Business Tax – November

On 17 October 2019, Second Commissioner, Andrew Mills, addressed the Tax Institute’s 2019 Tasmanian State Convention outlining what the ATO is doing to help support small businesses manage their competing demands. Some initiatives include:

  • a new program of work at the ATO called ‘Better as usual’ – an ATO-wide initiative to continually provide a better level of service
  • improvements to the ATO’s dispute resolution process, including the small business independent review pilot
  • the Dispute Assist program, specifically designed to support taxpayers going through exceptional circumstances, for example sudden illness or family breakdown.

3 attributes in a successful small business

The ATO sees 3 key attributes in successful businesses:

  1. Effective cash flow management
  2. Digital readiness
  3. Having a professional adviser.

As a regulator, the ATO helps businesses maintain those behaviours.

Small employers had until 30 September to start reporting through Single Touch Payroll (STP). There are 3 options if you missed the deadline:

 

1. Start reporting

If you already use accounting or payroll software, check whether it offers STP reporting. If it does, enable the STP function and start reporting straight away. If you need new software or an upgrade, the ATO has a list of providers that offer STP reporting products.

2. Apply for a reporting concession if one exists

Micro-employers (1–4 employees) who need more time to move to STP reporting can ask their registered tax or BAS agent to report on their behalf on a quarterly basis. This can continue until 30 June 2021.

3. Ask for more time by applying for a deferral or exemption

For employers with 19 or less employees, you or your registered agent can ask the ATO for a deferral by logging into the ATO Business Portal or phoning the ATO.

For employers with 20 or more employees, your software provider may have applied to the ATO for a later start date for STP reporting. This deferral would cover you as an existing client.

The option you choose will depend on your circumstances but it’s important to start reporting or get in touch with the ATO as soon as possible.

All businesses, including not-for-profits, are now required to meet their PAYG withholding obligations before they can claim deductions for payments to workers – for example, salary, wages, bonuses, directors’ fees and payments under a labour hire agreement.

Payments to contractors where the contractor does not provide their ABN are also covered by these new rules.

Note! These new rules took effect from 1 July 2019 and apply to income tax returns lodged for the 2020 income year onwards.

 

What you must do to claim a deduction

In order to claim a deduction, you need to:

  • withhold the required amount (if applicable) before you pay your worker
  • report that amount to the ATO.

If you make a mistake and withhold or report an incorrect amount, you won’t lose your deduction. You will need to correct your mistake as soon as possible to minimise penalties.

Tip! If you are uncertain about the impact of these new rules, please speak with your tax adviser.

 

Using contractors – PAYG obligations

The ATO has published a useful checklist about your PAYG obligations if you hire a contractor.

If the contractor doesn’t provide you with their ABN:

  • you generally need to withhold 47% from payments to them
  • give a completed PAYG payment summary – withholding where ABN not quoted to the contractor with their net payment, or as soon as practicable afterwards
  • include the payments in your PAYG withholding where ABN not quoted – annual report and lodge the report with the ATO by 31 October.

 

If the contractor is an individual who has a PAYG withholding voluntary agreement with you:

  • work out the PAYG amount to withhold from payments to the contractor – use the tax withheld calculator or tax tables online (take into account any information provided by the contractor in a withholding variation or withholding declaration
  • by 14 July, provide a PAYG payment summary – business and personal services income to the contractor showing the total amounts paid and withheld
  • include the payments in your PAYG payment summary annual report and lodge the report with the ATO by 14 August.

If you have to withhold PAYG amounts for any reason:

 

  • if you haven’t withheld before, you need to register for PAYG withholding straightaway

report and pay the PAYG withholding amounts to the ATO in your BAS which is usually quarterly or monthly for most businesses. A business withholding more than $1 million per year reports and pays more often.

Does your company have an employee share scheme (ESS)? If it does, you will have withholding obligations.

When does withholding apply?

Withholding will apply if:

  • you provide a discounted ESS interest to your employee
  • that employee has not given you their TFN or ABN by the end of the relevant income year – so there is no withholding if your employee has provided their TFN.

If your employee has given you a TFN declaration for their employment, no withholding is payable.

 

How is withholding calculated?

Withholding is calculated on the discount your employee should include in their assessable income under the ESS rules.

If you have engaged the services of a third party to administer your ESS, you may give them your employee’s TFN. In these circumstances, no withholding is payable.

The rate of withholding is the highest individual marginal tax rate plus the Medicare levy, ie 47% for the current tax year. Under no circumstances can you withhold in excess of this rate.

 

Pay the amounts withheld

You must pay amounts you withheld to the ATO within 21 days after the end of the income year your employee is taxed on the discount.

If you pay amounts withheld to the ATO, you can recover these amounts from your employee. You can do this by offsetting the amount of withholding paid against any amount you owe to your employee, such as salary and wage income.

If you are changing your business structure (eg from a sole trader to a company), you will need to apply for a new ABN.

Examples of when you need to cancel your ABN and apply for a new ABN under the new structure include moving from either:

  • individual/sole trader to partnership or trust
  • individual/sole trader to company or trust
  • partnership to company or trust.

You must ensure that your ABN details are updated on your tax invoices. This is essential as your ABN is used to:

  • identify your business identity to others when ordering and invoicing
  • claim GST credits.

Other businesses and entities must withhold payment at the top tax rate if the ABN quoted on the invoice is incorrect or the details do not match up.

Tip! Ensure that you update your GST registration details whenever you get a new ABN.

To do! Contact your tax adviser if you are considering changing your business structure. There are also likely to be tax issues.

 

Did you know that you can lose your ABN?

The ATO will cancel your ABN if your business is no longer operating. Not keeping lodgments up to date is a key indication of this. So that they get it right, the ATO uses information from:

  • your tax return
  • other lodgments
  • third party information.

 

What happens if the ATO cancels your ABN?

If the ATO cancels your ABN and you want to start your business again, or the ATO gets it wrong, you can reapply and get the same ABN back (as long as your business structure remains the same).

If the business structure is different – for example, you were a sole trader but your new business is a company – you will get a different ABN.

Tip! If you have changed your business structure, you’ll need to get a new ABN in these circumstances – see above.

An ATO factsheet provides a useful reminder about when you have to make contributions under the superannuation guarantee (SG) scheme.

Generally, if you pay an employee $450 or more (before tax) in a calendar month, you have to pay them super on top of their wages.

If your employee is under 18 or is a private or domestic worker, eg a nanny, they must also work for more than 30 hours per week to qualify.

You pay super regardless of whether the employee:

  • is full-time, part-time or casual – working holidaymakers are included
  • receives a super pension or annuity while still working
  • is a company director
  • is a family member working in your business – provided they are eligible for SG.

Note! You may also have to pay for some contractors, even if they quote an ABN.

The proposed amnesty allowing employers to self-correct superannuation guarantee (SG) non-compliance has been reactivated.

What does this mean for employers?

If the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Amnesty Bill) is passed by the Parliament, employers will be given a one-off amnesty, with reduced penalties and fees, to disclose historical SG non-compliance and pay any SG charge imposed in relation to the disclosed SG shortfall.

The amnesty allows employers who qualify for the amnesty to claim tax deductions for payments of SG charge and contributions made to offset any SG charge made during the amnesty period.

The amnesty period starts on 24 May 2018 and ends 6 months after the day the Amnesty Bill becomes law. This is a longer period than the original 12-month amnesty.

Tip! If you are concerned that you may have SG corrections to make, please speak with your tax adviser.

The ATO can now disclose tax debt information of businesses to registered credit reporting bureaus (CRBs), but only if certain criteria are met. Those criteria will be set out in a Legislative Instrument that is being finalised.

The Government has said that the ATO will only disclose tax debt information to a CRB if the business has an ABN and one or more tax debts of at least $100,000 that are overdue by more than 90 days

It’s also important to note that businesses that are engaging with the ATO to manage their tax debts or are disputing the calculation of a tax debt through the AAT or the courts, will not have their tax debt information reported to CRBs.

The ATO has also said that it will apply administrative safeguards above and beyond the legislative ones before reporting the tax debt information of a business.

If you are holding vacant land, the law changed from 1 July 2019 so that any expenses you have relating to the land are generally not deductible. This is the effect of legislation (the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019) that became law on 28 October.

 

What are the exceptions?

There are certain exceptions. You can still claim a deduction to the extent the land is used, or held available for use, in a business including where the business is carried on by your spouse or child or by an affiliate or a connected entity. A deduction is also available where the land is held by a company or a partnership of companies.

The legislation was amended during its passage through the Parliament to add additional exceptions. These apply to vacant land:

  • held by primary producers;
  • used for business purposes under arm’s length arrangements; or
  • on which there is situated a substantial and permanent structure, and the land effectively becomes vacant because of an event outside your reasonable control, such as a natural disaster, fire or substantial building defects (for up to 3 years).

So, you can still claim a deduction in those circumstances.

To do! Contact your tax adviser if you hold vacant land.

You may have read about a proposal to ban cash transactions in excess of $10,000. Well, that is a step closer to becoming law as the Parliament is now considering it (the Currency (Restrictions on the Use of Cash) Bill 2019).

If the Bill is passed by the Parliament, it will be a criminal offence for all individuals, companies, partnerships, trusts and other entities to make or accept cash payments (including gifts and loans) of $10,000 or more. Why $10,000? Because it is consistent with the reporting threshold under the anti-money laundering/counter terrorism financing (AML/CTF) regime.

A series of payments totalling $10,000 or more will be caught by the new rules if the payments are for the same supply or part of a single gift or loan. An example would be the purchase of a car by instalments. Regular payments under $10,000 between the same parties will be acceptable where distinct things are supplied.

The new laws will apply to foreign currency as well as Australian currency.

Note! If a partnership breaks the law, each partner can be prosecuted. If a trust breaks the law, the trustee (or each trustee if more than one) can be prosecuted.

 

What are the exceptions?

Draft rules released by the Government specify a number of exceptions. These will include:

  • personal or private transactions unless involving real property
  • digital currency transactions
  • payments that are subject to reporting obligations under the AML/CTF regime

exceptional transactions where no alternative method of payment could reasonably be used.

As part of Stay Smart Online week (in early October), the ATO published some useful tips about improving online safety.

  1. Be careful about what information you share online. Thieves look to steal personal information with the intent to commit identity fraud.
  2. Strong passwords are vital. Use two-factor authentication to add an extra layer of security where possible.
  3. Keep software updated on all devices to protect information.
  4. Back up important information regularly using a storage device or online cloud service.
  5. Be on the lookout for suspicious emails and text messages and think twice before clicking links or opening attachments.
  6. Never transfer funds to an unverified bank account.

Be wary of online scams. For example, promoters of illegal schemes promise early access to your super. Check with the ATO if you suspect a scam. If something seems too good to be true it probably is.

The ATO website contains lots of useful information but a recent case shows you should be wary of relying on the website.

The taxpayer (a Mr Lacey) had until 31 December 2017 to bring his transfer balance account below the $1.6m cap. So, he transferred $30,000 from that account to his accumulation account, believing that, when combined with pension drawdowns, it would bring him within the $1.6m cap. This belief was based on a statement on the ATO website that that “you will not have to pay excess transfer balance tax” if “you remove” the excess by 31 December 2017.

Unfortunately, it didn’t work that way and the taxpayer/Mr Lacey was eventually told to pay excess transfer balance tax of $596. So, he took the matter to the Administrative Appeals Tribunal (AAT), claiming that he would not have been misled if the ATO website had used “commute” rather than “remove”.

Although the AAT accepted that the taxpayer/Mr Lacey genuinely believed that the steps he took would operate to bring his transfer balance below the $1.6m cap (and the ATO did not dispute that), the AAT ruled that it did not have the jurisdiction to hear the case. In the end, the taxpayer/Mr Lacey still had to pay $596.

Tip! The lesson to be learnt? Speak with your tax adviser if you have any tax or superannuation issues.

Note! We should point out that the ATO website has been updated and, in the words of the AAT, “it is objectively a much more instructive document than its predecessor”.

31 October is, of course, the due date for individual tax returns where you don’t use a registered tax agent to lodge your return. The ATO has published some of the weirder excuses it has heard for why the tax return was late or the taxpayer did not have supporting documents. Hopefully they will make you smile – some may even sound familiar (who hasn’t misplaced a document).

  1. Someone’s stolen my pants

One taxpayer had a thief break into their car and walk off with their uniform pants. Unfortunately, the taxpayer had kept their receipt in his pocket and couldn’t provide a record of their purchase.

The ATO recommends taxpayers keep digital records of all claims you intend to make. When you only keep physical receipts, you run a real risk of losing all evidence of your purchases.

 

  1. A mouse ate my receipts

The most common problem that the ATO keeps seeing excuses for is missing receipts. One taxpayer contended that a mouse had broken into their car and eaten their receipts.

In cases where you’ve lost your receipt, check with the seller to see if they have a record of your transaction.

 

  1. The car wash did it

Leaving receipts in cars seems to frequently cause taxpayers strife. The ATO heard from one taxpayer, who, while trying to get their car squeaky clean, vanished all traces of their purchase.

The ATO advises you to close the windows when you’re going through a car wash.

 

  1. I’ve got ‘holiday brain’

One reason for late lodgment was that a taxpayer had gotten ‘holiday brain’ after returning from a trip and had forgotten to lodge their tax return.

The ATO knows that preparing your tax return may not be the most exciting date on your calendar, but it is an important one, and it may even result in you receiving a refund that you can put towards your next holiday.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

November 12th, 2019|

Business – Its tax time again

It’s Tax Time again!

This edition of TaxWise outlines some tax changes for 2018-19 that should be considered by small businesses when preparing tax returns for 2018-19. There are also some tax tips and lodgment dates that businesses may find helpful when preparing returns. Focus areas that the ATO will be looking at have also been listed.

There have been some tax changes for small businesses for 2018-19 in relation to:

  • Expanding accelerated depreciation;
  • Increasing access to company losses;
  • Single Touch Payroll; and
  • International tax changes.

 

The Federal Budget raised the instant asset write-off threshold to $30,000 from Budget night and expanded the number of businesses who could access the write-off to businesses with turnover less than $50 million. The write-off will be accessible to eligible businesses until 30 June 2020.

The lifting of the threshold and extending the availability of the concession to many more businesses is most certainly a positive step. However, it does leave businesses in a situation where they will have to deal with three different thresholds in the 2019 income year if they want to actually claim the offset.

The thresholds will apply in the following way in the 2019 income year:

  • assets costing less than $20,000 from 1 July 2018 to 28 January 2019 (for businesses with turnover less than $10 million);
  • assets costing less than $25,000 from 29 January 2019 to 2 April 2019 (7.29pm) (for businesses with turnover less than $10 million); and
  • assets costing less than $30,000 from 2 April 2019 to 30 June 2019 (7.30pm) (for businesses with turnover less than $50 million).

It is important to note that the instant asset write-off threshold now includes businesses with a turnover from $10 million to less than $50 million.

Tip! Such a simple concession so favourable to small business is unnecessarily complicated for the 2019 income year. If you don’t get the timing or the amount right, you could miss out. You should ask your tax adviser to make sure you don’t miss out.

Most businesses will be familiar with the ‘same business test”. However, from 1 March 2019, there is also a more flexible test called the ‘similar business test’.

The purpose of these tests is to determine whether a company’s tax losses and net capital losses from previous income years can be used.

The new test should make it easier to access past year losses when companies enter into new transactions or business activities.

Under the similar business test, a company (and some trusts) can access losses following a change in ownership where its business is similar having regard to various factors, including the:

  • assets used by the business to generate assessable income;
  • activities and operations used to generate assessable income;
  • identity of the business; and
  • changes resulting from the development or commercialisation of assets, products, processes, services, or marketing or organisational methods.
Do you have employees? Are you ready for Single Touch Payroll?

If an employer reports through Single Touch Payroll, they are not required to provide a payment summary to their employees. Not all employers are reporting through this system yet. It only became compulsory for smaller employers from 1 July 2019.

Under this system, many individuals will no longer receive a Payment Summary (Group Certificate) from their employer due to the introduction of Single Touch Payroll. Individuals will find they have an ‘Income Statement’ through their myGov account.

Tip! Small businesses need to be ready for Single Touch Payroll.

Hybrid mismatch rules

There have been changes to the hybrid mismatch rules. These rules are designed to prevent entities that are liable to income tax in Australia from avoiding income tax or obtaining global double tax benefits through hybrid mismatch arrangements that exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

Thin capitalisation

There have also been changes to the thin capitalisation provisions. These rules prevent certain debt deductions (eg for interest expenses). The changes are designed to prevent double gearing structures. Double gearing structures use layers of ‘flow-through’ entities (such as trusts and partnerships) to issue debt against the same underlying asset.

Tip! These changes are complex. If they apply to your business, you should seek advice from your tax adviser. ■

A few tips that small businesses should consider when preparing their tax returns are:

  1. Check if you are applying the correct company tax rate;
  2. Check if you are entitled to the small business income tax offset;
  3. Check if you are entitled to a small business CGT concession;
  4. Ensure that deductions are only claimed for business (not personal) expenses; and
  5. Keeping the right records to support your claims.
Companies will pay tax at the full rate of 30% or at the lower rate of 27.5% if certain eligibility requirements are met.

The ATO has published a useful table to help companies determine which tax rate is applicable.

Income year Aggregated turnover threshold Tax rate for base rate entities* under the threshold Tax rate for all other companies
2017–18 $25m 27.5% 30.0%
2018–19 to 2019–20 $50m 27.5% 30.0%
2020–21 $50m 26.0% 30.0%
2021–22 $50m 25.0% 30.0%

A base rate entity is a company that:

  • has an aggregated turnover less than the aggregated turnover threshold – which is $50 million for the 2018-19 income year; and
  • 80% or less of their assessable income is base rate entity passive income (eg corporate distributions, royalties, rent, interest income).

Tip! Small businesses should make sure whether the 30% rate or 27.5% rate applies to them.

The small business income tax offset can reduce the tax you pay by up to $1,000 each year.

To be eligible, you must be carrying on a small business as a sole trader or have a share of net small business income from a partnership or trust. The ATO has published the following table outlining the relevant turnover thresholds.

Income year Aggregated turnover threshold Rate of offset Maximum offset
2015–16 $2m 5% $1,000
2016–17 to 2019–20 $5m 8% $1,000
2020–21 $5m 13% $1,000
2021–22 and onwards $5m 16% $1,000

 

When determining whether you are entitled to the small business income tax offset, you need to determine your aggregated turnover.

Your aggregated turnover is generally your annual turnover plus the annual turnover of any business connected or affiliated with you.

There are four small business CGT concessions that may allow a small business to disregard or defer some or all of a capital gain from an active asset used in a small business.

If your business has disposed of an eligible active asset used in a business for a profit, you should consider if these concessions can apply to reduce the amount of tax payable by the business.

Broadly, these concessions are available when you dispose of an active asset and:

  • you’re a small business with an aggregated annual turnover of less than $2 million; or
  • your asset was used in a closely connected small business; or
  • you have net assets of no more than $6 million (excluding personal use assets such as your home, to the extent that it has not been used to produce income).

Tip! Your tax adviser can assist you in determining whether these conditions are satisfied. For example, your tax adviser can assist you in determining whether the asset in question satisfies the active asset test.

If available, these concessions can be very beneficial to small businesses. The concessions are:

  1. 15-year exemption – no assessable capital gain on the sale of active assets owned by a business for 15 years where certain other conditions are satisfied (eg you are over 55 or retiring).
  2. 50% active asset reduction – capital gains on the sale of active assets can be reduced by 50%.
  3. Retirement exemption – Capital gains from the sale of active assets are exempt (subject to a lifetime limit of $500,000). If you’re under 55, other conditions apply.
  4. Rollover – defer capital gains made on the sale of active assets for two years (or longer in certain circumstances).
Generally, a small business can deduct expenses that are related to earning assessable income and are incurred to run the business.

Common expenses that may be deducted include:

  • salaries;
  • rent or mortgage interest expenses;
  • running expenses – eg lighting, phone, internet, stationery; and
  • some travel expenses.

The line between business and personal expenses can easily be blurred when it comes to travel expenses. Make sure travel expenses are correctly characterised (or apportioned) as business or personal expenses.

The general rule for businesses is that you can claim deductions for expenses if you or your employee are travelling for business purposes. Such expenses can include:

  • airfares, bus, train and taxi/Uber fares;
  • car-hire fees plus fuel, tolls and cap parking costs; and
  • accommodation and meals if you are away overnight.

 You must keep proper tax records to claim travel expenses. The records need to be kept for 5 years and can include tax invoices, boarding passes, tickets. Records are also needed to detail how you worked out the private portion of any travel expenses. For example, if you travelled for business but extended the stay to go sightseeing and have a holiday. In this case, you will need to work out an appropriate apportionment of the expenses.

Depending on the length of travel, you may need to keep a travel diary as well. In fact, the ATO highly recommends a travel diary is kept for all travel expenses.

Some expenses that may be characterised as private and are not deductible could include:

  • costs incurred to take your family on a business trip;
  • sightseeing and entertainment; and
  • visas, passports or travel insurance.
It is vital that proper tax records are kept by small businesses. Small businesses need to keep records in relation to establishing, running or selling the business.

Legally, records must:

  • explain all transactions;
  • be in writing (electronic or paper);
  • be in English or in a form that can be easily converted; and
  • be kept for five years (some records may need to be kept longer).

 

Tip! You’ll find tax time much easier if all your records are in order and readily accessible.

The ATO has identified the top 3 issues that they see as issues when small businesses lodge their tax returns:

  1. Failing to report all of their income;
  2. Not having the necessary records to prove small business expenses claims; and
  3. Claiming private expenses as business expenses.

Tip! You should keep these focus areas in mind when preparing your tax return. ■

23 Sep 2019 August monthly BAS due
30 Sep 2019 Single touch payroll deadline to start reporting
21 Oct 2019 September monthly BAS due
28 Oct 2019 –       September quarter SG due

–       September quarterly BAS due

–       September quarter PAYG instalment due

31 Oct 2019 2019 Income tax return due
21 Nov 2019 October monthly BAS due
28 Nov 2019 September quarter SG charge statement due

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

September 4th, 2019|

Business Tax News June 2019

The Federal Election has come and gone. The Coalition has won and will be the next Federal Government.

The Coalition will have a majority of seats in the House of Representatives in their own right but not the Senate. This may make the passing of their tax and other proposals into law difficult.

Here we focus on the Coalition’s tax proposals highlighting the impact they may have on small and medium businesses and their owners.

Uncertainty around the Coalition’s tax policies and proposals

Many of the Coalition’s proposals were outlined in the Federal Budget on 2 April. Some proposals have already been passed into law – an example is the immediate tax write-off of the cost of buying plant and machinery.

Others like the tax offset for low-and middle-income earners that will only become available on the filing of the 2019 tax return, have not. It is highly unlikely that the Prime Minister will be able to call Parliament and pass the necessary law before 30 June.

In a perfect world, it is desirable that tax legislation should have a prospective start date to provide certainty, and time for the proposal to be properly considered. Unfortunately, this is not always the case.

If you believe that any of the proposals outlined here may apply to you or your business, please consult your tax adviser.

Instant asset write-off

Businesses can claim an immediate tax write-off and reduce their tax payable when buying new business assets, but cost caps apply.

Tip! Always discuss with your adviser whenever considering buying assets or businesses. The way these assets are described, documented and the timing of purchase are important and may impact the claiming of the immediate tax write-off.

If you are a small business with total turnover of less than $10 million, the instant asset write-off is available to you for all new or second-hand machinery, plant, cars and equipment (eg tools, display cabinets, freezers, delivery vehicles).

Cost caps apply depending on when the asset is first used or installed and ready for use.

If the time of first use or installation ready for use is between:

  • 1 July 2018 – 28 January 2019: assets must cost less than $20,000
  • 29 January 2019 – 2 April 2019: assets must cost less than $25,000
  • 3 April 2019 – 30 June 2020: assets must cost less than $30,000.

There is no limit to the number of assets that can be claimed.

For businesses claiming GST, the tax write-off cost excludes GST.

For businesses not claiming GST, the tax write-off cost includes GST.

Note! Registering for GST is optional if total sales are less than $75,000.

This tax break currently ends on 30 June 2020. There is an expectation that the Government may extend this provision.

 

What about assets that are more than $30,000?

For assets costing more than $30,000 or the cost caps of $20,000 or $25,000, for the relevant periods, businesses can use the simplified tax depreciation pooling provisions and depreciate those assets at 15% in the first year and 30% each year thereafter.

If on 30 June 2019 the simplified tax depreciation pool balance is less than $30,000, then this amount can be immediately written off for tax purposes.

Case study: How the instant asset write-off works

Here is a case study of how the instant asset-write-off works:

Early Bird Café is a business registered for GST with a turnover of $5m.

  • On 12 December 2018, Early Bird Café paid $16,500 (and was entitled to a GST credit of $1,500) for a counter top for the new café extension which opened for business after all construction was completed on 17 January.

 An immediate tax write-off of $15,000, as the counter was first used before 28 January.

 On 27 January 2019, Early Bird Café took delivery of a walk-in refrigerator, but it was not installed and ready for use until 6 February 2019. Payment of $25,300 including GST was made on 27 April 2019.

 An immediate tax write-off of $23,000 as the walk-in refrigerator was installed and ready for use before 2 April 2019. Delivery and payment dates are not taken into account. The write-off is the GST exclusive value. The GST of $2,300 is claimable in the BAS return. 

If the café business was not registered for GST (total sales being below $75,000) there would be no immediate tax write-off because the cost to the business is $25,300 and is more than the cost cap of $25,000. 

  • On 30 June 2019, the balance in the simplified tax depreciation pool was $28,500.

An immediate tax write-off of $28,500 as the balance in the simplified tax depreciation pool is less than the cost cap of $30,000.

  • On 20 July 2019, Early Bird Café took delivery of a van costing $44,000 including GST funded by a bank loan.

No immediate tax write-off as the cost of $40,000 is more than the cost cap of $30,000. Annual depreciation rules will apply to the $40,000 cost of the van. GST of $4,000 is claimable in the BAS return

Easier for businesses to use their losses

 

A new similar business test has been introduced, making it easier for a loss business to transfer its losses to a profit business where the businesses are similar.

 

The similar business test now means same assets, same activities, same identity with differences only coming from natural growth.

 

New GST withholding obligations on the purchase of new residential premises

 

From 1 July 2018, purchasers of new residential premises must pay vendors a GST exclusive amount and send the GST direct to the ATO.

 

No tax deductibility of employer payments to employees if PAYG obligations not met

From 1 July 2019, an employer will be allowed a tax deduction for payments to an employee only when the PAYG withholding obligations have been met. These are: the withholding of the tax when the employee is paid and the reporting of that amount to the ATO.

Cheaper, quicker and less intimidating resolution of ATO disputes

For small businesses, a new process has been introduced making the resolution of ATO disputes arising from minor technical matters identified in the tax return or an audit, cheaper, quicker and less intimidating.

Applications will be considered by a small business division of the Administrative Appeals Tribunal to commence from 1 July 2019 and be generally conducted without lawyers.

If for any reason, the ATO engages external lawyers, they will be obliged to pay the business’ cost of equivalent support. Decisions need to be given within 28 days of the hearing.

Tip! Your adviser will be able to advise if in your circumstance this approach is in the best interest of your business or yourself. ■

 

Medium businesses with a turnover of more than $10 million but less than $50 million

If you are a medium business with total turnover of more than $10 million but less than $50 million, you can claim an immediate tax write-off for assets costing less than $30,000 if they were purchased after 2 April 2019 and first used or installed and ready for use by 30 June 2020.

These businesses are not able to claim the immediate tax write-off for purchases before 2 April, as the immediate tax write-off provision did not apply to them before that date.

For assets costing more than $30,000, the annual depreciation rules will apply. There is also no immediate tax write-off for depreciation account balances below $30,000.

Prior to the Election, the Coalition Government had proposed various tax measures. These have yet to be passed into law. We are not sure which will be passed into law or when. If they are of interest discuss this with your adviser.

Still waiting for personal tax cuts…

Not yet law:

  • The tax offset that reduces the tax payable for low and middle- income earners. This becomes available when the 2019 tax return is filed with the ATO.
  • The marginal tax rate change for the 1 July 2019 – 30 June 2020 tax year. This will reduce the tax payable from 1 July 2019.

The new Coalition Government wants these and the proposed changes so that will result in a flatter tax rate structure by 2025, passed into law as quickly as possible. Labor has said it will support the 2019 and 2020 tax year changes but not those resulting in the flatter tax rate by 2025. We will wait and see.

Small tax discount rate to increase from 1 July 2020

For unincorporated businesses, the current small tax discount rate of 8% would increase to 13% for 1 July 2020 to 30 June 2021 and become 16% after 1 July 2021.

For companies with a turnover under $50m, a cut in corporate tax rate from 1 July 2021

It is proposed for companies with a total turnover of less than $50m that from 1 July 2021, the current company tax rate of 27.5% would be decreased to 25%.

Available now cash payments for training and new apprenticeships in some trades

A cash incentive payment of $8,000 per placement is available to those businesses offering apprenticeships in the following trades: carpenters and joiners; bricklayers and stonemasons; plasterers; wall and floor tilers; plumbers; vehicle painters; hairdressers; air-conditioning and refrigeration mechanics; arborists.

The employers will be given $3,500 after 12 months and $4,500 at the end of the apprenticeship.

The new apprentices receive $1,000 after 12 months and $1,000 on completion.

Selling overseas: Export market development grants

If your business operates as a self-employed, partnership, company or trust and has undertaken export promotion activities during the year, it may qualify for the Export Development Grant.

Specific rules exist as to the countries and categories of promotional expenditure that the Grant applies to. A detailed application process exists.

In general, a business must:

  • have total sales of less than $50m
  • have incurred at least $15,000 of promotional expenditure on (indicative only):
    • overseas representatives
    • overseas marketing visits
    • buyer visits
    • providing free samples
  • be selling or promoting overseas:
    • export of goods, know-how and most services
    • inbound tourism and conferences
  • be developing export markets in countries other than:
    • North Korea
    • Iran
    • New Zealand

The cash benefit is a reimbursement of up to 50% of the promotional expenditure over a must-spend base of $15,000. The minimum grant is $5,000 and the maximum $150,000.

Tip! If either of these incentives are of interest or applies to you or your business, consult with your adviser. The paperwork required to set these up may require their assistance.

With Labor losing the Election, the tax policies it planned to introduce will no longer go ahead. These policies are:

  • Additional 30% deduction for wages paid to new workers under the age of 25 and over 55 who had previously been unemployed and carers returning to work.
  • From 1 July 2021, an immediate 20% tax write-off of the cost of new eligible asset purchases. Usual depreciation would continue to apply in the first and subsequent years. No cost caps applied.
  • CGT discount of 25% not 50% on the sale of passive investments held for over 12 months.
  • A minimum tax of 30% on discretionary trust distributions to beneficiaries over the age of 18.
  • Negative gearing – restricting deductions for interest on loans to purchase new passive investments.
  • Franking credit – denying cash refunds.
  • Limiting to $3,000 the deduction for the cost of tax affairs management.

Various superannuation changes.

The new Government can be expected to continue funding the ATO to put in place mechanisms that will improve the integrity of the tax system and chase down those that want to operate outside it or who are understating income or overstating expenses.

The ATO is actively monitoring businesses by using up-to-date third-party information and risk analysis to find businesses who might not be correctly meeting their tax obligations.

How this may work is best shown in the below case study.

 

Case study

A hairdresser paid cash to a decorator to refurbish three salons.

The decorator buys paint and furnishings from a local supplier paying in cash and asks for them to be delivered to the salons.

As part of its normal data collecting, the ATO asks the supplier for a schedule of names and addresses of recent sales. The ATO are unable to find the decorator in their system. No tax return has been filed for the last 10 years. By visiting the delivery address the ATO identifies the decorator and commences an extensive investigation.

The ATO then focuses on the hairdresser. They are not able to see in the accounts the payment to the decorator. The ATO complete a living expense analysis and conclude that the amounts required by the hairdresser for day to day living is not supported by the income declared on the tax return. Not all hairdressing income has been included.

 

Tip! Living expenditure worksheets that allow business owners to undertake in-depth analysis of their household annual incomings and outgoings to show that the income declared on the tax return supports their actual life style are available. If you are interested in completing such worksheets, discuss this with your tax adviser

On 15 May, the County Court of Victoria sentenced a director of a labour hire company to six months jail for failing to pay to the ATO more than $664,000 in PAYGW from 49 employees; filing 136 false tax returns with refunds of $187,994 for workers (many who had left Australia) and the non-filing of Business Activity Statements (BAS). Monetary penalties were also imposed.

This case shows the extent that information and data analysis are available and used by the ATO to identify those outside the tax system or who understate income or overstate expenses.

Jail time and substantial penalties may result. If you have concerns that your business has made a mistake or left something out, you should discuss this immediately with your adviser.

 

Date

 

 

Obligation

21 Jun 2019 May monthly BAS due

 

25 Jun 2019 Lodge 2019 FBT annual return for agents if lodging electronically
30 June 2019 Super guarantee contributions must be paid by this date to qualify for a tax deduction in the 2018-19 financial year
15 Jul 2019 Issue PAYG withholding payment summaries
22 Jul 2019 June monthly BAS due
29 Jul 2019 –       June quarter SG due

–       June quarter BAS due

–       June quarter PAYG instalment due

1 Aug 2019 August fuel tax credit rates change
14 Aug 2019 PAYG withholding annual report due
21 Aug 2019 July monthly BAS due
28 Aug 2019 –       Taxable payments annual report due

–       June quarter SG charge statement due

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 10th, 2019|

Business Tax News Feb 2019

On 2 November 2018, the Deputy Commissioner of Small Business, Deborah Jenkins, delivered a keynote address at a conference run by a national accounting body outlining the main tax issues the ATO is seeing in small businesses. These are:

  • claiming private expenses through the business;
  • how to attribute business and private use to an asset;
  • how tax applies to different tax structures used for small business that may be complex and varied;
  • not always including all taxable income.

Other easily avoidable errors were also identified.

Other areas of focus include:

  • cracking down on the ‘Black Economy’;
  • assisting small businesses to manage their cash flow and tax debt; and
  • Single Touch Payroll (STP).

 

Here is a link if you would like to read the Deputy Commissioner’s speech in detail.

 

To do!

Always seek advice from your tax agent or tax adviser to ensure you are getting all your tax obligations right.

The ATO has published a new factsheet on motor vehicle expenses to help small businesses get this right.

The small business motor vehicle expenses fact sheet will help you answer common questions about:

  • types of motor vehicle expenses you can claim;
  • methods you can use to calculate your claim;
  • private use of a business car;
  • whether your vehicle is considered to be a car, and how this affects your claim; and
  • records you need to keep.

If you use motor vehicles in your business, this fact sheet is for you.

Disqualifying directors of phoenix companies

In November 2018, the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, supported the proposal made by the Shadow Assistant Treasurer, Andrew Leigh, to allow the Commissioner of Taxation to apply to ASIC to have directors who don’t meet their tax obligations disqualified in egregious cases.

The ALP would also put in place ‘name and shame’ powers.

Directors involved in phoenix activity deliberately shut down companies to avoid their obligations to small businesses, employees and the Government (including the ATO).

In response, Ms Carnell stated: “This is another approach that could help deal in part with the problem of company phoenixing, which destroys small businesses”.

To read more of Ms Carnell’s response, go here.

The ATO is committed to supporting small businesses run by Indigenous Australians.

They have dedicated staff on the Indigenous Helpline who specialise in helping Aboriginal and Torres Strait Islander people understand their tax and superannuation obligations in their small business.

The Helpline number is 13 10 30 (8.00am to 6.00pm, Monday to Friday, except public holidays).

Tip!

If you are starting a small business, your tax adviser will be able to assist you with working out the best structure for your business, understanding your tax and superannuation obligations and meeting those obligations on time.

If you run your business as a sole trader, or receive a share of small business income from a trust or partnership, don’t forget you may be able to save up to $1,000 on your tax bill by claiming the small business income tax offset.

The offset is worked out based on the proportion of income tax payable on your business income.

Your business aggregated turnover must be less than the relevant threshold – see the following table:

 

Income Year (s) Aggregated turnover threshold % Rate of offset Maximum offset amount
2016 $2,000,000 5% $1,000
2017 – 2020 $5,000,000 8% $1,000
2021 $5,000,000 13% $1,000
2022 $5,000,000 16% $1,000

 

Note!

You cannot claim the small business income tax offset if you run your business through a company. Talk to your tax agent about what other small business tax concessions you may be eligible for.

Small businesses will get an extra tax break following the recent announcement by the Government that the instant asset write-off scheme will be extended to 30 June 2020 for assets purchased under $25,000 in value. 

Small businesses will be able to immediately deduct assets costing less than $25,000 instead of claiming deductions over a number of years. The new increased threshold of $25,000 applies from 29 January 2019 (instead of $20,000). There is no limit on how many assets can be claimed.

Tip!

A helpful tip from the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell: “Small and family businesses need to remember that this is a tax deduction, not a rebate. So you need to have sufficient profit to write off the new asset against.”

The Taxable payments reporting system (TPRS) is slowly being expanded to cover more and more industries. It first started with the building and construction industry and from 1 July 2018 also includes contractors that provide courier and cleaning services. Businesses that make payments to contractors in these industries will need to lodge their first annual report by 28 August 2019.

The ATO has issued some guidance (LCR 2018/8) on how these rules will apply. Your tax agent or tax adviser will, of course, be able to assist you to meet your reporting obligations.

In late November 2018, legislation was passed to further expand the TPRS to contractor payments in the following industries:

  • security providers and investigation services;
  • road freight transport; and
  • computer system design and related services.

Businesses will be required to lodge their first annual report for payments in these industries by 28 August 2020.

The ATO has issued some digital resources, fact sheets and webinar recordings to assist taxpayers to understand their reporting obligations. However, your primary resource for assistance is your tax agent or adviser

The digital economy and Australia’s corporate tax system 

The Government is working with other countries, through the G20 and the OECD, to develop sustainable, multilateral responses to address the challenges to our tax system arising from digitalisation. A discussion paper was issued by Treasury for comment by 30 November 2018 to explore options to move towards a fairer and more sustainable tax system for the digitalised economy.

E-commerce and digital economy outcomes for the Tax Avoidance Taskforce

The rapidly evolving nature of the e-commerce and digital economy industry has significantly transformed the way multinational enterprises conduct their operations. This has resulted in complex arrangements being used as well as new, emerging business models. Consequently, highly complex and often unique business and financial structures are used by these enterprises, usually aiming to minimise tax obligations.

As a result of the proliferation of these artificial structures aimed at tax minimisation, this industry was chosen by the ATO as a focus area in the ATO’s ongoing efforts to ensure an even playing field for all taxpayers. 

As part of the work undertaken by the Tax Avoidance Taskforce, the ATO has done substantial compliance work focusing on the e-commerce and digital economy industry.

Multinational enterprises operating in this industry have significantly increased the profits declared and the tax they pay in Australia as result of the ATO’s efforts. The playing field is starting to level out.

Single Touch Payroll

Smaller employers – when to use Single Touch Payroll

If you are an employer with 19 or less employees, you should consider switching to reporting through Single Touch Payroll (STP).

Though you are not yet required to report through STP, you will be from 1 July 2019. If you use online or cloud-based payroll software, you may be able to start reporting now.

You will need to report payments such as salary and wages, Pay As You Go (PAYG) withholding and super information when you pay your employees.

Low-cost Single Touch Payroll solutions for micro businesses

A range of simple, low-cost Single Touch Payroll solutions are expected to be available in the market from early 2019. These solutions will best suit micro employers (with one to four employees) who need to report through STP, but do not currently have payroll software.

There is a list of software companies on the ATO website that intend to develop solutions for micro businesses.

 

Tip!

Your tax agent will be able to assist you in meeting your STP obligations. This may save you the expense of obtaining your own STP software. Talk to your tax agent before 1 July 2019 to help you decide what to do about meeting your upcoming STP obligations.

Smaller employers – when to use Single Touch Payroll

If you are an employer with 19 or less employees, you should consider switching to reporting through Single Touch Payroll (STP).

Though you are not yet required to report through STP, you will be from 1 July 2019. If you use online or cloud-based payroll software, you may be able to start reporting now.

You will need to report payments such as salary and wages, Pay As You Go (PAYG) withholding and super information when you pay your employees.

Low-cost Single Touch Payroll solutions for micro businesses

A range of simple, low-cost Single Touch Payroll solutions are expected to be available in the market from early 2019. These solutions will best suit micro employers (with one to four employees) who need to report through STP, but do not currently have payroll software.

There is a list of software companies on the ATO website that intend to develop solutions for micro businesses.

 

Tip!

Your tax agent will be able to assist you in meeting your STP obligations. This may save you the expense of obtaining your own STP software. Talk to your tax agent before 1 July 2019 to help you decide what to do about meeting your upcoming STP obligations.

GST and property transactions

 When will you get credits?

To ensure you can receive GST input tax credits on time, as part of the property settlement process, you should ensure that the supplier details you provide to the purchaser in your notification are correct. If you get the details right at the time of settlement, this will help avoid delays in the processing of your credits by the ATO.

Providing details to the ATO that are not quite correct can delay you accessing your credits and may require the ATO to validate your details.

To ensure timely processing, the ATO has detailed the following 6 steps to follow:

 

Step 1: provide correct Supplier details to the purchaser

Step 2: purchaser to enter Supplier details into Form 1 GST Property Settlement Withholding notification

Step 3: purchaser to pay the withholding amount and lodge Form 2 GST Property Settlement Date confirmation

Step 4: ATO to allocate a credit to the Supplier GST property credits account if this matches the details provided in Form 1

Step 5: Supplier to lodge a BAS declaring the property transaction

Step 6: ATO to process BAS and transfer credits to Supplier Activity Statement account.

 

Changes to GST settlement for residential property – can you apply the margin scheme?

New legislation affecting GST on purchases of new residential premises and potential residential land started to apply from 1 July 2018. The new legislation requires purchasers of certain land to withhold an amount from the purchase price and instead remit this amount to the ATO.

If you are in business and registered for GST and you are selling new residential premises or potential residential land, you may be able to apply the GST margin scheme to your sale.

If the margin scheme applies to your sale, you must notify the purchaser of the withholding amount to ensure the purchaser withholds the correct amount. The withholding amount is 7% of the contract price (cents are not included).

The new legislation has not changed the way the margin scheme applies or operates, including business activity statement (BAS) reporting. All property sales continue to be reported at label G1 and the GST on sales reported at label 1A on your BAS.

Do you make any GST-free sales?

Do you sell food? Do you supply education? Do you provide medical services? Do you sell any of the products and services in the list below?

  • Most basic food
  • Some education courses, course materials and related excursions or field trips
  • Some medical, health and care services
  • Some menstrual products (from 1 January 2019)
  • Some medical aids and appliances
  • Some medicines
  • Some childcare services
  • Some religious services and charitable activities
  • Supplies of accommodation and meals to residents of retirement villages by certain operators
  • Cars for disabled people to use, as long as certain requirements are met
  • Precious metals
  • Farmland

If so, some of the products and services you sell may be GST-free. This means, you don’t need to charge GST on them and you can still claim any input tax credits you may be entitled to.

To do!

If you are not sure whether you should be charging GST on the goods and services you sell, check with your tax adviser.

Did you throw a party for your employees to celebrate the festive season?

If so, you need to consider whether you have any FBT obligations associated with the party. If you also gave your employees a gift, there may be an FBT implication too.

It also makes a difference whether the party was held on your business premises or somewhere else.

If the cost of everything per person is less than $300, you may have provided a ‘minor benefit’ which may be exempt from FBT.

Your tax adviser will be able to tell you whether there are any FBT implications for your business for the party and the gifts.

Private use of cars and FBT

A car fringe benefit may arise when your business owns or leases a car and makes it available for an employee to use for private travel. It is the availability of the car for private use by an employee that is the ‘fringe benefit’.

A car is ‘available for private use’ if it is garaged or kept at or near the employee’s residence at any time on a day. Generally speaking, using the car to travel to and from work is ‘private use’ of the car.

If your business has recently acquired a car, you may have received a letter from the ATO to help you understand what your FBT obligations might be. If you are not sure what your FBT obligations are, you should speak with your tax adviser.

Note!

An ‘employee’ also includes a director.

The FBT rules are being reviewed

Board of Taxation FBT Compliance Review

The Board of Taxation is conducting a review into the compliance costs associated with fringe benefits tax. They recently ran a survey which employers could complete to provide information to the Board about their own experience with FBT compliance costs.

Shortly the Board will make recommendations to the Government about whether any changes to FBT compliance are required. However, as is typical of government reviews, it may be a while before any changes are made.

Productivity Commission review into the Zone Tax Offset, Fringe Benefit Tax remote area concessions and Remote Area Allowance

In February 2019, the Productivity Commission intends to begin a review into ‘remote tax assistance’ – the Zone Tax Offset, Fringe Benefits Tax remote area concessions and Remote Area Allowance – which provide financial support to people living in remote areas of Australia.

Eligibility for assistance is determined by geographical location divided into zones.  The zones have been largely unchanged since 1945. The main concern from this is that the current financial support doesn’t reflect the current status of demography, infrastructure and the cost of living.

The Productivity Commission is not due to report for 12 months following commencement of the review. So, any change in this area may not occur for a long time.

If you own residential rental property, you are only able to claim deductions for travel expenses relating to inspecting, maintaining, or collecting rent from the property if you are carrying on a rental property business or the property is owned by an excluded entity (eg a company). 

The law changed on 1 July 2017 to restrict when travel expenses associated with rental properties could be claimed. If you haven’t yet lodged your 2018 income tax return for your business, check with your tax adviser whether you are eligible to claim these travel expenses.

If you are running or are about to start running a ride-sourcing enterprise, you will need to get an Australian Business Number (ABN) and register for GST. Fares you receive are subject to GST and the money you receive from ride-sourcing is subject to income tax.

You can register for an ABN and GST at the same time online via www.abr.gov.au. Your tax agent can also apply for an ABN and GST registration for you.

Your GST registration will need to start from the date you start your ride-sourcing enterprise.

If you are already registered for GST as an individual for another industry, you can use the same GST registration. Though, if you have a company, the company must have its own separate GST registration.

Your tax agent or tax adviser will be able to help you understand what your tax obligations are for running a ride-sourcing enterprise.

Proposed superannuation guarantee amnesty

There is a proposal to provide employers with a 12-month amnesty to self-correct past superannuation guarantee non-compliance without penalty.

If the Treasury Laws Amendment (2018 Superannuation Measures) No.1 Bill 2018 (Amnesty Bill) is passed by Parliament, the amnesty will be available from 24 May 2018 to 23 May 2019.

Given the time period it covers, the ATO will apply the new law retrospectively to voluntary disclosures made within the time period.

Until the new law is passed, the current rules apply, which includes a ‘$20 per employee per period’ mandatory administration component to SG charge statements lodged by employers.

If you are concerned that you may have super guarantee corrections to make, please speak with your tax adviser.

 

Event-based reporting for SMSFs

On 1 July 2018, the event-based reporting framework for self-managed superannuation funds (SMSF) began to apply.

The new framework helps the ATO to administer the transfer balance cap. Once the first member in the fund starts to receive a retirement phase income stream, the SMSF will have to report to the ATO.

The report about the transfer balance cap (‘transfer balance account report’ (TBAR)) is a separate reporting obligation to the Annual Return for the SMSF. The TBAR enables the ATO to record and track an individual’s balance for both their transfer balance cap and their total superannuation balance. However, it is important that SMSF trustees and members monitor their own account balances.

To do!

If you have your own SMSF, you should speak with your tax adviser about monitoring members’ account balances and the fund’s reporting obligations.

A TBAR was due to the ATO on 29 January 2019 if a fund member had a total superannuation balance of more than $1 million or a member had a transfer balance account event occur between 1 October 2018 and 31 December 2018.

 

Are the details of your SMSF up to date on the Australian Business Register?

If you make changes to the details of your SMSF, the Australian Business Register (ABR) needs to be updated within 28 days of those details changing. Changes to the following details must be updated on the ABR:

  • trustees
  • directors of the corporate trustee
  • members
  • contact details
  • address
  • fund status.

Your tax agent can check the ABR for you and confirm with you whether the details of your SMSF are up to date or make any changes for you.

The Small Business Superannuation Clearing House: updated communication

The ATO has updated the way it notifies users of the Small Business Superannuation Clearing House (SBSCH) of changes to the SBSCH. The terms and conditions of the SBSCH have also be updated to provide small business users with a better understanding of:

  • when a payment is ‘accepted’ by the SBSCH for an employer’s superannuation guarantee contributions;
  • what happens when a fund doesn’t accept a payment (due to missing or incorrect payment instruction details); and
  • when the superannuation guarantee charge applies.
From 1 July 2019, an employer can only claim deductions for payments made to employees or contractors where an employer has complied with the Pay As You Go (PAYG) withholding and reporting obligations for that payment.

If the PAYG withholding rules require an employer to withhold an amount from a payment they make to an employee or contractor, they must withhold the amount from the payment before they pay it and report the amount to the ATO.

Any payments made where the PAYG amount has not been withheld or reported are called ‘non-compliant payments’. Non-compliant payments are not eligible for a deduction. If a mistake is made and the employer has withheld or reported an incorrect amount, the employer will not lose their entitlement to a deduction.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

February 16th, 2019|

Business Tax News June 2018

Small and medium sized businesses received a bit of attention from the Government in this year’s 2018-19 Budget.

Making it all the way to number 2 on the Government’s priority list of ‘must-do’s’, the Government stressed that it must “keep backing business to invest and create more jobs, especially small and medium sized businesses”.

With that said, a handful of measures were announced to support these businesses in Australia.

If you are a small or medium sized business owner, we’ve listed a few of the key Budget measures, tax breaks and outcomes that may directly impact you.

 

1. $20,000 instant asset write-off extended to 30 June 2019

Do you own a small business? Have you been planning any significant purchases?

If so, the great news is: you have another 12 months to take advantage of the $20,000 instant asset write-off scheme!

This tax break only applies to small businesses with an aggregated turnover of less than $10 million.

This Budget initiative means that as a small business owner, you get to improve your cash flow and boost your business activity and investment for another year.

Note: On 1 July 2019, the threshold will reduce to $1,000 so get shopping!

How does this work?

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return.

This deduction is used for each asset that costs less than $20,000.

You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

Example:

Jane owns a plumbing business. She buys five new laptops for her employees. Jane can take advantage of the $20,000 instant asset write off for all of these items because each individual item costs less than $20,000.

Jane also buys five second-hand mobile phones for her employees. The mobile phones are 50% for personal use and 50% for business use. This means only half the full amount of the iPhone can be claimed.

Note! 

  • You can use the $20,000 instant asset write-off multiple times. However, each one must cost less than $20,000.
  • Don’t forget that purchases will only qualify if they total $19,999.99 or less, including GST!

2. Personal tax relief for low and middle-income earners

If you earn less than $90,000, you can expect some tax relief in the form of a new low and middle income tax offset and changes to personal income tax brackets.

Low and middle-income tax offset 

  • This offset will provide tax relief of up to $530 to low and middle income earners for the 2018-19, 2019-20, 2020-21 and 2021-22 income years.
  • This offset means around 4.4 million people will receive the full $530 benefit for 2018-19.

Note! The benefit is in addition to the existing low income tax offset and will be available on assessment after a you lodge your tax return.

 

 What are your savings per year?

 

If you earn… Your savings per year

 

 

$37,000 or less

 

 

Up to $200

 

$37,001 – $47,999

 

 

Between $200 – $530

 

$48,000 – $90,000

 

 

Up to $530

 

$90,001 – $125,333

 

 

Up to $530, gradually reducing to $0

 

 

Changes to personal tax brackets

  • From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.
  • When the low and middle-income tax offset concludes in 2021-22, the benefits will be locked in by increasing the top threshold of the 19% tax bracket from $37,000 to $41,000 and increasing the low income tax offset from $445 to $645 from 1 July 2022.
  • From 1 July 2022, the top threshold of the 32.5% tax bracket will be increased from $90,000 to $120,000, providing a tax cut of up to $1,350 per year.

How does this impact small and medium sized businesses?

The immediate relief for low and middle-income earners will be a significant benefit to the nearly 40% of small businesses that are unincorporated.

There will be some tax changes for your employees, so now is the time to review your payroll software, PAYG withholding tax and business processes.

Note!

  • Single Touch Payroll is coming on 1 July 2018! If your business has 20 or more employees, you’ll need to report payments such as salaries and wages, withholding and super information to the ATO directly from your payroll solution at the same time you pay your employees.

Tip!

  • Speak to your payroll software provider or your tax adviser to find out how you can be compliant.

 

3. New changes to the research and development (R&D) tax incentive

Do you currently claim research and development (R&D) on your tax? If so, here are some changes to the R&D tax incentive that may affect your business, depending on your business’ aggregated annual turnover.

If your aggregated business turnover is $20 million or over

From 1 July 2018, the Government will introduce a new R&D premium for companies which provide higher rates of R&D support for higher R&D intensity.

The R&D premium will provide multiple rates of non-refundable R&D tax offsets, increasing with the intensity of the claimant’s incremental R&D expenditure.

If your aggregated business turnover is under $20 million

The R&D tax incentive will be capped at $4 million on cash refunds.

Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years.

This means that for small businesses, there will be a reduction in the offset available and may impact your decision as a small business owner in undertaking and relying on the R&D tax incentive.

Note! The ATO are cracking down on dodgy R&D claims. In particular, they are closely watching businesses that abuse the incentive by claiming ordinary business costs as R&D expenses.

Tip! If you are worried about your R&D spend, speak to your tax adviser to find out more. And don’t forget to keep all your records and documents!

 

4. Major crackdown on the cash economy

If you are in the habit of making cash payments when you conduct business, you may need to start considering using alternative methods of payment. The Government is seriously cracking down on cash payments over $10,000.

Three new key measures targeting cash economy (aka ‘Black Economy’) activities and illegal phoenixing are being introduced by the Government. These are:

  • Limiting cash payments within Australia to $10,000
  • Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
  • Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry.
The end of the financial year is looming – it really is that time of year again. Tax time is always busy so we’re sharing a few quick tips to help you sail through lodgment season.

Some tax time tips…

  • Gather and sort your business records now, including cash, online, EFTPOS, bank statements, credit or debit card transactions covering:
    • sales and other business income
    • expenses you can claim as a business deduction such as staff wages, contractor expenses, operating expenses and business travel expenses.
  • If you changed your record keeping software during the year, check that all your information has transferred over correctly.

Are you a sole trader?

  • Even if your income is below the tax-free threshold, you still need to lodge a tax return.
  • Do you pay PAYG instalments? Lodge your activity statements and pay all your PAYG instalments before you lodge your tax return so your income tax assessment takes into account the instalments you’ve paid throughout the year.

Are you a partnership?

If you operate your business in a partnership:

  • the partnership lodges a partnership tax return, reporting the partnership’s net income (assessable income less allowable expenses and deductions)

As an individual partner, you report on your individual tax return:

  • your share of any partnership net income or loss
  • any other assessable income, such as salary and wages (shown on a Payment Summary), dividends and rental income.

The partnership doesn’t pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

Are you a trust?

If you operate your business through a trust, the trust reports its net income or loss (this is the trust’s income less expenses and deductions) and the trustee is required to lodge a trust tax return.

As a trust beneficiary, you report on your individual tax return any income you receive from the trust.

Are you a company?

If you operate your business through a company, you need to lodge a company tax return.

The company reports its taxable income, tax offsets and credits, PAYG instalments and the amount of tax it is liable to pay on that income or the amount that is refundable.

The company’s income is separate from your personal income.

 

Tip!

  • Registered tax and BAS agents can help you with your tax.
Enhancements in technology and data matching mean the ATO is able to detect people and businesses operating outside the tax system this tax time.

The ATO are keeping a watchful eye and looking out for behaviours, characteristics and tax issues that may raise questions and attract their attention.

 

Behaviours that may attract the ATO’s attention

  • Tax or economic performance that is not comparable to similar businesses
  • Low transparency of your tax affairs
  • Large, one-off or unusual transactions, including the transfer or shifting of wealth
  • Aggressive tax planning
  • Tax outcomes inconsistent with the intent of the tax law
  • Choosing not to comply or regularly taking controversial interpretations of the law, without engaging with the ATO
  • Lifestyle not supported by after-tax income
  • Accessing business assets for tax-free private use
  • Poor governance and risk-management systems.

 Other areas of concern…

Research and development

  • Claiming R&D tax incentive on business as usual expenses that are not covered by eligible R&D activities
  • How entities apportion overheads between eligible R&D activities and other non-R&D activities
  • Payments to associates
  • Whether or not expenses have been incurred

 

Fringe benefits tax

  • Situations where an employer-provided motor vehicle is used for private travel of employees. This constitutes a fringe benefit and needs to be declared on your FBT return.

Note! There are circumstances where this benefit may be exempt, such as where the entity was tax exempt or the private use of the vehicle was exempt.

 

Self-managed super funds

  • Significant management and administration expenses
  • Incorrect calculation of exempt current pension income
  • Incorrect treatment of related party transactions
  • Personal services income diverted to SMSFs
  • Incorrect treatment of non-arm’s length income

 

Trusts

What attracts the ATO’s attention is a complying superannuation fund (generally an SMSF) that receives income distributions from a trust where the distributions result from:

  • the exercise of a discretion of the trustee
  • the fixed entitlement was not acquired on arm’s length terms
  • the fixed entitlement was acquired using a loan from a related lender and is not on arm’s length terms
  • there are loans between related parties which are not on arm’s length terms which have facilitated the acquisition of assets within the trust
  • the rate of return received by the superannuation fund from its investment is not consistent with an arm’s length return.

 

Lifestyle assets and private pursuits

The ATO is focusing on assets and private pursuits that generate deductions or are mischaracterised as business activities. Some of these include:

  • private aircraft ownership or activities
  • art ownership and dealings
  • car or motor bike racing activities
  • luxury and charter boat activities
  • enthusiast or luxury motor vehicles
  • grape growing and other farming pursuits
  • horse breeding, racing and training activities
  • holiday homes and luxury accommodation provision
  • sporting clubs and other activities involving participation of the principals or associates of principals of private groups.

 

Tip! If you’re concerned about your tax or super position, speak to your tax adviser or the ATO. You can correct a mistake by making a voluntary disclosure.

There’s still time for you to take advantage of small business tax concessions before the end of the financial year.

If you act before 30 June, you can make the most of some concessions. For example:

Instant asset write-off

If you buy and install business assets by 30 June that cost less than $20,000 each, you can deduct the business portion in this year’s tax return.

Pre-paid expenses

You can claim a deduction this year if you prepay an expense that will end in the next financial year, for example, the rent for your business premises or an insurance policy.

Do you need to do a stocktake?

If you estimate that the difference between your opening and closing trading stock is $5,000 or less, you don’t need to do a stocktake. Instead, you can include the same amount for your opening and closing stock in this year’s tax return.

Not-so-small list of small business concessions…

Here is a list of the small business tax concessions that may be available to you.

Tip! Speak to your tax adviser to find out which concessions you can tap into.

 

Income tax

  • Lower company tax rate changes
  • Increased small business income tax offset
  • PAYG instalment concession

Deductions

  • Simplified depreciation rules – instant asset write-off
  • Accelerated depreciation for primary producers
  • Deductions for professional expenses for start-ups
  • Immediate deductions for prepaid expenses

Simplified record-keeping

  • Simplified trading stock rules
  • Two-year amendment period

GST, BAS and excise

  • Simpler BAS
  • Accounting for GST on a cash basis
  • Annual apportionment of GST input tax credits
  • Paying GST by instalments
  • Excise concession

Capital gains tax (CGT)

  • Small business restructure rollover
  • CGT 15-year asset exemption
  • CGT 50% active asset reduction
  • CGT Retirement exemption
  • CGT Rollover
  • Contributions of small business CGT concession amounts to your super fund

Fringe benefits tax (FBT)

  • FBT car parking exemption
  • FBT work-related devices exemption

Superannuation

  • Superannuation clearing house
  • Contributions of small business CGT concession amounts to your super fund.
The Board of Taxation – an advisory body tasked with improving the design and operation of tax laws – will be conducting a review of Australia’s small business tax concessions.

The Board is encouraging small business owners and advisers to have their say in the review process.

The Board is undertaking a review to:

  • identify ways to improve small business tax concessions to ensure they remain effective, easily accessible, and well-targeted;
  • identify new concessions and ways to improve existing concessions; and
  • identify areas in which concessions that are less effective, or not well targeted, could be removed or scaled back to generate savings that can be redeployed in areas where they may have a greater impact.

The Board will make recommendations to the Government on how to efficiently target on the quality and effectiveness of tax laws and advise on the general integrity of the system.

Advice will be provided to the Government in October 2018.

Note!

  • If you’re interested in participating, visit the Board of Taxation website or get in touch with your tax adviser!
  • The deadline for your input is on Friday 20 July.
  • The consultation guide can be found on the Board of Taxation website
If you are an employer you may have a payroll tax obligation

Payroll tax is a state and territory tax on the wages you pay as an employer. Payroll tax is calculated on the amount of wages you pay each month and payable in the state or territory of Australia where the services were performed.

Wages liable for payroll tax include:

  • Employee wages
  • Contractor payments
  • Directors’ remuneration
  • Superannuation
  • Allowances
  • Fringe benefits
  • Bonuses and commissions
  • Termination payments

Not all businesses will have a payroll tax obligation. You only have to pay it if your taxable wages (or your group wages) exceed the threshold in your state or territory.

 

Note!

  • Each state or territory has a different tax threshold as well as registration process.
  • Find out what the threshold is in your state or territory, and if your taxable wages are approaching or have surpassed that threshold. Your tax adviser will be able to tell you if you need to register your business for payroll tax.

Payroll tax is generally lodged and paid to state and territory revenue offices monthly.

Tip! There are various employer-based exemptions for payroll tax. Check with your tax adviser to find out if your business qualifies for an exemption

From 1 July 2018, if you are purchasing new residential premises or potential residential land you will have to pay the GST directly to the ATO as part of the settlement.

These changes will apply to contracts entered into on or after 1 July 2018.

The amount of GST hasn’t changed, just who is required to pay the GST to the ATO. You as the purchaser now pays the GST directly to the ATO instead of paying it to the developer as part of the purchase price.

You won’t have to register for GST to make this payment.

Property developers will need to give written notification to you when you need to withhold an amount for GST.

This does not affect sales of existing residential properties or the sales of new or existing commercial properties.

21 June 2018

May monthly BAS due

16 July 2018

Issue PAYG withholding payment summaries

23 July 2018

June monthly BAS due

30 July 2018

  • June quarter SG due
  • June quarterly BAS due
  • June quarter PAYG instalment due

1 August 2018

August fuel tax credit rates change

14 August 2018

PAYG withholding annual report due

21 August 2018

July – monthly BAS due

28 August 2018

  • Taxable payments annual report due
  • June quarter SG charge statement due

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 13th, 2018|

Federal Budget 2018

The Federal Treasurer Scott Morrison handed down his third Federal Budget on Tuesday 8 May 2018. With an upcoming election, this year’s Budget contains a few apparent sweeteners to woo voters.

But what does this actually mean for us? How does this affect the pockets of 24 million or so Australians who pay taxes in one of the highest taxed countries in the world?

Here we give you a breakdown of some of the Budget measures, what you need to know and how it impacts you.

 But first, an overview…

 This year’s Budget is a blend of some 37 measures, but no single big-ticket item such as the bank levy of last year.

The measures range from those that impact individuals (personal tax cuts over the next 7 years; tightening ATO oversight of deductions claimed) and small businesses (extension of the current $20,000 instant asset write-off for small business entities) through to big businesses (broadening the definition of ‘significant global entity’ to ensure that Australia’s multinational tax integrity rules operate as intended).

For those wondering about superannuation, mercifully there were no major changes this year.

Individuals 

  • Phased reform of personal income tax relief for low and middle-income earners
  • Change to personal income brackets
  • New Low and Middle-Income Tax Offset introduced
  • No Medicare levy increase – stays at 2%
  • Additional funding being allocated to the ATO for compliance enforcement – which may mean targeting work-related expenses

Businesses

  • Small business $20,000 instant asset write-off extended
  • Black economy and illegal phoenixing activities targeted through increase in ATO funding
  • Overhaul of the research and development (R&D) tax incentive
  • Budget expected to return to a modest surplus of $2.2 billion by 2019-20 and increase to projected surpluses of $11.0 billion in 2020-21 and $16.6 billion in 2021-22.
  • Budget deficit forecast to drop to $14.5 billion in 2018-19, after hitting $18.2 billion in 2017-18.
  • Unemployment will be 5.25% in 2018-19, down from 5.5% in 2017-18 and projected to fall to 5% in 2021-22.
  • Inflation will be 2.25% in 2018-19, up from 2% in 2017-18 and projected to hit 2.5% in 2020-21.
  • Revenue is estimated to be $486.1 billion in 2018-19, up from $456.2 billion in 2017-18 and projected to reach $537.9 billion in 2020-21.
The to-do

Provide tax relief to encourage and reward working Australians and reduce cost pressures on households, including lowering electricity prices.

The action

Lower personal income tax and provide tax relief for low and middle-income earners as part of the Government’s 7-year ‘Personal Income Tax Plan’. By 2024-25, approximately 94% of taxpayers are projected to face a marginal tax rate of 32.5% or less.

 

The to-do

Keep backing business to invest and create more jobs, especially small and medium sized businesses.

The action

Legislating tax cuts for all businesses, prioritising small to medium businesses, delivering infrastructure that supports industries and jobs, and targeting incentives to promote research, development and new technology.

 

The to-do

Guarantee the essential services that Australians rely on, like Medicare, hospitals, schools and caring for older Australians.

The action

Funding for hospitals and schools and a comprehensive approach to aged care for older Australians, guaranteed funding for disability services.

 

The to-do

Provide tax relief to encourage and reward working Australians and reduce cost pressures on households, including lowering electricity prices.

The action

Lower personal income tax and provide tax relief for low and middle-income earners as part of the Government’s 7-year ‘Personal Income Tax Plan’. By 2024-25, approximately 94% of taxpayers are projected to face a marginal tax rate of 32.5% or less.

 

The to-do

Keep Australians safe, with new investments to secure our borders.

The action

Strengthening security at Australian airports, enhancing intelligence capabilities and implementing smarter biosecurity systems to safeguard our border.

 

The to-do

Ensure that the Government lives within its means, keeping spending and taxes under control.

The action

Government borrowings will continue funding critical infrastructure and defence spending.

Low and middle-income earners have emerged as the winners from the Budget. The Government unveiled their 7-year 3-phase plan, focusing on reducing the tax burden on individual taxpayers from 1 July 2018.

The sweetener is clearly a plan to introduce what the Government hopes will entice voters – adjustments to personal income tax rates. 80% of the taxpaying population (all those earning up to $87,000) will get some benefit from this change from 1 July 2018.

In later years, the number of brackets will be reduced from five to four with the elimination of the 37% rate. The top rate of 45% will only cut in at $200,000.

Current

Projected

Income bracket

Rate

% of taxpayers in this bracket

Income bracket

Rate

% of taxpayers in this bracket

$0 – $18,200

Nil

22%

$0 – $18,200

Nil

21%

$18,201 – $37,000

19%

$18,201 – $41,000

19%

$37,001 – $87,000

32.5%

53%

$41,001 – $200,000

32.5%

73%

$87,001 – $180,000

37%

20%

$200,000 +

45%

6%

$180,000 +

45%

5%

Note! What remains unclear is the position for foreign residents and how they will be taxed.

The Government has introduced a new Low and Middle-Income Tax Offset to deliver lower personal income taxes for low to middle-income earners through a 3-phase plan.

The benefit of the Low and Middle-Income Tax Offset is in addition to the existing Low-Income Tax Offset. This may result in a combined offset of up to $975 per year for some taxpayers from 1 July 2018.

Phase 1:

Tax relief from 1 July 2018 to low and middle-income earners via a new non-refundable Low and Middle-Income Tax Offset, designed to provide tax relief of up to $530 for each of those years.

From 2018-19 to 2021-22, taxpayers will receive the following non-refundable tax offsets.

  • Alice earns $35,000 and pays 19 cents in the dollar. She will have her tax reduced by up to $200 on what she has paid in tax once the Low and Middle-Income Tax Offset applies. The average tax paid by Australians in this tax bracket is $1,900 per year.
  • Ben earns $48,000 and pays 32.5 cents in the dollar. He will have his tax reduced by up to a maximum of $530 per year once the Low and Middle-Income Tax Offset applies. The average tax paid by Australians in this tax bracket was $10,400 per year in 2015-16. 4.4 million taxpayers with an income between $48,000 and $90,000 will receive the maximum tax relief of $530.
  • Claire earns $95,000. The Low and Middle-Income Tax Offset will phase out at a rate of 1.5 cents per dollar, which means her tax relief reduces to zero at just over $125,000.

Phase 2:

Protecting bracket creep by ensuring a pay rise, extra overtime or working more hours does not get eaten up by higher tax rates.

In the 2016-17 Budget, the Government increased the top threshold for the 32.5% tax bracket from $80,000 to $87,000.

This threshold will now be set at $90,000 from 1 July 2018.

In 2022-23, the $37,000 threshold will be lifted to $41,000, stopping half a million Australians from creeping into the next tax bracket and facing a marginal rate of 32.5%. The $90,000 threshold will be raised again to $120,000, preventing 1.8 million Australians paying 37 cents in the dollar.

Phase 3:

Simplifying and flattening the personal tax system in 2024-25 by scrapping the 37% tax bracket entirely.

The top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.

 

$37,000 or less

 

Up to $200

 

$37,001 – $47,999

 

Between $200 – $530

 

$48,000 – $90,000

 

Up to $530

 

$90,001 – $125,333

 

Up to $530, gradually reducing to $0

A strong theme in the narrative accompanying the revenue measures in this year’s Budget is the additional boost to funding being allocated to the ATO and related organisations. This is evident from a number of measures, including:

  • Personal income tax measures to ensure individuals meet their tax obligations ($130.8 million)
  • Delivering on debt collections and improvement in timeliness of debt collections ($133.7 million)
  • Enhancing ATO enforcement against the Black Economy ($318.5 million)
  • R&D measure providing additional funding to the ATO and the Department of Industry, Innovation and Science (amount not specified)
  • Assorted other measures relating to aspects of superannuation and payroll and superannuation fund reporting.

The measure seeking to ensure individuals meet their tax obligations alone is estimated to raise some $1.1 billion over the forward estimates. This could be read principally as a reference to ensuring that taxpayers do not over-claim work-related expenses.

The Medicare levy will remain at 2%. In last year’s Budget, the Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019 but has decided not to go ahead with this.
The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase for the 2018-19 year.

 

Singles

 

$21,980 (up from $21,655)

 

Couples with no children

 

$37,089 (up from $36,541)

 

Families with children

 

$37,089 (up from $36,541) + $3,406 for each dependent child or student (up from $3,356)

 

Single seniors/pensioners

 

$34,758 (up from $34,244)

 

Seniors/pensioners with family

 

$48,385 (up from $47,670) + $3,406 for each dependent child or student.

The Government will introduce a range of measures to enhance the standard of living of older Australians. These measures will commence on 1 July 2019.

  • Expanding the Pension Work Bonus from $250 to $300 per fortnight (ie up to $7,800 a year)
  • Pension Loans Scheme opened to all older Australians to include self-employed retirees who will be able to earn up to $300 per fortnight without impacting their eligibility for the pension
  • Expanding the Pension Loans Scheme so that older Australians can use the equity in their homes to increase their incomes
  • Changes to pension means test rules to help older Australians manage their life savings.
The $20,000 instant asset write-off is being extended for another 12 months for businesses with an aggregated turnover of less than $10 million so that it will now expire on 30 June 2019.

The measure will improve cash flow for small businesses, providing a boost to small business activity and investment for another year.

The threshold amount was originally due to return to $1,000 on 1 July 2018. However, as a result of the Budget announcement, small businesses will be able to immediately deduct purchases of eligible depreciating assets costing less than $20,000 that are acquired between 1 July 2017 and 30 June 2019 and first used or installed ready for use by 30 June 2019 for a taxable purpose. Only a few assets are not eligible (such as horticultural plants and in-house software).

On 1 July 2019, the threshold will reduce to $1,000.

Note! Don’t forget that purchases will only qualify if they total $19,999.99 or less!

 

The $20,000 instant asset write-off explained

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it.

 

What about assets valued at $20,000 or more?

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).

The current ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2019.

The Government is reforming the Research and Development Tax Incentive (R&DTI) to reward additional investment in R&D while also ensuring the integrity and fiscal affordability of the R&DTI.

For companies with aggregated annual turnover of $20 million or more, the Government will introduce an R&D premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of R&D expenditure as a proportion of total expenditure for the year.

The changes will apply for income years starting on or after 1 July 2018.

 

Improve the integrity of the R&DTI, helping ensure ineligible R&D claims are denied

 

Implementation of a series of compliance, enforcement and administration changes to improve the integrity of the R&DTI.

Smaller companies will continue to benefit from a refundable R&D tax offset

 

 

From 1 July 2018, the Government will:

  • Introduce a $4 million annual cap on cash refunds for R&D claimants with aggregated annual turnover less than $20 million. Amounts that are in excess of the cap will become a non-refundable tax offset and can be carried forward into future income years;

 

  • Exclude R&D tax offsets for clinical trials from the $4 million cap on cash refunds, recognising the critical role of R&D expenditure on clinical trials in developing life changing drugs and devices; and
  • Amend the refundable R&D tax offset so it is a premium of 13.5 percentage points above the claimant’s company tax rate for that year.

 

 

Refocus support for larger companies towards those undertaking additional, higher intensity R&D.

 

From 1 July 2018, the Government will:

  • Introduce a new R&D premium for companies with aggregated annual turnover of $20 million or more, which provides higher rates of R&D support for higher R&D intensity. The R&D premium will provide multiple rates of non-refundable R&D tax offsets, increasing with the intensity of the claimant’s incremental R&D expenditure.

 

The R&D expenditure threshold — the maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will be increased from $100 million to $150 million per annum.

For companies with aggregated annual turnover below $20 million, the refundable R&D offset will be a premium of 13.5 percentage points above a claimant’s company tax rate.

Cash refunds from the refundable R&D tax offset will be capped at $4 million per annum. R&D tax offsets that cannot be refunded will be carried forward as non-refundable tax offsets to future income years.

Refundable R&D tax offsets from R&D expenditure on clinical trials will not count towards the cap.

The Government will introduce 3 new key measures targeting Black Economy activities and illegal phoenixing. These are:

  • Limiting cash payments within Australia to $10,000
  • Disallowing deductions to businesses for payments to employees where PAYG could have been withheld and payments to contractors where an ABN is not provided and the business does not withhold any tax
  • Expanding the Taxable Payments Reporting system to cover contractor payments in the security providers and investigation services industry, road freight transport and computer system design and related services industry.

These measures will be reinforced by the $318 million being given to the ATO over 4 years to implement new strategies targeting the Black Economy and phoenixing activities.

With the boost in funding from the Government, the ATO plans to improve data analytics and data matching, implement new “mobile strike teams”, increase information sharing between government enforcement agencies and increase its audit presence.

The funding will commence on 1 July 2018.

 

Why the crackdown?

This measure is in response to the Black Economy Taskforce findings that contractors in these industries have been identified by the ATO as being at higher risk of not complying with their tax obligations.

Under the taxable payments reporting system (TPRS), businesses are required to report payments to contractors to the ATO. This brings payments to contractors in these industries into line with wages which are reported to the ATO.

Businesses will need to ensure that they collect information from 1 July 2019, with the first annual report required in August 2020. A new online form will make the reporting process easier.

 

Stay compliant!

It is expected that the Government’s revenue bottom line will be better off by $3 billion over the forward estimates period and there will be an extra $2.5 billion in underlying cash receipts. These numbers suggest some robust enforcement from the ATO is coming to the Black Economy. All taxpayers need to ensure they are fully compliant with the law or they may find themselves entangled in these enforcement strategies.

 

Reforms to combat illegal phoenixing

Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements. This illegal phoenix activity impacts the business community, employees, contractors, the Government and environment.

The Treasurer reinforced in his Budget speech that the Government is making sure small businesses don’t get ripped off by other businesses who deliberately go bust to avoid paying their bills, with tough new anti-phoenixing measures.

Additional funding will be given to the ATO from 1 July 2018 to bolster compliance activities and better target those who participate in illegal phoenixing.

Talk to your tax agent or tax adviser about any questions you may have regarding what impact the Budget measures will have on your personal circumstances!

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

May 16th, 2018|

Business News February 2018

The small business write-off threshold of $20,000 has been extended to 30 June 2018 and is available to all small businesses with an aggregated turnover of less than $10 million. After 30 June this year, the threshold will reduce to $1,000.

If you have upcoming business expenses, now might be a good time to do some shopping so that you can claim the deduction in the current financial year!

The $20,000 instant asset write-off explained

If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use.

It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it.

Note!

  • There is no limit to how many assets you can claim the deduction for. However, each one must cost less than $20,000.
  • If you later sell the asset for which you claimed an instant asset write-off, you include the taxable purpose proportion of the amount you received for the asset in your assessable income.

 What assets are included?

 Assets that cost less than $20,000

  • Assets that are used for business purposes
  • ‘Physical’ assets – e.g. computers, phones, vehicles, tools etc
  • New or second-hand assets

Tip! You may be able to claim a deduction for business website costs using the simplified depreciation rules. Speak to us to find out more.

What assets are excluded?

  • Assets that cost more than $20,000
  • Assets that are used for personal purposes
  • Assets that are leased out (or expected to be leased out) for more than 50% of the time on a depreciating asset lease
  • Assets you already allocated to a low-value pool
  • Horticultural plants – e.g. grapevines
  • Software allocated to a software development pool
  • Capital works

 

Tip! Capital works used to produce income, including buildings and structural improvements, are written off over a longer period than other depreciating assets. Speak to us to find out more.

 

How this works

You buy a new computer for $6,800 that you use 80% of the time for business purposes and 20% of the time for personal purposes.

You also buy a second-hand printer for $700 which you use 100% of the time for business purposes.

For the computer, you would calculate your instant asset write-off as 80% (the business use proportion) of $6,800, so you would claim $5,440.

For the printer, you would claim the entire cost of $700.

 

Are you registered for GST?

The threshold amount of $20,000 assumes that you are not registered for GST.

If you are registered for GST, you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is $20,000 exclusive of any GST).

If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations (and your instant asset write-off threshold is $20,000 inclusive of any GST).

Tip! For further information about GST impacts, speak to us.

From 1 July 2018, Australian GST will apply to sales of low value goods (AUD $1,000 or less) that are imported by consumers into Australia.

Simply put, these GST changes mean that:

  • all goods imported by Australian consumers, even those worth less than $1,000, will be subject to 10% GST;
  • overseas retailers who sell goods to Australian consumers and make more than AUD $75,000 per year will be required to register and impose GST. Under the old GST laws, this only applied to retailers who were selling goods valued at over $1,000.

The existing processes to collect GST on imports above $1,000 at the border are unchanged.

 To do!

If your business meets the $75,000 registration turnover threshold, you will need to act now to review your business systems to ensure that you are compliant from 1 July this year. You will also need to:

  • ensure you are registered for GST
  • charge GST to customers on low value imported goods
  • lodge a return to the ATO.

Why the GST reform?

The Government’s intention is to ensure that Australian businesses, particularly small retailers, are not unfairly disadvantaged by the current GST exemption that applies to imports of low value goods. The new GST laws ensure that low value goods imported by consumers in Australia are treated in the same manner as goods that are sourced domestically.

Which businesses are affected?

  • Suppliers of low value goods
  • Electronic distribution platforms (EDPs) – online marketplaces that assist in the importation of goods into Australia will essentially be treated as a supplier under these new measures, and be required to register for, collect and remit GST.
  • Re-deliverers – re-deliverers are used by Australian consumers in cases where the overseas retailers do not deliver to Australia (e.g. offshore mailbox services). The re-deliverer will charge GST on the goods and for their services in bringing the goods to you, if they are registered or required to be registered.

Sales of low value imported goods to Australian GST-registered businesses

GST only applies to sales of low value imported goods to consumers in Australia. Your customer is not a consumer if they are a GST-registered business who purchases the goods for use in their business in Australia.

If your business is the recipient of low value goods, you should notify suppliers of your GST registration to ensure you are not being charged GST twice.

 

Tip!

  • Make sure you are not charged GST twice by providing a copy of your receipt that shows GST has already been paid if you were charged GST when you bought the goods; and the goods are low value goods.
  • If you do not provide this receipt before GST is charged at the border, you will have to pay GST again and will need to seek a refund of GST from the supplier, by declaring or providing evidence that you paid GST when the goods were imported.

Note! Your business systems will need to be able to determine whether the sales are made to consumers in Australia or to businesses that are registered for Australian GST.

To do! If you are affected by these changes, speak to us to discuss process strategies and options to manage the impact of these new obligations on your business.

If you are a small business with a GST turnover of less than $10 million, Simpler BAS is now your GST reporting method. This means you only need to report total sales, GST on sales and GST on purchases, which will save you time and money.

If you use accounting software, you can keep your original detailed GST classifications, or choose the Simpler BAS bookkeeping settings with reduced codes. It is completely optional and the choice is yours.

Paper BAS forms have not changed, just leave the sections blank where information is no longer needed.

Note! The ATO has developed a Simpler BAS GST bookkeeping guide. This helps with the classification of sales and purchases, and explains common and also misunderstood GST transactions. You can find the guide on the ATO small business newsroom website.

Some fresh foods, including salads, sushi and cooked pasta with sauce may be subject to GST.

Are you a GST-registered food business?

 If you operate a GST-registered food business, you will need to include GST where your food is:

  • for consumption on the premises where it is sold (e.g. sold at a restaurant or cafe)
  • hot food for consumption away from the premises where it is sold (e.g. a takeaway meal with a hot component)
  • ‘food marketed as a prepared meal’ (which can include some salads).

‘Food marketed as a prepared meal’

You need to weigh up a number of factors to work out if your food is ‘food marketed as a prepared meal’. Ask these questions:

  • Does the packaging and labelling indicate it is a prepared meal (e.g. referred to as lunch)?
  • Does the menu or signage at the point of sale indicate the food is marketed as a prepared meal (e.g. ‘lunch to go’)?
  • Does it include all of the necessary ingredients for a complete meal?
  • Is it packaged for immediate consumption and cannot be resealed?
  • Is it supplied with cutlery and a napkin?
  • Is it priced similar to other comparable prepared meals?
  • Is it competing with other takeaway meals?

5 simplified accounting methods for food retailers

Five simplified accounting methods (SAMs) have been designed for food retailers who buy and sell a mixture of products, where some are taxable and some are GST-free.

You use a SAM to estimate your GST at the end of each tax period.

  1. Business norms: Apply standard percentages to your sales and purchases. This is the simplest method but can only be used by specified business types.
  2. Stock purchases: Apply the percentage of your GST-free purchases to your GST-free sales.
  3. Snapshot: Take a snapshot of your trading and use this sample to estimate your GST-free sales and GST-free purchases.
  4. Sales percentage: Work out what percentage of GST-free sales you made in a tax period and apply this to estimate your GST-free purchases.
  5. Purchases snapshot: Take a snapshot of your purchases and use this sample to calculate your GST credits. Available to restaurants, cafés and caterers only.

 

Tip!

 To use a SAM, make sure you are registered for GST and your turnover is not more than $2 million. You must also be a retailer who sells both taxable and GST-free food at the same premises (or, for the purchases snapshot method, you buy both taxable and GST-free food).

Rewarding your employees beyond their usual salaries is a great way to show your appreciation for a job well done.

 

If you do provide your employees with benefits or lifestyle assets to use for their personal enjoyment, it is important to remember that these benefits and assets may have fringe benefit tax (FBT) implications for your business.

 

Ensure you are meeting your FBT obligations by keeping accurate records to determine any related income tax deductions you may be able to claim.

Note! The FBT year runs from 1 April to 31 March.

What is FBT?

  • FBT is a tax employers pay on certain benefits they provide to their employees – including their employees’ family or other associates.
  • The benefit may be in addition to, or part of, their salary or wages package.
  • If you are a director of a company or trust, benefits you receive may be subject to FBT.
  • FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided.

Types of fringe benefits

  • Car fringe benefits
  • Car parking fringe benefits
  • Entertainment and fringe benefits
  • Expense payment fringe benefits
  • Loan fringe benefits
  • Debt waiver fringe benefits
  • Housing fringe benefits
  • Board fringe benefits
  • Living away from home allowance fringe benefits
  • Property fringe benefits (including property, goods or shares)
  • Residual fringe benefits (benefits not covered by the above categories)

Private use of exempt motor vehicles for FBT

If a car you own or lease is made available for the private use of your employee, you may be providing a car fringe benefit. There are some circumstances where use of the car may be exempt from FBT.

Tip! Speak to us regarding FBT car-related exemptions where you make an eligible vehicle available to your employee for their minimal private use

Superannuation is money you pay for your workers to provide for their retirement.

Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages. The minimum you must pay is called the super guarantee (SG).

The SG is 9.5% of an employee’s ordinary time earnings.

Note! SG payments are due on 28 January 2018. Make sure you pay the SG on time to avoid paying the SG charge!

Employer super quick check

Here’s how to run a quick check of your super obligations to make sure you have everything sorted.

  • Check you are paying super to all eligible workers (some contractors may be entitled to super)
  • Check you are paying the right amount
  • Check you are paying on time
    • It is tax deductible against your business income
    • At a minimum, you can pay super quarterly
    • If you fail to pay on time, you may need to pay a SG charge, which is not tax deductible
  • Check you are paying to the right place (pay super into your worker’s fund of choice or your default fund)
  • Check you are paying the right way
    • Pay the SuperStream way – send both the payment and data electronically in a standard format
    • You may be able to use the free Small Business Super Clearing House to distribute payments to your employees’ super funds

Check you are keeping accurate records

As your business develops you may need to adapt to changing needs. One common change is moving from a sole trader to a company business structure.

Company vs sole trader: what’s the difference?

Understanding the key differences between these two structures is important as it can affect how you run your business.

Tip! Speak to your us to discuss your options and tax obligations.

A list of did-you-knows…

  • Do you know as a company director you may also have potential personal liabilities for the tax withheld on employee wages and super payments?
  • Do you know that different tax rates apply for a sole trader compared to a company?
  • Do you know that as a company director you need to lodge two income tax returns – your individual tax return and a company tax return?
  • Do you know that you don’t have to become a company to employ people – you can employ staff under either structure?
  • Do you know that sole trader business structures have the fewest compliance costs and lowest volume of paperwork? Other structures, such as a company, have more paperwork and ongoing costs.
  • Do you know that as a company director, even if you are not hands-on (e.g. a silent director) and/or you later leave the company, you are still responsible and liable for the period you were a director?
  • As a company director, do you know what your obligations are to the company, its members (owners) and any creditors?
  • Do you know that a company must have at least one person who is over the age of 18 and resides in Australia to act as a director?
  • Do you know your legal obligations and the difference between being a company director and a company member?
  • If you are running a company, do you know what to do if things go wrong, such as getting into financial difficulties?
  • Do you know how to update ASIC when certain details regarding the running of your company change?
  • If you want to resign as a company director, do you know what you need to do?

Tip! The ASIC website provides a wealth of information about changing your business structure and what your responsibilities and potential liabilities might be.

There is a lot of paperwork to complete when you hire new employees. The good news is: you no longer need to order the form and wait for it to be mailed to you.

The ATO has developed a fillable TFN declaration form which is available on their website. You can download it from ato.gov.au/TFNdec or even better, ask your new employee to download the form and fill it in on the screen.

Once it is filled in, print it off, get your employee’s signature then send the original copy to the ATO using the address on the form within 14 days.

Tip! Don’t forget to keep a copy for your files!

21 February 2018 January monthly BAS due
28 February 2018 • December quarterly BAS due

• December quarter SG charge statement due

• December quarter PAYG instalment due

21 March 2018 February monthly BAS due
23 April 2018 March monthly BAS due
30 April 2018 • March quarterly BAS due

• March quarter SG due

• March quarter PAYG due

21 May 2018 2018 FBT return due
April monthly BAS due
28 May 2018 March quarter SG charge statement due

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

February 9th, 2018|

Business News 2017

There are some key changes and new measures you need to be aware of when preparing your clients’ tax returns this tax time.

These include:

  • Working holiday makers tax rate
  • Norfolk Island tax
  • Tax relief for New Zealand special visa holders
  • Foreign resident capital gains withholding
  • Reportable fringe benefits
  • Business services wage assessment tool payments
  • Farm management deposit reforms
  • Primary production averaging reforms
  • Expanded access to small business concessions
  • Small business income tax offset changes
  • Reduction to the small business company tax rate
  • Early stage venture capital limited partnership
  • Early stage investor tax incentives
  • Significant global entities
  • Limited recourse borrowing arrangement reporting
  • Transitional capital gains tax relief for super funds
  • Increasing access to company losses.

Key dates for Tax Time

The ATO started full processing of 2016-17 tax returns on 7 July 2017 and started paying out any refunds shortly after that. The ATO aims to finalise the majority of electronically-lodged current year returns within 12 business days of receipt. 

However, tax returns lodged on paper could take up to 50 business days from receipt to be finalised. The ATO encourages you to lodge electronically if at all possible.

Go to this timeline to view the key dates for Tax Time 2017.

i) Tax Concessions

Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016, and will apply from your 2017 tax return.

Find out about:

 

a)  Expanded access to small business concessions

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016
  • capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

b) Increased small business income tax offset

You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.

From the 2016–17 income year, the small business income tax offset:

  • increased to 8%, with a limit of $1,000 each year
  • applies to small businesses with turnover less than $5 million.

The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.

  1. Company tax rate cut for small businesses

For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.

If you lodged your 2016–17 company tax return early:

  • If your turnover is less than $2 million, the ATO will amend your return for you and apply the lower tax rate.
  • If your turnover is from $2 million to less than $10 million, you will need to review your tax return and lodge an amendment if required.

A Bill was tabled on 11 May 2017 to gradually extend the reduced company tax rate to all companies.

Tax rate cuts – “not meant to apply to passive investment companies”

On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O’Dwyer MP, issued a statement on the tax rate cuts for small companies.

Minister O’Dwyer said, “Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Minister O’Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.

  1. Instant asset write-off extension

Australia’s 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off immediately thanks to legislation passed by the Senate on 15 June 2017, advised Small Business Minister Michael McCormack recently. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.

The Small Business Minister said recent tax cuts for small business – which delivered a 27.5% tax rate – also redefined ‘small business’, meaning more Australian businesses are now eligible for the instant asset write-off. 

More businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately after this legislation passed the Senate. Multiple claims can be made under the program.

‘Small business’ has also been redefined for tax purposes as having a turnover less than $10 million, up from $2 million.

For more information on support for small business, please visit the Small business website.

 

To do!
If you are not clear about how the recent changes for small businesses apply to you or your business, you should speak with your tax agent or adviser.
The ATO is encouraging small businesses to get a head start on the new financial year by taking care of business now. To find out how to stay informed, get on top of records, utilise the ATO’s tools and products (eg Simpler BAS), look after employees and know where to get help, see the ATO’s media release.

The ATO acknowledges that most business owners are honest, but that there are some businesses that operate in the cash and hidden economy, gaining an unfair advantage over those who declare their income and do the right thing. 

 

The ATO has been running information sessions on this. More information about the ATO’s work focusing on ‘cash-only’ businesses, including visiting these businesses and what the ATO will be doing where these businesses are not compliant can be found on the ATO’s website.

i) Simpler BAS

From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.

The ATO automatically transitioned eligible small business’ GST reporting methods to Simpler BAS from 1 July 2017.

ii) GST on low value imported goods – Summary of reforms

The Government has passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018.

Businesses that meet the A$75,000 registration threshold will need to take action now to review their business systems to ensure that they are able to comply.

The existing processes to collect GST on imports above $1,000 at the border are unchanged.

In summary, the reforms:

  • make supplies of goods valued at A$1,000 or less at the time of supply connected with Australia if the goods are purchased by consumers and are brought into Australia with the assistance of the supplier;
  • treat the operator of an electronic distribution platform (EDP) as the supplier of low value goods if the goods are purchased through the platform by consumers and brought into Australia with the assistance of either the supplier or the operator;
  • treat re-deliverers as the suppliers of low value goods if the goods are delivered outside of Australia as part of the supply, and the re-deliverer assists with their delivery into Australia as part of a shopping or mailbox service that it provides under an arrangement with the consumer;
  • allow non-resident suppliers of low value goods that are connected with Australia to elect to access the simplified registration and reporting system; and
  • prevent double taxation.

More information on the new GST on low value imported goods can be found on the ATO website.

Treasurer’s press release on GST low value goods

The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017.

The Treasurer said, “Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018.”

Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia.

  • Buy services or digital products from overseas?

 From 1 July 2017, GST will apply to imported services and digital products.

Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST.

Reminder from the ATO re Applying GST to imported services and digital products

The ATO has issued a reminder that if overseas suppliers sell imported services or digital products to Australian consumers and they meet the GST registration turnover threshold, they need to register for GST. They will meet the registration turnover threshold if their taxable sales to Australian consumers in a 12-month period are A$75,000 or more. Once registered, they will need to report and pay GST on sales to the ATO

iii) GST – Simplified Accounting Methods determination for food retailers

The Goods and Services Tax: Simplified Accounting Methods Determination for Food Retailers – Business Norms, Stock Purchases and Snapshot Methods determination will repeal and replace Simplified GST Accounting Methods Legislative Instrument (No 1) 2007 – F2007L02577, registered on 14 August 2007.

This draft determination is substantially the same as the previous determination that it replaces. If you were eligible to use a particular simplified accounting method (SAM) specified in the previous determination, you will continue to be eligible to use that SAM under this determination.

iv) GST input tax credits disallowed – tax invoices not enough

Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer, evidence from various sources, including third parties, showed that all relevant development works were completed prior to the dates of the purported invoices, and the taxpayer had already claimed the input tax credits in its BASs for previous tax periods.

The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.

The Tribunal observed that the mere existence of a “tax invoice” is not, by itself, sufficient to establish that a “taxable supply” (under s 9-5 of the GST Act) and corresponding “creditable acquisition” (under s 11-5 of the GST Act), had, in fact, occurred.

v) GST – removing the double taxation of digital currency

On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money.

Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST.

This measure will ensure purchases of digital currency are no longer subject to the GST.

No changes to the income tax treatment of digital currency are proposed.

 

Note!
There are a number of changes to GST which may have an impact on your business. You should sit down with your tax agent or adviser to discuss if any of these changes affect you or your business.
From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • non-refundable carry forward tax offsetequal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
  • modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.

More information on qualifying for the tax incentive, the sophisticated investor test and calculating the early stage investor tax offset can be found on the ATO website.

On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO.

Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register

i) Key super rates and thresholds

The ATO has released the key superannuation rates and thresholds that apply to contributions and benefits, employment termination payments (ETP), super guarantee and co-contributions.

For the 2017-18 income year, the:

  • concessional contribution cap is $25,000
  • non-concessional contribution cap is $100,000 (conditions apply)
  • CGT cap amount is $1,445,000
  • Div 293 tax threshold amount is $250,000
  • low rate cap amount is $200,000
  • ETP cap for life benefit termination payments is $200,000
  • ETP cap for death benefit termination payments is $200,00.

The full list of rates and thresholds can be found on the ATO website.

ii) SuperStream roadmap

 The SuperStream roadmap provides a picture of the changes for the next 18 months. The information on this web page details the changes impacting the superannuation industry up until the end of 2018. The ATO will update the information on this page every quarter. If your business has transitioned to SuperStream, it is worth keeping an eye on this web page for the latest information. You can always talk to your tax agent or adviser about this too.

Previous editions of TaxWise Business contained details of Single Touch Payroll.  Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018. The ATO will help and support you to transition during the first year of reporting.

More information can be found on the ATO website.

i) Withholding on salary and wages

The way tax is calculated on salary and wages has changed.

From 1 July 2017, the:

  • temporary budget repair levy has been removed
  • Medicare levy low-income threshold increased.

ii) TFN withholding for closely held trusts

Beneficiaries need to quote their tax file number (TFN) to the trustee to avoid having amounts withheld from their payments or unpaid entitlements.

If a beneficiary doesn’t quote their TFN before a payment or entitlement occurs, the trustee must withhold from the payment or entitlement, pay the withheld amount to the ATO, and lodge an annual report with details of all withheld amounts.

iii) Withholding in business transactions

Any business or organisation carrying on an enterprise should quote their Australian business number (ABN) when supplying goods or services to another enterprise. If the supplier does not quote their ABN, the general rule is that the payer must withhold 47% (from 1 July 2017) from their payment and send the withheld amount to the ATO.

iv) Withholding from unused leave payments on termination of employment

Under the pay as you go (PAYG) withholding system, when an employee leaves, you may have to withhold from unused leave payments. Information on how to work out the amount to withhold from payments of unused annual and unused long service leave when an employee leaves can be found on the ATO website.

v) Withholding from dividends paid to foreign residents

If you pay dividends to a foreign resident, the unfranked component of each of those payments is subject to a final withholding tax. Information on when and how much to withhold from dividends you pay to foreign residents can be found on the ATO website.

Tip!
Businesses need to get their withholding obligations right. If you are unsure if your business is meeting its withholding requirements or are unsure how any of these changes may affect your business meeting its withholding obligations, you should speak with your tax agent or adviser.

 

 

 

 

The ATO has provided details of its approach to compliance by employers with their obligations.

The ATO says that its compliance approach supports employers who engage with the ATO and want to get things right. The ATO takes firmer action against those unwilling to meet their obligations. The approach is based on the relevant facts and circumstances of each case.

For more information, see the ATO website.

From 1 July 2017, changes to administrative rules about who needs to pay PAYG instalments may affect your clients. 

 

The ATO will automatically remove companies, superannuation funds, and self-managed superannuation funds from the PAYG instalment system if their notional tax is less than $500. This will apply even if their instalment rate is greater than zero percent, and includes those registered for GST. 

i) Certainty for stakeholders who rely on ATO systems

On 12 July 2017, the ATO issued a media release stating that they remain committed to ensuring the ongoing stability, availability and resilience of their IT systems for Tax Time 2017 and into the future. The issues they have encountered with ATO systems over the past few weeks highlight the sheer size, scale, and complexity of the ATO’s IT environment. The ATO stated that they will continue to examine the triggers and cause of these issues and this analysis is informing the ongoing remediation work they are undertaking.

ii) Affected by recent company payroll issues?

If you have used the services of payroll company Plutus Payroll Australia Pty Ltd and associated entities, the ATO has applied a range of support measures to help you meet your tax and super obligations.

The ATO has developed some scenarios that they are aware of for Plutus payroll and associated companies. Whether your situation falls within a particular scenario will depend on your circumstances.  For more information, go to the ATO website.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

September 6th, 2017|

End of Financial Year 2016

The end of the financial year is coming and it’s time to start thinking about your 2016 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider if there is anything you should do prior to 30 June 2016 rolling around.

  • Is there any income you are due to derive that you may not have to recognise until next financial year?
  • Are there any repairs and maintenance you should carry out prior to 30 June 2016 so you can claim the deduction in your 2016 return?
  • Are there any bad debts to write off out of your receivables?
  • Are there any recently announced measures in the May 2016-17 Federal Budget you should talk to your tax adviser about?
  • If you have an outstanding investment loan, see if you can prepay some of the interest prior to 30 June 2016 (you will need to speak to your lender).
  • Are there purchases or disposals of assets you should make prior to the next financial year starting?
  • Review your depreciable assets (capital allowances) register and write off or dispose of any assets no longer used eg assets used in your business such as computer equipment, office furniture (eg desks and chairs) and kitchen appliances.

It is also a good time to review things that you think about at the time you put them in place but don’t otherwise turn your mind to – eg, do you have the right mix of debt and equity funding for your business to carry you through to the next financial year.

To do!

Your tax adviser is the best person to help you with these decisions. As your tax adviser knows your business and has experience with other businesses similar to yours, they are able to offer you sound advice about how to best prepare your business for the start of the 2016-17 financial year.

Increase to the small business entity turnover threshold

Building on the small business package of measures introduced in the 2015-16 Federal Budget, from 1 July 2016, the small business entity turnover will be increased from $2 million to $10 million. Qualifying taxpayers will be able to access the following income tax concessions for small businesses:

  • simplified depreciation rules, including immediate deductibility for assets costing less than $20,000 (until 30 June 2017);
  • simplified trading stock rules (there will be no requirement for an end of year stocktake if the value of trading stock has changed by less than $5,000);
  • a simplified method of paying PAYG instalments calculated by the ATO (removing the risk of overestimating or underestimating PAYG instalments and incurring penalties);
  • accounting for GST on a cash basis and paying GST instalments as calculated by the ATO;
  • other concessions available to small businesses, including certain fringe benefits tax (FBT) exemptions such as the extension of the exemption for work-related portable electronic devices (starting from 1 April 2017 to align with the FBT year); and
  • immediate deductibility of professional expenses.

However, only small businesses with a turnover of less than $2 million or that satisfy the maximum net asset value test will be able to access the existing small business capital gains tax (CGT) concessions.

In addition, from 1 July 2017, all small businesses with a turnover of less than $10 million will be able to access a simpler approach to preparing a Business Activity Statement (BAS) by being able to more easily classify transactions and prepare and lodge a BAS. A trial of the new simplified BAS reporting requirements will start on 1 July 2016.

Unincorporated small businesses

The unincorporated small business tax discount will be increased over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.

The rate will increase as follows:

Income Year Rate

2015-16 5%
2016-17 8%
2017-18 8%
2018-19 8%
2019-20 8%
2020-21 8%
2021-22 8%
2022-23 8%
2023-24 8%
2024-25 10%
2025-26 13%
2026-27 16%
Changes to the rules applying to private companies

As announced in the Federal Budget, targeted amendments will be made to improve the operation and administration of the integrity rules for closely-held private groups (in Division 7A of the Income Tax Assessment Act 1936). The amendments will apply from 1 July 2018 and will include:

  • a self-correction mechanism for inadvertent breaches of Division 7A;
  • safe-harbour rules to provide certainty;
  • simplified loan arrangements for the purpose of the rules; and
  • a number of technical adjustments to the law to improve its operation and provide increased certainty for taxpayers.

To do!
There are a number of changes to the taxation of small and private businesses that were announced in the 2016-17 Federal Budget. You should talk to your tax agent to see how these changes might affect your small business.

As announced in the 2016-17 Federal Budget, the company tax rate will be progressively reduced to 25% over the next 10 years. Correspondingly, the annual aggregated turnover threshold that will allow companies to qualify for the lower rate will rise over the next 10 years.

The changes to the company tax rate and turnover threshold are contained in the table below:

Income Year Rate Annual aggregated turnover threshold

2015-16 28.5% $2 million
2016-17 27.5% $10 million
2017-18 27.5% $25 million
2018-19 27.5% $50 million
2019-20 27.5% $100 million
2020-21 27.5% $250 million
2021-22 27.5% $500 million
2022-23 27.5% $1 billion
2023-24 27.5% No limit
2024-25 27% No limit
2025-26 26% No limit
2026-27 25% No limit

The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.

Changes in the Federal Budget

The previous edition of TaxWise Business noted the Government’s National Innovation and Science Agenda (NISA) that was announced in December 2015. A number of tax-related measures were introduced as part of the NISA. In the 2016-17 Federal Budget, a couple of these measures have been expanded on.

i) Expanding tax incentives for early stage investors

As part of the Federal Budget announcement:

  • the holding period will be reduced from three years to 12 months for investors to access the 10 year CGT tax exemption;
  • the definition of eligible start-ups will include a time limit on incorporation and criteria for determining if the start-up is an ‘innovation company’;
  • there will be a requirement that the investor and innovation company are non-affiliates; and
  • the investment amount for non-sophisticated investors will be limited to $50,000 or less per income year in order to receive a tax offset.

ii) Expanding the new arrangements for venture capital limited partnerships

As part of the Federal Budget announcement, the funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.

New legislation

As part of NISA, the Government has developed draft legislation on the following two tax measures:

i) Intangible asset depreciation

The draft legislation contains a measure that will allow taxpayers the choice to either self-assess the effective life of certain intangible depreciating assets or use the statutory effective life. The current law only provides an effective life set by statute.

ii) Increasing access to company losses

The draft legislation contains a measure that will allow businesses that have changed their ownership to access past year tax losses if they satisfy a ‘similar business’ test. Under the current law, businesses that have changed ownership must satisfy the ‘same business’ test to access past year tax losses.

Note!

The draft law for these measures was released in April. Though the intangible asset depreciation measure is intended to apply from 1 July 2016 and the losses measure is intended to start from 1 July 2015, as neither has been submitted before parliament and the Government is in caretaker mode due to the impending Federal election on 2 July, there is unlikely to be much progress on these measures at this stage.

GST on low value imports

From 1 July 2017, GST will apply to all low value goods imported by consumers from overseas. Imported low value goods should be subject to the same GST treatment as low value goods purchased by consumers domestically.

Overseas suppliers with an Australian turnover of $75,000 or more will be required to register for GST and collect and remit GST for low value goods supplied to Australian consumers. A ‘vendor registration’ model will be used for overseas suppliers to register for GST.

These arrangements will be reviewed after two years to ensure they are operating as intended and to take account of any international developments.

GST treatment of digital currencies

Treasury has released a discussion paper on the ‘double taxation’ of digital currencies under the GST law. This forms part of the Government’s Backing Australian FinTech statement. Currently where digital currency is used to purchase goods that are subject to GST, consumers are ‘double taxed’ because GST also applies to digital currency. This may be preventing the use of digital currencies.

Treasury is looking for ways to remove the ‘double taxation’ of digital currency; that is so that someone who acquires digital currency to use to purchase other goods and services doesn’t pay GST both at the time they acquire the digital currency and again at the time they purchase goods and services that also have GST on them.

Measures impacting other indirect taxes

i) Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017 to 2020.
ii) The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018. This is to address integrity concerns with the rebate and to tighten eligibility criteria.
iii) From 1 July 2017, the excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider.

Note!

Some of these changes are specific to particular industries and others, like the GST changes, are much broader. Your tax adviser will be able to help you work out how these changes might impact on your particular business.

The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 contains an amendment to the GST law to ensure non-residents are not unnecessarily drawn into Australia’s GST net.

Starting from 1 October 2016, non-resident suppliers will be relieved of the obligation to account for GST on certain supplies, therefore reducing their compliance costs.

The ATO has released draft LCG 2016/D1 GST and carrying on an enterprise in the indirect tax zone (Australia) to help those affected understand the operation of the new law and to help you decide if they need to register for GST. The guideline discusses a new test in the GST Act for when an entity is carrying on an enterprise in the Australian indirect tax zone.

This has implications for business-to-business transactions and the obligation to account for GST may instead fall on the recipient. If you have overseas suppliers, it would be worth discussing with your tax adviser what may be the implications on your business from this change.

The ATO has reminded tax practitioners that for tax periods starting on or after 1 July 2012, there is a four year time limit (‘period of review’) to amend or revise their clients’ activity statement assessments.

The period of review begins the day a taxpayer’s activity statement is lodged. During this time, there is no limit to the number of amendments that can be made. However in most cases, once the period of review expires, further amendments can’t be made.

If you use a tax agent to lodge your BAS, it is good to keep in mind the limitations on being able to amend your BAS, particularly if you discover something (eg an acquisition) you may have accidentally omitted from telling your agent about. The sooner you let your agent know, the sooner they can correct your BAS.

The small business restructure rollover (SBR rollover), announced as part of the 2015-16 Federal Budget, allows small businesses to transfer active assets from one entity (the transferor) to one or more other entities (transferees), on or after 1 July 2016, without incurring an income tax liability.

This rollover applies to the transfer of active assets that are CGT assets, trading stock, revenue assets or depreciating assets.

Entities eligible for the rollover are:

  • a small business entity;
  • an entity that has an affiliate that is a small business entity;
  • an entity that is connected with a small business entity;
  • a partner in a partnership that is a small business entity.

The rollover can be accessed when:

  • it is part of a ‘genuine restructure’; and
  • there is no change to the ultimate economic ownership of the asset.

Assets eligible for the rollover include active assets that are CGT assets, depreciating assets, trading stock or revenue assets transferred between entities as part of a genuine restructure of an ongoing business.

The ATO has also issued Law Companion Guideline 2016/D2 which explains the consequences of applying the rollover for both the transferor and transferee and Law Companion Guideline 2016/D3 which explains the meaning of a ‘genuine restructure of an ongoing business’.

To do!
If you are planning on restructuring your business, it is vital that you speak to your tax agent or adviser on the best way to do this, especially to make sure you correctly apply rollovers or other tax concessions that you may be eligible for.

You may be allowed to rollover (defer or disregard) a capital gain that results from a CGT event until another CGT event happens in the case of assets involved in the following events:

  • small business restructure rollover;
  • marriage or relationship breakdown;
  • loss, destruction or compulsory acquisition;
  • mining lease;
  • scrip for scrip;
  • demergers;
  • other replacement-asset rollovers;
  • other same-asset rollovers.

For more information on each of the above, visit the ATO website.

Car expenses – cents per kilometre

The Government has made changes to the cents per kilometre method. From 1 July 2015, separate rates based on the size of the engine are no longer available. Taxpayers should now use a single rate of 66 cents per kilometre for all motor vehicles for the 2015-16 income year. The Commissioner of Taxation will determine the rate for future income years.

i) Rate for fringe benefits calculations

This single rate of 66 cents per kilometre will also apply to certain expense payment fringe benefit calculations for the 2016 FBT year where an employer reimburses an employee’s car expenses on a cents per kilometre basis.

These fringe benefits relate to:

  • relocation transport;
  • employment interviews or selection tests;
  • work-related medical services; and
  • transport to enable an employee employed in a remote area or employed overseas to have a holiday.

ii) Special arrangement for 2016

The ATO acknowledges there has been uncertainty about the correct rate to apply for the 2016 FBT year. Therefore, the ATO will also accept 2016 FBT returns based on the 2014-15 rates (which are 64, 76 or 77 cents per kilometre depending on the engine capacity of the employee’s car).

iii) After 2016

For future FBT years, which end on 31 March, employers should use the rate determined by the Commissioner for the income year that ends on the following 30 June. For example, for the FBT year ending 31 March 2017, employers should use the basic car rate determined by the Commissioner for the 2016-17 income year.

For more information on how to work out how much you can claim, visit the ATO website.

Tip!
FBT returns are due on 25 June (if being lodged electronically through a tax agent), otherwise FBT returns were due on 21 May. If you have yet to do your FBT return and have car expenses to take into account, make sure you apply the right rate. However, it is good to know that the ATO will accept returns based on the 2014-15 rates for the 2015-16 FBT year.

Rates and thresholds for 2016-17 FBT year

Consistent with what happens each year, the Commissioner has issued a series of Taxation Determinations setting out various FBT rates and thresholds for the FBT year commencing 1 April 2016. They are:

  • TD 2016/1 FBT: for the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non remote housing for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/2 FBT: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/3 FBT: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2016?
  • TD 2016/4 FBT: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2016.
  • TD 2016/5 FBT: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2016?

Note!
These changes apply to the 2016-17 FBT year so should not affect what goes into your 2015-16 FBT return.

FBT exemption for work-related electronic devices

As noted in previous editions of TaxWise Business, small businesses can now provide their employees with multiple work-related devices without incurring FBT on providing those devices. This applies even if the devices have similar functions. Devices can include laptops, tablets, mobile phones, calculators and GPS navigators.
As 1 April has now ticked over, it is worth reiterating the following:

  • Items purchased prior to 1 April 2016, but supplied to the employee after this date are also eligible for the exemption.
  • Multiple devices bought and given to the employee before 1 April 2016 are not eligible. In these cases, the exemption only applies to one item for that FBT year.
SuperStream standardises how employers make super contributions on behalf of their employees. It involves employers sending all super payments and employee information electronically in a standard format.

With the 30 June 2016 deadline rapidly approaching, the ATO is encouraging small businesses to make becoming SuperStream ready a priority.

Employers should visit the ATO’s online employer checklist – a step-by-step guide on what you need to do. Employers can also contact an accountant, bookkeeper, payroll provider, super fund or clearing house for help.

The ATO has released a free recorded webinar to help employers understand SuperStream and the steps they need to take to prepare.

For more information on how to become SuperStream ready, visit the ATO website.

The ATO has also answered a number of ‘frequently asked questions’ employers may have about SuperStream. The FAQs can be found on the ATO’s website.

You may be relying on ‘myths’ when deciding whether your workers are employees or contractors.

The ATO released a new webinar series in April that helps small business owners work out:

  • the difference between employees and contractors;
  • common myths about contracting;
  • how to make the right decision about the status of workers;
  • what the tax and super consequences are for each.

To book a place at one of the sessions that is on later this year, visit the ATO’s website.

Here is a link to the ATO employer/contractor interactive decision tool on the ATO website.

The ATO is running an education campaign for employers in the bakery, supermarket, car retailing, and computer system design industries to help them meet their tax and super obligations in relation to employees and contractors. Businesses in these industries have been identified as having a higher risk of not meeting their business obligations in relation to employees and contractors.

Information on superannuation (how much to pay and who to pay it to), PAYG and FBT for small businesses can be found on the ATO website. However, you should talk to your tax agent or adviser to work out exactly what your obligations are in relation to employees and contractors you have on staff and what implications there may be for your business if you don’t meet your obligations.

As a small business owner, you would be familiar with how occasional cash flow issues can impact on your business and, in particular, your ability to meet the variety of tax obligations you have on time.

The ATO has developed a payment arrangement calculator to help small businesses work out what payments will be affordable for their circumstances at these times. Your tax agent can then assist you to submit a payment plan request to the ATO. Your tax agent may also be able to help advise you on ways to better manage your tax obligations so you don’t run into these sorts of issues again.

The ATO has released the following checklists and tools to improve the tax and super experience for small businesses:

  • The Taking on an employee checklist, which will take you through the different requirements you need to consider when taking on an employee, such as pay rates, workers’ compensation and health and safety.
  • Calculators and tools to help you get it right when it comes to your tax and super obligations.
  • A free ATO app for quick access to tools and calculators, answers to frequently asked questions, key dates and reminders.
  • Watch videos that cover tax and super information relevant to you. Topics include whether your worker is an employee or contractor, super, record keeping, franchising, managing ABNs, GST basics etc.
Avoid GST refund delays – pharmacists and chemists

If you run a pharmacy or chemist, you may be affected by changes to drug treatments included on the pharmaceutical benefits scheme (PBS). These changes, in particular the hepatitis C drug treatment, may cause these businesses to have unusually high GST credits.

To minimise delays in payment of GST refunds, before you lodge activity statements, check:

  • Your contact details are correct;
  • Your activity statement lodgments are up to date;
  • Your bank account details are correct; and
  • You have included the correct business industry code to describe your business.

Note!
If you do have an unusually high GST refund, the ATO may contact you to confirm it.

‘Annual tax obligations for employers’ webinars

As the end of the financial year is fast approaching, the ATO is running some webinars in June and July to remind employers about their annual tax obligations, such as their ‘PAYG withholding annual report’.

Don’t forget your tax agent is also there to help remind you of your annual tax obligations and to prepare and lodge your returns on time to make sure you satisfy all your compliance obligations.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

June 7th, 2016|

The 2016-17 Federal Budget

The 2016-17 Federal Budget was handed down on 3 May 2016.

The intention of this Budget is to set out an economic plan to ensure Australia successfully transitions from the mining boom to a stronger, more diversified economy. The economic plan, which involves changes to superannuation, a Ten Year Enterprise Tax Plan and further tax integrity measures affecting multinational corporations, is to provide a foundation to build a ‘brighter, more secure future, in a stronger, new economy with more jobs ’.

The main measures likely to affect you are outlined below, together with information about other measures that may be of interest to you. To ensure you know precisely how you may be affected by one or more of these measures, you should consult your tax adviser.

From 1 July 2016, the 37% marginal threshold will apply to the taxable income of individuals from $87,000. To compare, currently, taxable income above $80,000 is subject to the rate of 37%.

Medicare levy and Medicare levy surcharge

With effect from the 2015-16 year, the low-income thresholds for both the Medicare levy and the Medicare levy surcharge will increase per the table below:

Medicare levy income thresholds

2015-16    2014-15

Singles    $21,335    $20,896

Couples (no children)    $36,001    $35,261

Single seniors and pensioners    $33,738    $33,044

Senior and pensioner couples with no children    $46,966    $46,000

The additional amount of threshold for each dependent child or student will be increased to $3,306 (up from $3,238).

The increase in these thresholds takes into account movements in the Consumer Price Index (CPI) to ensure that generally low income taxpayers will continue to be exempted from paying the Medicare levy.

Medicare levy surcharge

The low-income threshold for the Medicare levy surcharge has been increased from $20,896 to $21,335 for:

  • a person who is married (or both married and a beneficiary of a trust); and
  • reportable fringe benefits.

Pause in indexation for Medicare levy surcharge and private health insurance rebate

The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years from 1 July 2018.

Income tax relief for Australian Defence Force personnel deployed overseas

Income tax exemptions will be provided for Australian Defence Force personnel deployed on Operation PALATE II in Afghanistan (from 1 January 2016 to 31 December 2016). The co-ordinates for Operation OKRA in the Middle East (from 9 September 2015) and Operation MANITOU in international waters (from 14 May 2015) will be updated.

Increase to the small business entity turnover threshold

Building on the small business package of measures introduced in the 2015-16 Federal Budget, from 1 July 2016, the small business entity turnover will be increased from $2 million to $10 million. Qualifying taxpayers will be able to access the following income tax concessions for small businesses:

  • simplified depreciation rules, including immediate deductibility for assets costing less than $20,000 (until 30 June 2017);
  • simplified trading stock rules (there will be no requirement for an end of year stocktake if the value of trading stock has changed by less than $5,000;
  • a simplified method of paying PAYG instalments calculated by the ATO (removing the risk of overestimating or underestimating PAYG instalments and incurring penalties);
  • accounting for GST on a cash basis and paying GST instalments as calculated by the ATO;
  • other concessions available to small businesses, such as certain fringe benefits tax (FBT) exemptions such as the extension of the exemption for work-related portable electronic devices (starting from 1 April 2017 to align with the FBT year) and
  • immediate deductibility of professional expenses.

However, only small businesses with a turnover of less than $2 million or that satisfy the maximum net asset value test will be able to access the existing small business capital gains tax (CGT) concessions.

In addition, from 1 July 2017, all small businesses with a turnover of less than $10 million will be able to access a simpler approach to preparing a Business Activity Statement (BAS) by being able to more easily classify transactions and prepare and lodge a BAS. A trial of the new simplified BAS reporting requirements will start on 1 July 2016.

Unincorporated small businesses

The unincorporated small business tax discount will be increased over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.

The rate will increase as follows:

Income Year    Rate
2015-16    5%
2016-17    8%
2017-18    8%
2018-19    8%
2019-20    8%
2020-21    8%
2021-22    8%
2022-23    8%
2023-24    8%
2024-25    10%
2025-26    13%
2026-27    16%

Reduction in the company tax rate

The company tax rate will be progressively reduced to 25% over the next 10 years. Correspondingly, the annual aggregated turnover threshold that will allow companies to qualify for the lower rate will rise over the next 10 years.

The changes to the company tax rate and turnover threshold are contained in the table below:

Income Year    Rate    Annual aggregated turnover threshold
2015-16    28.5%    $2 million
2016-17    27.5%    $10 million
2017-18    27.5%    $25 million
2018-19    27.5%    $50 million
2019-20    27.5%    $100 million
2020-21    27.5%    $250 million
2021-22    27.5%    $500 million
2022-23    27.5%    $1 billion
2023-24    27.5%    No limit
2024-25    27%    No limit
2025-26    26%    No limit
2026-27    25%    No limit

The company tax rate remains at 30% for all companies unless they qualify for the reduced rate up until 2023-24 when all companies qualify for the lower rate.

Changes to the rules applying to private companies

Targeted amendments will be made to improve the operation and administration of the integrity rules for closely-held, private groups (in Division 7A of the Income Tax Assessment Act 1936). The amendments will apply from 1 July 2018 and will include:

  • a self-correction mechanism for inadvertent breaches of Division 7A;
  • safe-harbour rules to provide certainty;
  • simplified loan arrangements for the purpose of the rules; and
  • a number of technical adjustments to the law to improve its operation and provide increased certainty for taxpayers.

National Innovation and Science Agenda measures

As part of the Government’s National Innovation and Science Agenda announced in December 2015, a number of tax-related measures were also introduced. In the 2016-17 Federal Budget, a couple of these measures have been expanded on.

i)    Expanding tax incentives for early stage investors

As part of the Budget announcement:

  • the holding period will be reduced from three years to 12 months for investors to access the 10 year CGT tax exemption;
  • the definition of eligible start-ups will include a time limit on incorporation and  criteria for determining if the start-up is an ‘innovation company’;
  • there will be a requirement that the investor and innovation company are non-affiliates; and
  • the investment amount for non-sophisticated investors will be limited to $50,000 or less per income year in order to receive a tax offset.

ii)    Expanding the new arrangements for venture capital limited partnerships

As part of the Budget announcement, the funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.

Division 293 tax income threshold reduced

If a taxpayer’s income exceeds a certain threshold, they are required to pay an additional 15% tax on the concessional contributions they make to superannuation on top of the 15% tax payable on contributions made to superannuation (ie the tax rate applicable is 30%). The current income threshold is $300,000.

As part of the Budget announcement, this income threshold will be reduced to $250,000 from 1 July 2017.
Concessional contributions cap

Currently, the annual concessional contributions cap is $30,000 for those aged under 50 and $35,000 for those aged 50 and over.

As part of the Budget announcement, from 1 July 2017, the annual concessional contributions cap will be reduced to $25,000 for everyone regardless of age.

Transition to retirement

To improve integrity in the superannuation system, from 1 July 2017, the tax exemption on earnings from assets supporting ‘Transition to Retirement Income Streams’ will be removed. This measure will also remove a rule that allows individuals to treat certain superannuation income streams as lump sums for income tax purposes.

The change will prevent the ‘Transition to Retirement Income Streams’ from being used as an incentive to minimise tax.

Lifetime non-concessional contributions cap

From Budget night, the Government will introduce a lifetime non-concessional contributions cap of $500,000. The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.

This cap will replace the existing annual non-concessional contributions cap of $180,000 (or $540,000 every three years for individuals aged under 65).

The change is intended to improve sustainability in the superannuation system as well as supporting the majority of taxpayers who make non-concessional contributions to superannuation of well below $500,000. It is also intended to provide flexibility to taxpayers to allow them to choose when they may contribute to their superannuation and will be available to taxpayers up to the age of 74.

Removal of restrictions from making contributions to superannuation for people aged between 65 and 74.

The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017.

Currently, there are minimum work requirements for people aged between 65 to 74 who want to make voluntary contributions to their superannuation. Restrictions apply to the bringing forward of non-concessional contributions and spouses over the age of 70 cannot receive contributions.

Removing these restrictions will allow people aged between 65 and 74 to increase their retirement savings, particularly from sources that may not have been available to them before retirement, including from downsizing their home.

Flexibility in super – individuals able to make personal superannuation contributions

From 1 July 2017, all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
Individuals who are partially self-employed and partially salary and wage earners and individuals whose employers do not offer salary sacrifice arrangements will be able to benefit from this measure.

Currently, an individual is only able to claim an income tax deduction from making personal contributions to their superannuation where less than 10% of their income earned comes from being an employee (this is known as the ‘10% rule’). Individuals who are wholly self-employed or only has investment income are not affected by the ‘10% rule’.

Allowing ‘catch-up’ concessional contributions

From 1 July 2017, individuals will be able to make additional concessional contributions to their superannuation where they have not reached their annual concessional contributions cap in previous years. Taxpayers will be able to roll-over their unused cap amount for up to five years and make a contribution up to the rolled over cap amount if their total superannuation balance is less than $500,000.

The purpose of this measure is to assist taxpayers who have interrupted work patterns (eg have certain periods of time out of the workforce for reasons such as maternity leave, other extended periods of leave) to catch up on their superannuation contributions in later years when they return to work.

Changes to superannuation for low income earners

From 1 July 2017, the Low Income Superannuation Contribution (LISC) will be replaced with a new Low Income Superannuation Tax Offset (LISTO). The LISTO will provide a non-refundable tax offset to superannuation funds based on the tax paid on concessional contributions made on behalf of low income earners up to a cap of $500. A taxpayer will be able to access the LISTO where their adjusted taxable income is less than $37,000 and a concessional contribution has been made on their behalf to a superannuation fund.

To compare, currently the LISC operates such that if you earn less than $37,000 and concessional contributions are made to a super fund for you, the Government will make a contribution to your superannuation fund on your behalf between $10 and $500. This amount is determined based on 15% of the amount of concessional contributions that have been made into a super fund for you.
Spouses and superannuation

The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased from $10,800 to $37,000 from 1 July 2017.

The measure will help to improve the superannuation balances of low income spouses by extending the current spouse tax offset to assist more families to support each other in accumulating superannuation.

The low income spouse tax offset provides up to $540 per annum for the contributing spouse and builds on the Government’s co-contribution and superannuation splitting policies to boost retirement savings.

Transfer balance cap

From 1 July 2017, the Government will introduce a transfer balance cap of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase. Subsequent earnings on these balances will not be restricted. This measure will limit the extent to which tax-free benefits of retirement phase accounts can be used by high-wealth individuals.

Anti-detriment rule

From 1 July 2017, the outdated anti-detriment provision in respect of death benefits from superannuation will be removed. The effect of the anti-detriment rule can result in a refund of a member’s lifetime superannuation tax payments into an estate where the beneficiary is a dependant of the member (eg spouse, former spouse or child).

The provision is applied inconsistently to funds. Removing the rule helps to better align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation.

There is no change to the treatment of lump sum death benefits made to dependants which remain tax-free.

GST on low value imports

From 1 July 2017, GST will apply to all low value goods imported by consumers from overseas. Imported low value goods should be subject to the same GST treatment as low value goods purchased by consumers domestically.

Overseas suppliers with an Australian turnover of $75,000 or more will be required to register for GST and collect and remit GST for low value goods supplied to Australian consumers. A ‘vendor registration’ model will be used for overseas suppliers to register for GST.

These arrangements will be reviewed after two years to ensure they are operating as intended and to take account of any international developments.

GST treatment of digital currencies

Treasury has released a discussion paper on the ‘double taxation’ of digital currencies under the GST law. This forms part of the Government’s Backing Australian FinTech statement. Currently where digital currency is used to purchase goods that are subject to GST, consumers are ‘double taxed’ because GST also applies to digital currency. This may be preventing the use of digital currencies.

Measures impacting other indirect taxes

i)    Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 1 September 2017 to 2020.
ii)    The wine equalisation tax (WET) rebate cap will be reduced to $350,000 on 1 July 2017 and to $290,000 on 1 July 2018. This is to address integrity concerns with the rebate and to tighten eligibility criteria.
iii)    From 1 July 2017, the excise refund scheme will be extended to domestic distilleries and producers of low strength fermented beverages such as non-traditional cider.

New ATO Tax Avoidance TaskForce

A Tax Avoidance TaskForce will be established within the ATO to undertake enhanced compliance activities targeting multinationals, large public and private groups, and high-wealth individuals. $679 million of funding will be provided to the ATO to establish this taskforce over the next four years. The taskforce will work with other government agencies including the Australian Crime Commission, the Australian Federal Police and AUSTRAC.

Tax whistleblowers

Employees, former employees and advisers to taxpayers who disclose information on tax avoidance about those taxpayers to the ATO will receive improved protection under the law from 1 July 2018. This includes having their identities protected and being protected from victimisation, criminal prosecution and civil action for disclosing the information.

Tax Transparency Code

The Government is encouraging all companies to adopt the Tax Transparency Code (TTC) from the 2016 financial year. The TTC is a voluntary code that medium and large businesses are encouraged to adopt to encourage greater transparency in the corporate sector, particularly in the current climate with the focus on corporate tax avoidance.

Public sector efficiency review

The operation of the Australian Public Service, including the ATO, will be reviewed to achieve efficiencies and manage their transformation to a more modern public sector.

Specifically in relation to the ATO, over the next four years ATO shopfronts will be reduced in favour of ‘myGov’ shopfronts, digital service delivery will be actively promoted, external compliance assurance processes will be expanded and more efficient processes to externally scrutinise the ATO will be put in place.

Measures included in the Ten Year Enterprise Tax Plan

Collective investment vehicles

A new tax and regulatory framework will be introduced for two new types of collective investment vehicles (CIV). A ‘corporate CIV’ will be introduced from 1 July 2017 and a ‘limited partnership CIV’ will be introduced from 1 July 2018.

Tax consolidation measures

i)    The proposed measure to address the tax benefit that arises from double counting of deductible liabilities under the tax consolidation regime announced in the 2013-14 Federal Budget will be modified.
ii)    The treatment of deferred tax liabilities under the tax consolidation regime will be amended. The adjustments relating to deferred tax liabilities will be removed from the entry and exit tax cost-setting rules.

Taxing financial arrangements

i)    An integrity measure concerning liabilities arising from securitisation arrangements announced in the 2014-15 Federal Budget will be extended to also apply to non-financial institutions with securitisation arrangements. The liabilities will be disregarded if the relevant securitised asset is not recognised for tax purposes.
ii)    The taxation of financial arrangements (TOFA) rules will be reformed and new simplified rules will apply from 1 January 2018.
iii)    From 1 July 2018, the tax treatment of asset backed financing arrangements, such as deferred payment arrangements and hire purchase arrangements will be amended.

Diverted profits tax for multinationals

From 1 July 2017, a 40% tax will apply to the profits of multinational corporations that are artificially diverted from Australia. This measure is a significant part of the Government’s Tax Integrity Package of measures to target companies that shift profits out of Australia to avoid Australian tax through arrangements with related parties.

Where the tax paid on the profit that was diverted overseas is less than 80% of the tax that would have been paid in Australia, it is reasonable to conclude the arrangement involving related parties is designed to reduce tax in Australia and the arrangement does not have enough economic substance, the diverted profits tax will apply.

Multinational corporations that will be subject to the tax are ‘significant global entities’ with global annual revenue (including related parties) of $1 billion or more. Multinational corporations whose Australian annual turnover is less than $25 million will be exempt from the tax unless they have artificially booked income offshore.

Other measures affecting multinationals in the Tax Integrity Package

i)    With effect from 1 July 2016, Australia’s transfer pricing rules will be amended to give effect to some of the OECD recommendations made through the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan).
ii)    From 1 January 2018, and following consultation with the Board of Taxation, rules developed by the OECD in relation to their BEPS Action plan to eliminate hybrid mismatches will be implemented.

The administrative penalties that apply to ‘significant global entities’ will be increased 100 fold (the maximum penalty will rise from $4,500 to $450,000) from 1 July 2017 where tax disclosure obligations are not met. Where careless or reckless statements have been made, the penalties that apply will be doubled.

Disclaimer

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

May 12th, 2016|