a history of aggressive tax planning or regularly takes controversial interpretations of the law;
- the business owner’s lifestyle is not supported by the owner’s after-tax income;
- business assets are used privately; or
- the business has poor governance and risk-management systems.
Usually, your Nexia contact person will advise you of your potential exposure to contact from the ATO whose data matching systems are becoming increasingly sophisticated. Embarking on transactions without being aware of the income tax, capital gains tax, GST, superannuation guarantee, payroll tax and stamp duty consequences is risky and may result in an unintended tax cost. Checking on those consequences before the transaction will be time well spent.
2 NOV 2016
ATO is focusing on Phoenix activity
The ATO’s Phoenix Taskforce have been conducting raids on pre-insolvency advisors, investigating whether they are providing advice to struggling companies on how to “phoenix a company” - i.e. where directors of a debt-laden old company transfer the old company’s assets to a new company (with the same directors) and then liquidate the old company to avoid paying employee entitlements, creditors or outstanding tax liabilities.
If you have been affected by such Phoenix activity, we can assist you in a number of ways which may include representations to ASIC and the ATO.
28 SEP 2016
New PAYG withholding tax rates from 1 October 2016
As mentioned in an earlier Top Tax Tips, the ATO will update its PAYG withholding tax schedules from 1 October 2016 to reflect the proposed new lower tax rate that will be available for middle income earners (i.e. the 37% tax rate will now apply to taxable incomes over $87,000 rather than at the previous $80,000).
The updated tax tables do not include any catch-up component – any tax overpaid between July and September 2016 (based on the old higher withholding tax rates) will only be credited by the ATO upon assessment of the 2017 income tax return.
21 SEP 2016
Businesses – Are you using SuperStream correctly?
The ATO has questioned whether large businesses (i.e. those with 20 or more employees who have been using SuperStream since 31 October 2015) are using SuperStream correctly – particularly if they still use cheques, EFT or BPay to make direct payments (i.e. without using a SuperStream payment standard).
We note that small businesses (i.e. those with less than 20 employees) will have to adopt SuperStream from 28 October 2016.
7 SEP 2016
Are you Single Touch Payroll ready?
From 1 July 2018, all substantial employers (i.e. employers having 20 or more employees measured as at 1 April 2018) will have to adopt a single touch payroll (STP) system. STP will align an employer’s PAYG and superannuation contribution obligations to an employer’s payroll processes, thereby making employer reporting much simpler (e.g. no longer necessary for employers to provide payment summaries to individuals or a payment summary annual report to the ATO).
Recently the ATO issued a consultation paper providing guidance on possible ways the ATO intends to administer the proposed STP system.
Although compulsory STP reporting is still more than a year away, we will keep you updated about any relevant developments in this STP area as well as what you can do to ensure that your systems are capable of STP reporting from 1 July 2018.
17 AUG 2016
Report you PAYG instalments correctly
If you are completing a company’s income tax return, you are reminded to disclose the total of the company’s PAYG instalments for the specific income year even if these instalments have not actually been paid yet. Do not include wash-up or residual payments (i.e. the final tax due on a company’s prior year income after taking into account all PAYG instalments already paid the previous year).
Please contact your Nexia adviser so that we can help you to report your PAYG obligations correctly.
