Posts Categorized: Tax

New super rules now law

Those largely unpleasant superannuation changes announced in this year’s Budget are now law.  The Senate passed them yesterday.

As we explained to out clients in a seminar on Tuesday night, wile some of the changes are quite positive, many them will have substantial impacts upon how people can accumulate wealth for retirement.  Indeed, with a new concessional (deductible) cap of only $25,000 from July 2017, it will become difficult for many to fund their retirement through super as their parents did.  If it wasn’t already true enough, many people will be forced to address their retirement planning at a much earlier stage in life.

Ignorance and inaction rarely pay off and doing nothing will cost some a great deal.  It is critical you understand what you need to do under the adverse changes and what you can do to make the most of the positive changes.

Which PAYG instalment method to use

Which PAYG instalment method to use is a question that comes up at the start of every financial year – or rather with the September activity statement.

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.

One can pay PAYG instalments under one of two methods – by paying a fixed dollar amount as advised by the ATO or applying a percentage advised by the ATO against the income of that quarter. So what are the relative advantages and disadvantages of each method?

Under the fixed dollar method:-

  • You know what you are up for.
  • If the current year (in this case 2016/17) is much better than 2015/16, then any shortfall will not be payable until the Tax Return for 2017 is lodged – this could be as late as May 2018.
  • It’s a simple method as it doesn’t require any calculations.
  • If the amount is too high then it can be very downwards – but I would not do so on the September activity statement when the year is far from known.
  • Should it be that the PAYG Instalments already paid are too high then a variation can be made and any overpayment refunded.
  • This is a better method to use if you wish to avoid complex and costly calculations of your gross income years (which is required under the percentage method).
  • As it is a simple method, no extension to lodge is granted where there is only a PAYG instalment payable; the extensions to lodge through the Taxpayer or Tax Agent Portal are not available.

Under the percentage method:-

  • The ATO determines the percentage by dividing the prior year’s tax bill into the prior year’s tax liability. It is a rough method but one which usually approximates the appropriate tax.
  • One will pay more if the income in 2016/17 is greater than 2015/16. People who prefer to pay the appropriate (or should I say approximate) amount of tax each quarter as they go prefer this method.
  • It is a good method to use if one’s income is likely to be less than the year before as one will pay less tax. Under the fixed dollar method, one would be forced to vary the amount which could be problematical (see below).
  • As the percentage method requires a calculation of gross income, an extension to lodge is available to those who lodged through the Taxpayer or Tax Agent Portal

Two other important points to note are:-

  1. You are entitled to vary an amount or instalment downwards – but do so carefully as the ATO has the right to issue a fine for gross underestimations.
  2. It may be that your September activity statement offers only the fixed dollar or percentage method. If you do wish to change method, a request to the ATO can be made to reissue the activity statement with both methods being offered.

We would welcome the opportunity discuss which is the best method for you.

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

 

ATO’s small business benchmarks

The ATO’s small business benchmarks have recently been updated for the 2014 financial year. They cover over 100 industries and in particular the sort of cash industries the ATO love to audit.

The ATO use this as one of their main tools for identifying businesses to audit and actively select anyone well outside their norms. Please refer to the June 2012, 2013 and 2014 edition of Tips and Traps to see how the ATO has assessed substantial income tax and GST shortfalls as well as hefty interest charges and penalties.  They are eye watering amounts.

Their data is split into three groups based off turnover. They also have some regional and metropolitan ratios.

If the ATO has a small business benchmark for your business then we will discuss it with you in your annual general meeting. If you like to learn more though in the meantime you can go to:-

Before closing I must though express a personal view on benchmarks. They can be a great tool but must be used with care as:-

  • You may not be comparing apples with apples. Even if the right industry has been selected there can be natural differences between say a newly established business and one establish some time ago.
  • There is great danger in comparing oneself to a norm. It is not the average you should be comparing yourself to but the upper quartile.

I also wish to add that we are trialling some non-ATO industry benchmark software of which you will hear more later.

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

 

Travel expenses made simple

Travel expenses made simple. Most would disagree as keeping, and at times even getting receipts when you’re travelling is difficult.  This is a problem that is even more difficult in respect of getting employees to hand over the right records.

Fortunately, the ATO provide some relief. Each year, the ATO issues what are called reasonable travel rates; the determination also covers overtime meal allowances.

Reasonable travel rates are set for:-

  • Domestic travel – amounts in respect of overnight stays for accommodation, food & drink and incidentals.  These amounts vary for each major centre and high cost remote areas.
  • Overseas travel – amounts for food & drink and incidentals (receipts must be kept for all accommodation).  Allowance rates vary for each country and the employee’s salary level.

Employers who pay no more than these reasonable amounts are set by the ATO do not have to withhold PAYG withholding.

Employees who receive a reasonable allowance are not subject to substantiation unless their expenses exceed the reasonable amount.  You can obtain a copy of the 2016/17 rates at http://tinyurl.com/jft95s2

Please always remember that an overseas travel claim is not deductible unless it is supported by a travel diary or record.  The same applies in respect of a domestic trip which is for 6 or more nights.

We would welcome your questions as to how you may benefit from using this system.

 

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

 

Deadline for 2016 PAYG Payment Summaries

The deadline for 2016 PAYG Payment Summaries being lodged was 14th August.  Whilst employee should have received their PAYG payment summary by 14th July, employers had until 14th August to lodge a copy of each individual summary as well as the PAYG Payment Summary Statement.

If you haven’t lodged these yet, please do so immediately to avoid the imposition of any fines. And for those lodging paper copies, please remember to keep a copy of the PAYG Payment Summary Statement for your records.

There are however two exemptions:-

  1. September 30 where we as tax agents have been involved in there preparation.
  2. The date of lodging the 2016 Tax Return where only family members have been employed.

Even though you may have until as late as March 31, 2017 to certify your 2016 WorkCover remuneration, now would be a good time to do so, particularly if your estimated remuneration for 2017 will be less than for 2016.

And as always, please don’t hesitate to ask as for assistance with any part of this.

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

 

An app for your log book

The one thing that clients complain about most is having to prepare a log book. This became even more important in the last financial year with the removal of two of what were once four methods of claiming a motor vehicle.  We can now make that task easier as we have an App for your log book.

Our firms App has been just published in the Play Store and iTunes.

Simply search on Maggs Reid and at the top list you should see our logo, Maggs Reid Stewart and Digital Disruption Solutions.  Simply download the app, go to the ATO button which will then let you run a log book by using Google maps.  It cannot be made any easier.  And it’s one of the main reasons we decided to publish our own App.

Although more content is still to be published, the App is already full of really useful tools, calculators and information.

As have we advised in newsletters and blogs, one can now only claim a car under the log book method or cents per kilometre method. You either have a complying log book or you don’t.  The problem is if you don’t, your maximum claim under the cents per kilometre method is limited to $3,300.   So download that app!

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

 

Last minute tax saving tips

And so another tax year draws to a close!  But there is still time to legitimately  and legally adopt last minute tax saving tips to improve your tax position by adopting one or more of the following strategies:-

  • Buying items such as stationery, printer cartridges, stamps, etc by Thursday 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% and a 2% Temporary Budget Deficit Repair Levy.  A June contribution that doesn’t clear until July will be not be deductible in 2015/16 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 2015 – 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 $20,000 (excluding GST).
  • From 1st July 2016, the threshold for being classified as a small business rises from $2,000,000 to $10,000,000 meaning that they too can take advantage of the $20,000 asset write-off from this Friday.
  • Please keep in mind that the $20,000 write off is due to expire a year from tomorrow.
  • 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 2017.

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

We take this opportunity to remind seriously consider the QuickBooks Online offer. The benefits and bonuses are incredible.  You can at least start with it and if you don’t like it, stop within say three months and it will cost you no more than $40.

We also reminder you that Super Stream has been deferred for 3 months – QuickBooks Online will provide the most cost effective solution for many.

For more free tips, why not visit the weekly blog section at http://mrsaccountants.productivation.com.au.  And from next month you can visit our app which will be full of useful tools and calculators!

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

 

 

Getting your stocktake right

I had an interesting meeting with a new client during the week. They were referred to me as they couldn’t understand why they had the same money after a year in which their sales had doubled.  They aren’t trained in accounting and sadly their accountant didn’t help educate them as to what to identify and track in their business.  In particular, they weren’t assisted in the importance of getting your stocktake right.  Furthermore, their cost of goods sold was grossly understated by virtue of excluding direct costs of production other than materials purchased– so much so that their real trading margin is closer to 15% than it is to the stated 50%.  Such a discrepancy can only result in wrong decisions which can prove dangerous if not fatal.

The sad thing is that I have no way of knowing their true position. The value recorded as closing stock was unchanged for the two preceding years and the most recent year, being a year of doubled sales, was less than the year before!  That could be the case, but that is most unlikely.  Moreover, the value of closing stock was a round number in all years; a very round number.  It stunk of sticking a number in the Tax Return that was convenient for tax purposes but in no way reflected the real position.

Fortunately, they have the opportunity to rectify this by undertaking a proper stock by 30th June.  That said, the gross margin for 2015/16 will still be wrong as the opening stock is wrong.

From next year though with the correct opening stock and by tracking month end closing stock, they will have a firm grip on where they are where they are headed. And why is this important – read the following blog on why not all growth is good.

http://www.mrsaccountants.com.au/2015/02/

If you would like assistance with getting your stock take right, please ask for a copy of our checklist or call us to discuss your particular situation.

 

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

 

$20,000 asset write-off – Part 2

One of the best tax planning options available to small businesses is the ability to claim a full tax deduction for the cost of any business asset costing less than $20,000. In $20,000 asset write-off Part 2 we explore 6 other important considerations and traps to take into account before committing a significant part of your cash reserves:-

  1. 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.
  2. 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.
  3. You can only claim the business portion on an asset that is used for both business and privately – such as a car or lap-top.
  4. As tempting as this limit is, don’t get too carried away and buy assets that your cash flow cannot support.
  5. If your business has current or carried forward losses in excess of your intended asset purchase(s), then your business will not gain any tax saving in this financial year.
  6. This accelerated write-off rate applies will remain in place until 30th June 2017 so next year is the last time you can utilise this generous arrangement.

If you haven’t done so already, please refer to last week’s post where we outlined 6 other important considerations. Moreover, please contact us if you have any questions in relation to this or any other pre year end tax planning issue.

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

 

$20,000 asset write-off

It’s nearly the end of the tax year and as the year’s result should now be clear, it’s now appropriate to address tax planning. One of the tax planning tips is to use the $20,000 asset write-off.

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

But before doing so, please ensure you have factored in the following considerations:-

  1. Only buy an asset if you need it. So if a company registered for GST 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. A business qualifies as a small business if its current year or prior year turnover is under $2,000,000. If not, the $20,000 provisions do not apply.
  3. Your small business must own the asset. Your business either needs to pay for it or finance it by a loan, hire purchase or by way of a chattel mortgage contract.
  4. 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.
  5. If you need to finance an asset purchase, then you need to act quickly, very quickly, as financiers will be inundated.
  6. To qualify, an asset must be installed or ready for use by 30th June.

We will list other considerations in our upcoming Part 2. In the meantime, please contact us if you have any questions.

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