Posts Categorized: News
PAYG Instalments options
PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals. In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions. It is not assessed on wages or capital gains. With the September BAS being the first one for the year, one can choose how to calculate your PAYG Instalments.
We usually prefer that clients use the instalment amount method. In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.
In some cases though, the % rate method may enable one to pay a lesser amount. If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid. A significant payment will only be required at such time as income is received.
It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously. If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.
Please do not hesitate to call us should you wish to discuss your own situation.
At MRS, we will spend today planning for your success tomorrow.
GST options
With the Sep 2017 BAS comes options as to how you can calculate GST. So what are these GST options?
Even with the introduction of the “Simpler BAS” there remain three ways to calculate and report GST.
We recommend most business clients select Option 3 (GST Instalments). Option 3 (which is only offered to small businesses who lodge quarterly BAS’s and who have turnover of less than $10,000,000) is the best for most clients as:-
- It reduces our fees by our not having to prepare BAS’s or amend those prepared by clients (at the risk of being misunderstood, there are matters that only come to light when preparing annual financial statements and which require past BAS’s to be amended).
- One doesn’t have to amend BAS’s for where a tax invoice is not held by the time a BAS is lodged.
- If profits are increasing, then one’s GST net liability will also be increasing. The instalment will represent an under payment as the ATO advised instalment is based off the prior year’s lodged activity statements. In most cases, the shortfall is not payable until May of the following year so one receives an interest free loan from the ATO to pay any GST shortfall.
- If the instalment is too high, then they can be varied downwards (but best left until at least the second and preferably the third or fourth quarter when the year’s position becomes clearer).
Please contact us if the ATO have marked on your BAS that Option 3 is not available. This is often simply an ATO error and one that we can easily have rectified.
If you adopt Option 3 , then the ATO will issue you with an Annual GST Return after the end of the financial year. This form is completed by netting off the actual liability against the instalments paid. The form is required to be lodged by the time the Tax Return is lodged and by which time a shortfall is to be paid or a refund will be generated.
At MRS, we will spend today planning for your success tomorrow.
Small business restructure rollover
As we announced in our 2015 Federal Budget briefing, small business restructure rollover relief has been available since July 2016. It has been a welcome initiative as one never knows how a new business will perform. Despite the best planning and expectations, an accountant often wishes they had recommended a different structure when reality becomes known.
These rules allow a small business to transfer active assets from entity to another and do so without attracting an income tax liability. Assets include depreciating assets, stock and other active assets used in the business. Rollover relief is not available on passive assets (including loans to shareholders). Assets transferred will retain their original Capital Gains Tax (CGT) status in the new entity.
One needs to be mindful or wary of:-
- The restructure must be a genuine to qualify for this relief.
- After the transfer, there must be no change in the ultimate economic ownership of the assets transferred.
- Only a small business can use these rules (which means group turnover must be less than $10,000,000).
- These ATO rules provide relief from income tax; there may be GST implications.
- There might also be state government stamp duty issues.
- Tax is deferred under these provisions until such time as the assets are sold. It might be that a business may be better off by re-structuring under the Small Business CGT concessions.
Despite sounding relatively simple, these are complex provisions that should only be used after a full examination of all of the options and implications (as we have done with a number of clients).
At MRS, we will spend today planning for your success tomorrow.
Credit card surcharge rules update
In last week’s blog, we outlined the credit card surcharge rules that apply to small businesses as of 1st September 2017. At that time, we were not clear on how it affects the use of providers such as Square, PayPal and the like. Such providers typically charge businesses a flat fee of around 2% on various credit cards.
We can now confirm that such providers are referred to as Payment Service Providers. Our investigations have found that a small business will comply with the new rules provided they do not charge any more than what they are charged by the payment service provider.
At MRS, we will spend today planning for your success tomorrow.
New credit card surcharge rules
The new credit card surcharge rules first introduced one year ago for large businesses now apply to all businesses as of 1st September 2017.
Consequently, no Australian business can now charge a credit card fee any higher than what it is being levied by its credit card providers.
If your business accepts multiple payment types, then you will have to charge different rates for:-
- Visa and Mastercard (which we understand commonly to be 1.5% but can be often be as low as 0.9%).
- American Express (which we understand commonly to be 3.0% but sometimes less).
- Debit cards (which we understand commonly to be 0.5% – but we have seen reports of fees of up to 1.0%).
It is critical that you check the rates charged to you by your provider. Westpac have printed the Cost Of Accepting Credit Card Payments on their June 2017 statements.
TIP Make sure all your staff know so they don’t make an avoidable mistake that results in the ACCC paying you a (costly) visit.
TIP Some businesses might find it easier to charge a set rate (being the lowest credit card rate) to avoid any mistake.
So what does this mean for those using providers such as Square, PayPal and the like? We don’t know and are currently seeking clarification.
At MRS, we will spend today planning for your success tomorrow.
What does the ATO think about Labor trust reform?
What does the ATO think about Labor trust reform? Well, it looks like Labor’s proposal to tax trust may be just that – a proposal.
The Age on Friday 25th August reported the ATO’s Deputy Commissioner of Taxation Mr Chris Jordan speech to the Vodafone National Small Business Summit.
The Age reported that Chris Jordan said “There’s a whole lot of reasons to pass through capital gains tax discounts and to be able to have discretion as to income and protect assets. It’s hard one. It is a real difficult nut that one. I think there have been a few goes at it over the decades.”
I hear three things in these comments:-
- It’s difficult to address (and doing so may have unfair consequences).
- Income splitting is fair and reasonable (and in any case can be achieved through an array of means other than trusts).
- And perhaps most importantly, asset protection is a driving reason as to why people elect to use a trust structure.
Mr Jordan also went on to say that “Many small businesses and farmers were using complex arrangements they didn’t understand.” This has certainly been our experience. I could write an essay on this topic but simply say that most clients need help to understand trust structures and thereby put in place effective wills.
At MRS, we will spend today planning for your success tomorrow.
Labor’s proposal to tax trusts
The following was an article within our August edition of Tips & Traps. It has been re-posted here due to the article in The Age on Friday 25th August (which will be subject to a separate post).
Bill Shorten recently announced Labor’s policy proposal to tax trust distributions and do so at a flat rate of 30%. Presumably this will mean trusts would pay tax on their income and then grant a 30% credit on any beneficiary distribution – thus a trust distribution would carry a tax credit just as company dividends do now.
It is only an announcement of intention. The next election is not due until the back half of 2019. If they win that election, legislation would then have to be drafted and passed through both parliamentary houses. Usually, but not always, such big ticket items are announced within a Federal Budget (which is delivered in May). One would therefore expect that if this becomes law, it would do so no earlier than for the year ending 30th June 2020.
In his announcement, Shorten said they were targeting barristers, investment bankers and other high net worth individuals. It was also made clear that it was not intended to apply to:-
- Special disability trusts.
- Deceased estates.
- Charitable trusts.
Whilst certain taxpayers were targeted in the announcement, there did not appear to be any practical acknowledgement that most trusts run small businesses; it is estimated that this accounts for two-thirds of all trusts. Many of these are tradies, farmers, retailers, manufacturers and every other sort of business within the Australian economy.
Presumably to avoid double taxation, the tax payable by the trust will be a refundable tax credit. If so, the total tax paid on trust profits won’t change – it is just a question of how much the trust pays (being 30%) and what an individual will pay (if their marginal tax rate is higher than 30%) or be refunded (if their marginal tax rate is less than 30%).
Some closing thoughts:-
- The Rudd called Henry Tax Review recommended no such changes to trusts (nor were any announcements based targeting certain occupations).
- The early part of the second Howard government explored taxing trusts but desisted when it became clear that it would be counterproductive to economic growth.
- It was also thankfully acknowledged that a common driver in setting up a trust is asset protection. Our experience has been that if someone is as wealthy as that targeted by Shorten, they are far, far more concerned about protecting say a $1,000,000 property than what marginal tax rate they pay on the net rental income.
- If they really wanted to be serious about collecting a fairer share of tax, there are other things that could be targeted. They could for example attack husband and wife trade partnerships (both political parties have been too scared to do so and despite having the power in the personal services income laws to deal with unrealistic income splitting) or look through arrangements where a high income earner funds a property bought in their spouse’s name.
At MRS, we will spend today planning for your success tomorrow.
ATO’s Taxable Payments Annual Report
28th August is the end date for lodging the ATO’s Taxable Payments Annual Report. This form requires those businesses within the building and construction industry to report all payments to contractors within the building and construction industry.
Building and constructions includes more services than one might think as evidenced by the following link – http://tinyurl.com/y7hrnfxm
You need a good accounting system to simplify the reporting as you need to report the following for each contractor:-
- Name
- ABN
- Address
- Gross payment including GST as well as the total GST amount. It is important to note that for those who run an accrual accounting system, reporting is based not off the date of the contractor invoices, but they year in which they are paid.
If you are struggling with this reporting requirement, we would be happy to help you or refer you to a good book-keeper.
So what to the ATO do with all this data? They crossmatch all payments reported to each business within the building construction industry to their reported income. The ATO had a field day some years ago with a pilot program of plasterers within the Hunter Valley. Obviously it is paying dividends if the ATO still requires this reporting.
At MRS, we will spend today planning for your success tomorrow.
Small business tax breaks
Now that a small business is defined by the ATO as one with group turnover under $10,000,000, there are many more businesses that can avail themselves of the many and valuable small business tax breaks.
The tax breaks can be summarised as follows:-
- A company tax rate of 27.5%. Please note that companies with non-business income (that is “passive” income from investments, rents and trust distributions) will continue to pay company tax at 30%. Please also note though that small businesses will only be able to frank dividends at 27.5% so any tax saving is short lived if most profits are paid out as dividends.
- The Small Business Income Tax Offset of up to $1,000 for non-corporate businesses (that is sole traders or those who receive a share of partnership or trust business income).
- The choice to use the simplified depreciation rules. This is important for those businesses who wish to purchase assets costing less than $20,000 (ex GST) before July 2018. Please see our past blogs for further details.
- The choice to use a simplified trading stock rules under which one can estimate their stock if they believe it is not changed by more than $5,000 (which probably means you need to do a stock take anyway).
- The ability to claim prepayments (such as insurance and prepayments rents & interest).
- 100% write-off of start-up expenses.
- The ability to elect to pay GST on a cash basis.
- The option to pay fixed dollar instalment amounts of GST.
- The option to pay fixed dollar amounts of PAYG Instalments.
- Access to the FBT car parking exemption.
- The ability to provide employees with multiple work related portable electronic devices (lap-tops, tablets, calculators, GPS navigation receivers and mobiles) within the one year and free of FBT.
- The ability to use the free ATO Small Business Superannuation Clearing House.
- The ability to restructure under the new small business CGT restructure rollover relief provisions. Please note though that the small business CGT concessions are still only available to those businesses with group turnover under $2,000,000 and/or net asset value under $6,000,000.
So what does this mean to you?
It depends on what you are trying to achieve. There are occasions where we have and haven’t used these rules depending on the short and/or long-term benefits to our clients. Grabbing at shiny red apples hanging on a tree is no substitute for proper planning. We address these opportunities throughout the year, particularly so when undertaking pre year end tax planning review of our clients.
If this is all news to you then you should be looking for a new accountant. We welcome your call.
At MRS, we will spend today planning for your success tomorrow.
A welcome change to super
There has been a welcome change to super. Without going through all the rules and a carve out, there was a basic prohibition against employees obtaining a tax deduction for personal contributions into super. However, from July an employee can claim a deduction for personal super contributions (and the 10% rule has been removed).
How will this work? Say Fred is employed by Turnbull Wind Farms Pty Ltd. If Fred’s salary was $100,000 the SG super thereon would be $9,500. Fred could make a personal contribution of up to $15,500 so that he uses all of his $25,000 concessional contribution cap.
A word of warning though – the $25,000 is measured on contributions received by your super fund. As such, one needs to be aware of contributions for the June 2017 quarter which can legally be paid as late as 28th July 2017 and/or whether an employer has changed from making contributions at the end of each quarter to doing so on a monthly basis. You need to check with your super fund before making any final contribution(s) as you might be closer to your contribution cap thank you think.
In Fred’s case, he may not need the last $15,500 of income. Paid as a salary, it is subject to tax and Medicare Levy of 39% whereas the tax on the super contribution would only be 15%. Fred will save tax of $3,720 by making a personal contribution.
So those who will benefit from this welcome change include:-
- Those whose employer who won’t allow an employee to salary sacrifice into super. You would be surprised how common this is.
- Those whose employer legally follows the book and bases SG super off the after super salary sacrifice pay. This too is surprisingly common.
- Those employers who charge through a packaging provider for a super salary sacrifice arrangement.
- Where a client could better use the cash during the year and only make a contribution at year end.
- An employee of one’s business who doesn’t wish to incur WorkCover and Pay-roll Tax on employer contributions in excess of SG super.There have been some other welcome changes to super which will outline in future weekly blogs.The removal of the basic prohibition against employees obtaining a tax deduction for personal contributions into super is a welcome change .
There have been some other welcome changes to super which will outline in future weekly blogs.
What should you do? You should discuss your situation, needs and goals with a financial planner to ensure making a personal super contribution is in your best all round interests.