Pay slips – what you must do

It always alarms me in discussions with new clients just how many of them don’t satisfy employment laws and obligations.

In particular, it amazes how many don’t provide complying pay slips to their employees. Many employers don’t even realise it is mandatory to issue all employees within 1 day of their payment.

Fair Work Australia provides all the information you need in respect of what employers are required to do in respect of pay slips (and related matters). They even provide a template for those who do not have a computerised payroll system.

Click on the following link to make sure that you are complying with your obligations.

http://www.fairwork.gov.au/pay/pay-slips-and-record-keeping/pay-slips

At MRS, we will spend today planning for your success tomorrow.

What are you going to do?

During the week, I read PWC’s 2015 Stem report (aka Future-proofing Australia’s workforce by growing skills in science, technology, engineering and maths {STEM}/April 2015).

The headline finding was that 44% of all jobs performed in Australia are at risk from digital disruption. That’s 5,100,000 jobs! And accountants top PWC’s list with 97.5% of all existing jobs at risk of automation.

So whilst this raises some series questions for myself and my colleagues, what does it mean for you and your business?

Will your existing business model be economical in the not too distant future? Will your competitors find new and better ways to provide your good and service at much lesser cost? Will your competitors be able to provide a superior product or service? Or both?

And then there’s the one fundamental hurdle raised upon the report’s release made by PWC’s Chief Executive Luke Sayers is that “business is already struggling to find the right skilled talent for their workforce.”

So how much time to you take out of working in your business to work on your business? The world is changing at an unprecedented rate and most businesses need to change with it to survive. Are you setting time out of every week or month to address these issues?

In writing this, I’m reminded by what I once heard John Bertrand state as the secret to the success of the 1983 America’s Cup campaign. As you will remember, the key to their success was the technological approach that was taken and which was manifested in the famous winged keel. Underpinning this approach was the initial framework of working within the mantra of what it would take to win the cup in 20 years’ time from then.

What will your industry look like in 5, 10 and 20 year’s time? Hard to say. But even if you don’t get it right, you will be heading in the right direction and ahead of most of your competitors. For some, this will mean cleaning up; for others this mean getting out of a dying industry before it is too late.

We can help you address these issues, whether that be from using our collective years of experience from clients in your industry or just general experiences from all of your clients (and our own).

At MRS, we will spend today planning for your success tomorrow.

Employer reporting obligations for June 2015

For those of you who are employers, Tuesday 28th July is the end date for satisfying your SGC super obligation for the June 2015 quarter.  Late payments will attract substantial interest and penalties which effectively doubles or triples the cost.  Even if your cash flow is tight, this commitment should be paid before anything else.

The final day for payments and reporting of Victorian Pay-roll Tax is Tuesday 21st July.

For those who lodge a quarterly BAS or IAS, your June quarter activity statement is due to be lodged by Tuesday 28th July (but 25th August for activity statements if you have registered your business as a user of the Taxpayer Portal and are not paying only fixed $ instalments).

Please note that lodgement of an activity statement (even if it is nil statement) and payment are two separate requirements.  Late lodgement attracts a minimum non-deductible fine of $170 for every 28 days that a form is lodged late whereas as late payment results in an interest levy (which is often remitted).  A fine is not tax deductible, interest is.  Not that we encourage it, but should you not be able to pay an activity statement in full, do not defer lodgement as the possible fines are significant.  The ATO will of course in time identify that an activity statement liability has not been paid and follow it up; but by this time though the liability should be paid in full anyway and at worst, incur a deductible interest charge far less than any non-lodgement penalty.

I remind you that under the Director Penalty Regime which came into effect in July 2012, PAYG Withholding (WH) and SGC super which remains unreported and unpaid after 3 months now results in the unpaid amounts becoming a personal liability of any directors.  Placing a company into liquidation doesn’t avoid or extinguish this liability.  For further information, please refer to our September 2012 Tips and Traps newsletter.

WorkCover finally saw sense a few years ago and now issue staggered lodgement dates for the annual Certificate of Rateable Remuneration.  This Certificate advises WorkCover of the exact remuneration for the prior year which triggers a reconciliation process against premiums paid during the 2014/15 year.  The Certificate also serves to advise the expected remuneration for the forthcoming 2015/16 year.  Non-lodgement may result in an excess assessment as their default assessment may increase remuneration by some 20%.  Employers with a March 2016 lodgement date who expect to have lower remuneration in 2015/16 will need to lodge their 2015 Certificate before the end of August to ensure that are not levied an excessive premium in 2015/16.  Please contact us should you have any queries or require assistance.

The government had previously scheduled the introduction of the Single Touch Payroll (STP) reporting for all employers on an progressive basis from July 2016 (with all employers required to adhere to electronic notification by July 2018).  They have deferred the first introduction date of July 2016 as they now (finally) understand that businesses are largely unprepared for such a system and the associated costs.  Under this system, each payment to each employee will be reported to the ATO at the time of payment (including super thereon).  We had been developing  package to our clients who would have been unable or not willing to attend to this real time reporting but will now defer any further action until we have a concrete start date.

Last minute tax saving tips

The following is a listing of assorted tax saving opportunities.

  • Buying items such as stationery, printer cartridges, stamps, etc by Tuesday 30th June.  Those of you who entered the Simplified Tax System (STS) by 30th June 2005 (and are therefore automatically assessed on a cash basis) may wish to pay any bills not due until July like your phone bill, rent, insurance etc.   Paying your accounting fees is also recommended!
  • Superannuation is of course a major deduction provided it is paid by 30th June.  Contributions into super are taxed at only 15% whereas your marginal tax rate may be much higher at 19%, 32.5%, 37% or 47% – as well as Medicare Levy at 2%.  As we have highlighted in previous correspondence, be careful with the 30th falling on a Tuesday.  A June contribution that doesn’t clear until July will be not be deductible in 2014/15 and will count against next year’s contribution limit.  It is now too late to make payment by B-Pay.  And beware of making EFT payments after your bank’s night time cut off.
  • Whilst there are minimum levels of super to be paid by employers on behalf of employees under SGC provisions, your own business conducted through a company or trust can claim a deduction up to $30,000 ($35,000 if you were 49 on 1st July 2014 – i.e. those who now 50 or older).
  • For those who are self employed, the same limits apply.
  • STS taxpayers are now known as Small Business Taxpayers (SBTs).  SBTs also include taxpayers with an annual turnover under $2,000,000.  As we have previously highlighted, SBTs can claim a full deduction for any assets acquired costing less than $1,000 (meaning $1,100 including GST).  That limit is $20,000 (excluding GST) for assets bought after 12th May.
  • Furthermore, SBT taxpayers can claim half a year’s depreciation on acquired assets that cost more the above limits – even if the asset is purchased on the last day of the year.
  • SBT taxpayers can also claim a full deduction for payments such as insurances, rent and the like which cost more than $1,000 even though the service period runs past 30th June and into the next financial year.
  • For those of you who receive this e-mail that are employees or rental property owners, you can claim a complete write off for assets costing less than $300.
  • If a property is jointly owned, then you can claim the full cost of assets costing less than $600 (meaning you claim less than the $300 limit each).
  • Investors can claim prepayments in full.  An investor with a property or share loan can claim a deduction for 12 months prepaid interest.  Please note that the ATO requires that for the prepayment to be claimed, one must benefit through a lower interest rate (for which you need to keep proof).
  • For those who have already generated a large capital gain, consideration should be given to selling other investments that have an unrealised capital loss.  Those with no or minimal employer SGC support should consider making a deductible contribution into superannuation to offset the tax on the capital gain (but speak to us first).
  • From 1st July 2004, persons under 65 no longer need to be working or have ceased employment within the last two years in order to make a deductible super contribution.  Consequently, those with large incomes can greatly reduce their tax burden by putting monies into superannuation.  With super pensions paid to those older than 60 now being tax free, the tax savings are greater than ever before.
  • Please note that those over 65 but under 75 can only contribute into super only after they have satisfied a work test.
  • If you are about to sell an asset which will generate a capital gain, consideration should be given to selling it after 30th June.  This will defer the payment of any capital gains tax liability until after 30th June 2016.

We have considered these matters when undertaking your pre year end business reviews with our clients.  However, do not hesitate to contact us should you wish to clarify any matter.

We take this opportunity to remind all employers to attend our HR Myths and Secrets seminar.  There is much that most employers don’t know – sometimes at great cost when an employee or contractor makes a claim for unpaid entitlements (arguments which employers never win).  I strongly encourage all employers to attend so that they can ensure that they are compliant and not an accident waiting to happen.

 

The $20,000 instant asset write-off now law

The tax bill tax which included the provisions for small businesses to be able to claim a full tax deduction for assets costing less than $20,000 was passed by the Senate on Monday 15th June.

So if your business does need a small asset, now is the perfect time to buy it.

But before doing so, please note 5 critical factors and considerations:-

  1. Only buy an asset you need. So if a company buys and asset for $11,000, it will get back $1,000 of GST and will have a tax deduction of $10,000. It will pay $3,000 less company income tax. It will still be $7,000 out of pocket.
  2. You need to elect or have previously elected to use the small business general pooling depreciation method. If not, the $20,000 provisions do not apply.
  3. Your small business must own the asset. It either needs to pay for it or finance it by a loan, hire purchase or by way of a chattel mortgage contract. Leased assets do not qualify for the write-off as one does not own the asset until the final payment is made or the lease contract is paid out early.
  4. If you trade-in an asset, it is the cost of the new asset that qualifies. So if your business buys a car for $30,000 and trades in an old car for $12,000, there is no entitlement as the cost of the new asset exceeds $20,000.
  5. The $20,000 refers to the GST exclusive price. If however, a business is not registered for GST, it is the cost of the asset including GST.

Please contact us if you have any questions.

At MRS, we will spend today planning for your success tomorrow.

 

The $20,000 instant asset write-off

It’s still not law.

That said, the Labour Party has given their consent to it and the bill passed the Lower House of Parliament at the end of last week.  Hopefully the Senate will see fit to pass it.

I therefore now take this opportunity before year end to set out our understanding of how this will work.

What is it

  • A small business buying an asset to use in its business will be able to claim the full cost of that asset as a tax deduction provided the asset itself costs less than $20,000.

It appears to be available to

  • Small businesses only.
  • It appears that a small businesses will be defined as one with turnover under $2,000,000 (excluding GST) in either the current or preceding year.  Under this definition, it doesn’t matter if the current year’s turnover is $5,000,000 provided the previous year’s turnover was under $2,000,000.  Please note that this is the expected definition of a small business being the core definition – there are other definitions of a small business within the Tax Act for different provisions therein.
  • The turnover of related entities will be taken into account for the purposes of the $2,000,000 turnover threshold.
  • Assets costing less than $20,000 (excluding GST).
  • If your business is not registered for GST then the cost limit appears to be $20,000 including GST.
  • It appears not to matter whether the asset is new or second hand.

Things to watch out for and to take advantage of

  • The cost of the asset must be under $20,000 (excluding GST).  So, if one buys a new car for $25,000 ex GST and gets a trade-in of $6,000 for an old vehicle, then one will not be entitled to claim the full cost of the deduction – one’s entitlement is measured solely against the cost of the acquired asset itself.
  • If an asset is used partly for business and partly for private purposes (like a passenger car or laptop computer) then only the business portion can be claimed as a deduction.
  • The benefit is the cost of the asset which can be claimed as an expense.  So, for a company, the saving on the purchase of a $10,000 asset (excluding GST) is $3,000 of tax that would otherwise be paid.
  • If an entity has current year and/or carried forward losses in excess of the cost of the asset(s) acquired then there will be no tax benefit in the current year.
  • The asset must be acquired and installed ready to use by the end of the year for a tax deduction to be claimed in this financial year.  A simple order cannot be deducted nor can an asset that has yet to be installed ready and available for use.
  • Please consider whether you really need the asset.  In the case of an asset costing $10,000, the best result is that a company saves $3,000 in tax; it is still $7,000 out of pocket.
  • If you really need to buy an asset costing less than $20,000 (excluding GST) now is the time to do so.
  • Be careful not to spend too much to the detriment to your cash flow.  It may be best to consider finance.
  • Don’t lease an asset though.  A lease is a rental contract.  As such, one is not the owner of a leased asset until the last payment is made or the contract is paid out early.  Under hire purchase or chattel mortgage contracts though, one is the owner of the asset from day one.
  • The $20,000 limit applies to each individual asset; like or similar items need not be grouped.  A small business can claim a $40,000 deduction should it see fit to buy 20 $2,000 lap-tops.

Thinking of buying a new car?  Click on the following link to an article in last week’s Age which listed cars under $20,000.

http://www.theage.com.au/drive/motor-news/feature-20000-tax-bargains-20150602-ghf2xi.html

So, if you really need an asset for your business, now is the time to buy it if you are a small business.  Even if these laws aren’t passed, a small business under current laws will be able to claim 15% deprecation in this financial year even if an asset is bought in the last week of June with a further 30% deduction of the residual balance in 2015/16.  On the other hand, an asset bought in July 2015 will only result in a 15% deduction for the whole of the 2015/16 year.

Please call us should you wish to discuss your situation at greater length.

At MRS, we will spend today planning for your future success.

Going overseas for a holiday?

Do you have any overseas trips planned?

If so, please take note of the following tips to make sure your trip doesn’t cost you more than it need to.

Some clients decide to cancel their private health insurance for the period they are overseas.  This might save some premium but it can cost much more with the imposition of the Medicare Levy Surcharge (which is charged proportionally on the number of days for which private health insurance is not held at rates from 1% to 1.5% depending one’s level of income).  This is subject to an income threshold of $90,000 for singles and $180,000 for couples (add $1,500 for every child after the first child).

Senior Health Concession Card holders also need to be aware that they will have their card cancelled when they are overseas for more than six weeks.  This happens automatically as the Passport Control pass on their data to Centrelink.

Or perhaps your kids are going off to explore the world for a year.  The trip could cost them less of they go at the right time.  If they left in July and returned in June, then they would have a year with no income and waste the tax free threshold of $18,200.  If they leave in January and return in December, they will be able to use two tax free thresholds and not leave the first tax bracket in either year.  If your child is earning $50,000, leaving in January rather July will save them almost $7,000.

Small business CGT concessions

One of the pleasing announcements within the 2015 Budget was the proposal that a small business be able to restructure itself without any Capital Gains Tax (CGT) implications.

This is particularly important for start-up businesses.  Even with the best made plans, the performance of new business can prove to be way above or way below expectations.  It is therefore quite common to find that the initial structure is no longer beneficial.  This new proposal gives the option to ensure that the initial structure does not prove to be detrimental.  Please note though that stamp duty and other charges may be incurred in a restructure.

Budgets are notoriously thin on detail; this one in particular.  There are many definitions of a small business within the Tax Act and we await to see how a small business will be defined for this proposal.  That said, we expect that it will follow the most common definition being turnover of $2 million in the current or previous financial year.

What most people don’t know though is that there are already four Small Business CGT concessions which can be used where a business is being sold.  These concessions, either defer, reduce or eliminate any tax liability.  They can also be used to restructure.  These four concessions can be used by businesses with turnover in excess of $2 million provided the net asset value of the entity concerned, and anything else connected with it, is less than $6 million.

The Small Business CGT concession laws are quite complex.  Furthermore, they are a key ATO audit area.  It is therefore essential to ensure that all the T’s are crossed and the I’s are dotted when using any of these concessions.

Does your existing structure work for you?

We welcome the opportunity to discuss what you may be able to do in an obligation free first meeting.  Why not give us a call today to make an appointment.

At MRS, we will spend today planning for your success tomorrow.

Dividends v wages – a new ball game

We often recommend to our small and medium sized business clients with largish retained profits to cease paying wages and to pay dividends instead.

To pick some round numbers, a $7,000 net salary will require say $3,000 of tax to be paid thereon AND WorkCover AND may be Pay-roll Tax as well.  Of course, there is also 9.5% SG super but that is not a bad thing.  So the cost of getting $7,000 into a working shareholder’s hands is often close to or even exceeds $12,000.

This is a costly way of remunerating oneself when a company has large retained profits.  In Victoria, there is no WorkCover or Pay-roll Tax on dividends.  And as a franked dividend is using the credits from tax already paid, the cost of getting $7,000 into a shareholder’s name is just $7,000.

It is important to note though that whilst the company can save up to $5,000 in immediate cash flow by paying a dividend instead of a wage, the company will have a greater profit in the current year as it has less deductible wages.  It will therefore pay more income tax in arrears.  For someone approaching retirement this can lead to other tax and cash flow advantages.

In the 2015 Federal Budget, it was not only announced that the Company tax rate will fall to 28.5% but that the dividend franking credits would remain at 30%.  So in my example above, you can add another $150 saving to receiving dividends over wages.

So what’s best for you?  Ask us.

At MRS, we will spend today planning for your success tomorrow.

Budget – a word of warning

You have to be careful as to what you think you have heard on Budget night.

You have to mindful of three things:-

  1. They announcement are not law, they are only announcements.  It may be some time before the legislation passes, it may not ever pass or may be slightly or even substantially different.
  2. No matter who is in power, the good news items always tend to have a delayed start date; whereas the bad news items start seemingly straight away.
  3. Some of what is reported is not true or over simplified.  What seems to be an opportunity turns out not to be available or only relevant to certain groups.

At MRS, we will spend the next few days pouring through the detail before releasing our detailed analysis of the Budget and what it means to our clients.  That briefing appear will be filled with tips and traps and will be written in plain English.

Please let is know if you would like a copy e-mailed to you.