Posts Categorized: Tips of the week

Why is the ATO suddenly asking you for money?

If you want someone to pay you then it is a good idea to send them a bill so they can.  Seems like common sense – but not to the ATO.

A number of clients have been surprised, offended and/or doubtful of recent payment requests from the ATO.  This happened as the ATO elected to cease sending paper activity statements.  It seems as though many did not receive a reminder through their MyGov account – or if they did, ignored it legitimately thinking it was a scam.

So will you get into trouble?

The answer is no.

We understand that the ATO will revert to issuing paper statements.

We do though recommend periodically checking your MyGov account just in case you have missed something.  Once you have opened a My Gov account, they will no longer issue you with a physical assessment notice; even we aren’t issued with one.  They also cease issuing super S293 notices and the like.

But never click on a link within a MyGov email as it may well be a hoax.  Log in separately from your internet browser.

Why getting your FBT exposure right is so critical

So why getting your FBT exposure right so critical?

Before we answer that question, I will answer the base question of what is a fringe benefit.  A fringe benefit is anything provided by an employer to an employee other than by wage/salary and super. 

As such it includes such things as:-

  • Passenger cars

  • Car parking

  • Entertainment

  • Selling firm’s goods at a discount

  • Providing accommodation

  • Paying any employee bill whether that be school fees, mortgage, health club membership and so on.

And this leads to the understanding of how to address your FBT exposure which can be summarised as:-

  1. Determine whether you the employer are exempt (charities, public hospitals) or subject to a reduced rate (private schools).

  2. Determine what fringe benefits you have provided to whom

  3. Assess whether an exemption or concession applies to that type of benefit.  There are some special rules which benefit small businesses.

  4. Calculate the taxable value

  5. Then, and this what most people get wrong, determine whether the employee is better off making a contribution to reduce the fringe benefit rather than pay FBT tax (which is equivalent to the highest marginal tax rate).

  6. Prepare and lodge the FBT Tax Return.

The reality is that all too many employers get this wrong as the ATO is successful in making an adjustment in 50% of FBT audits.  That’s every second audit!

And don’t think the ATO doesn’t think this is a big audit target.  One recent project was their recording the number plates of all utes parked at an AFL game at the MCG.  Those plate numbers registered to companies were then cross matched with lodged FBT and Income Tax Returns.  The ATO had a field day.

So what should you do?

Well for our clients we run through a checklist to make sure all benefit s provided are identified.  We will then work through (a) quantifying the benefit before (b) determining the most efficient manner of dealing with the benefit and then (c) lodge an FBT Return (we do this even if the taxable value has been reduced to nil as the ATO have therefore issued an assessment and then only have two years to audit.

And with that I return to the question of why is getting your FBT exposure right is so critical?  As you will now be able to appreciate there is more than answer to this question:-

  • It is a key ATO audit area.

  • If it is wrong in one year, the ATO will start auditing all years.

  • With the FBT tax rate being the equivalent of the highest marginal tax rate, the tax can be significant.

  • The ATO readily applies both interest and penalties.

  • The audit clock will start clicking once an FBT Tax Return sis lodged – after that the ATO can’ t go back further than 2 years.

Do you have any questions?  We would welcome the opportunity to discuss them with you.

JobKeeper reminder & reality check

We will start with an important reminder to meet your turnover reporting obligation in order to receive your February JobKeeper entitlement by this coming Friday.  This means you have to report the actual GST turnover for the month of February and what you think it will be for March.

And with JobKeeper due to conclude with the fortnight ending 28th March, this is the second last time you or your accountant will need to complete this task.

The bigger issue though on the horizon is what happens when JobKeeper ends?

Whilst the drop in the unemployment rate and growth in the GDP rate have been welcome, come April small businesses will be on their own.  There is no (as yet but will there be?) targeted assistance to those industries decimated by covid.

So the four biggest questions you face are?

  1. How will your business survive?

  2. How will the businesses of your customers and suppliers survive? 

  3. And have you, your customers and suppliers addressed the impact of the end of rental relief?  And not only may you soon be paying full rent, what about the portion of relief that was deferred?

  4. And are your financiers going to continue to support you?

And with cash flow being the life blood of any business you need to understand what the impact starting in as soon as 3 weeks.  Some accounting software providers market their cash flow capabilities, but it is very simple and for the immediate short term.

We however have advanced software which can:-

  • Model out various post 28th March scenarios.

  • Show the cash flow peaks and troughs in the months ahead.

And with our many years of collective experience of working with all sorts of industries, we are able to provide recommendations as to how to rectify and improve what is predicted to unfold.

Our first meeting with clients is free of cost or obligation and we welcome your call.

Are you missing out on the Family Tax Benefit?

The Family Tax Benefit is designed to support low and middle income with the cost of raising a family.  It is not only a generous payment, it is non-taxable – meaning you get to keep the lot.

So generous that they must be taken into account when undertaking any tax planning.

There are two Family Tax Benefit components:-

  • Part A is based of combined family income.

  • Part B is based of the secondary earner’s income (but the main income earner’s income must be below $100,000).

Part A is paid in graduated levels:-

  • The full amount per child is paid where the combined family income is under $55,626.

  • For every dollar of income over $55,626, the Part A entitlement is reduced by 20 cents until it reaches what is called a base rate.

  • Families are paid the base rate until combined income exceeds $98,988. Every extra dollar of income then reduces the benefit by 30 cents in the dollar until any entitlement is exhausted.

  • The maximum payment rates are $4,929pa for each child under 13, $6,410pa for children aged between 13 and 15 and the same rate for children aged between 16 and 19 who meet study requirements.

  • The base rate is $1,583pa.

Part B is paid in respect of one child only:-

  • Is paid at $4,190pa where the youngest child is under 5.

  • Is paid at $2,927pa where the youngest child is aged 5 to 18.

  • After the first $5,767 of annual income of the secondary income earner, the rate of payment is reduced by 20 cents for extra dollar of income.

  • This means that no entitlement is paid where the youngest child is under 5 and the secondary income earner’s income exceeds $28,671; $22,388 for youngest child being 5 and over.

Payments can be received either fortnightly or after lodgement of your Tax Return for that year.  But a Tax Return must be lodged by the following 30th June otherwise all entitlements are denied.

The amounts payable can be substantial.  They can mean that a two child family can effectively be paying no income tax on incomes of $60,000.

A lack of proper planning by your accountant could see a loss of not just of tax of 39% but may be 30% of a Part A entitlement and even all of the Part B entitlement.  As they say, proper planning prevents poor performance!

If your accountant hasn’t spoken to you about the Family Tax Benefit then you could be missing out on many thousands of dollars.  We welcome the opportunity to discuss your situation.

Fair Work Australia relaxations for JobKeeper employers

First the background and then the good news. 

Employers who qualified for the initial JobKeeper system were able to avail themselves of relaxed Fair Work Australia provisions.

Such employers were able to:-

  1. Stand down employees.

  2. Direct employees to change duties or work location.

  3. Change their days of work.

  4. Request employees to take annual leave at half rate.

The good news for employers still doing it tough (as in they qualify for JobKeeper past 27th September) is that all but the fourth relaxation can still be utilised.

So employers who have qualified for JobKeeper for this December quarter can use these concessions until 28th February 2021.

But there is good news for some employers who dropped out of JobKeeper after 27th September. 

Such employers who suffered at least a 10% decline in turnover for the September 2020 quarter can continue to apply these concessions.  Such employers are called legacy employers.

But it is not automatic.  Such employers must:-

  • Have a certificate completed by their accountant or

  • For small businesses with less than 15 employees, complete a statutory declaration.

You can access a statutory declaration here.

That’s the short story.  There are a number of other requirements and paperwork to attend to. 

If you want to know more then please ask us.

Super guarantee (SG) super deadline

Wednesday 28th October is the end date for satisfying Super Guarantee (SG) super obligations for the September 2020 quarter.

But beware as some of the clearing houses have a submission and payment deadline well before then.  May be even today!

SG super is payable on all forms of remuneration including:-

  • Commissions.

  • Bonuses (but see below).

  • Directors’ fees and all other forms of remuneration to directors.

  • Allowances (except where fully expended).

  • Contractors paid mainly for their labour.

But excluding the following remuneration:-

  • Overtime.

  • Reimbursements.

  • Unused annual leave on termination.

  • Remuneration of less than $450 in a month.

  • Bonuses that are only in respect of overtime.

  • Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).

  • In respect of employees younger than 18.

  • Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).

  • On quarterly remuneration greater than $57,090.

  • Non-residents performing work for an Australian business outside Australia.

SG super should never be paid late as late payments attract substantial interest and penalties.  Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SG rate remains at 9.50%.

So if you haven’t paid your employer super obligations already, we recommend doing so today.

 

21 tips about the new & improved instant asset write-off – part 1

In all my years as a business and tax advisor to small and medium businesses, there has never been a tax incentive that attracts as much interest as the instant asset write-off.

And now it has become even more attractive!

And what was to be until December a $150,000 limit for small businesses has now become a complete write of all equipment purchases for any business with turnover under $5 billion. 

In such difficult times as this, it can deliver even greater outcomes when combined with the carry back of company losses.

But before doing so, please ensure you have factored in the following 20 key considerations:-

  1. This concession originally only applied to the purchase of new assets.  However businesses with group turnover under $50 million can now deduct the cost of second hand assets.

  2. It does not apply to building or capital works nor software development pools or primary production assets.

  3. If your business sells expensive assets, this expanded concession should prove to be a major buying incentive for your customers; even more so if you offer funding solutions.  Ask us if you would like a worked example to use with your customers

  4. 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 $2,600 less company income tax. It will still be $7,400 out of pocket. As tempting as this limit is, don’t get too carried away and buy assets that your cash flow cannot support.

  5. A tax deduction in the 2020/21 tax year will have a flow on effect as it will reduce the PAYG Instalments for 2021/22 and part way into 2022/23.

  6. An asset purchased in 2020/21 will also have a flow on effect for those small businesses paying GST under the instalment method. It will reduce the GST Instalments for 2021/22 and part way into 2022/23.

  7. Writing of large assets may be great for tax but can make your financials look ordinary, possibly disastrous to a current or future financier. For this reason, we now run two sets of depreciation schedules; one for tax and one for accounting / financial statements purposes. Effectively the tax rates are a nonsense and they should not make your financials misleading.

Please come back to this web page for a further 14 tips and traps.

We welcome any question you may have in the meantime.

 

Federal Budget – first impressions

Click here for our 2020 Federal Budget Guide.

The Federal Budget delivered last night was certainly unlike any other delivered in my lifetime.

There were range of significant announcements very much geared to get an economy up and running again.

Our briefing paper outlines the various announcements. And I do say announcements as that is all a budget is.  The various announcements still have to be legislated; even those that are backdated to 1st July 2020.

So far today I have read through a number of briefing papers and have attended one research house webinar with another one this afternoon.  And what is already proven to be the case yet again is that what has been discussed in the press after the budget is a rather narrow reflection of the changes and what they mean.

Over the coming days, we will learn more about these changes, we explore how you can benefit from them and will adapt our pre-year-end tax planning checklist.  So keep an eye out for further examination of the ways you can benefit from this budget.

In the meantime though I would like to highlight what I believe to be the five biggest changes for most people with a bias towards business owners:-

  1. Accelerated reduction to personal tax rates.

  2. An uncapped limit on writing off the cost of a new business asset – for all but effectively the largest businesses.

  3. Companies which made losses in the 2020 year or do so in 2021 and/or in 2022 can claim back tax paid in or after the 2019 tax year.  You will hear a lot more about this particular in conjunction with the instant asset write-off. 

  4. A JobMaker hiring credit of up to $200 per new employee.

  5. Fringe Benefits Tax announcements (which is the most misunderstood tax and an area in which the ATO is successful in 50% of their audits).

We look forward to exploring and systematically explaining to you how you will benefit from these announcements – so you will hear more from us.  Please though don’t hesitate to contact us should you have any query.

Extension of commercial rent relief scheme

It is important to understand the background to the rent relief scheme.  And as it is linked to JobKeeper, let us start there.

We have now entered what is best termed as JobKeeper Version 2.1.  Those that qualify based off the September quarter will receive payments through the December quarter.

As of Monday, this means that we now have four types of employers:-

  1. Those that qualified to continue to receive JobKeeper.

  2. Those that have now qualified to receive for JobKeeper for the first time.

  3. Those that have fallen out of the JobKeeper system and may not return for the March quarter.

  4. Those that have fallen out of the JobKeeper system and but may return for the March quarter.

Receiving JobKeeper has been critical to enabling employers to keep their employees engaged, productive and not otherwise on social security.

Having qualified for JobKeeper has also been critical to business survival as with it comes the ability to claim some state grants and qualify for commercial tenancy relief.

In itself, the rent relief scheme has been the biggest saviour of small businesses.  The scheme allows for rents to be reduced proportional to the fall in turnover.  At least half of the rent reduction must be waived, the balance is payable either over the longer of the duration of the lease or 24 months.

This scheme was due to expire on 28th September when JobKeeper was supposed to end.  However, legislation was finally passed this week by the state government which has extended this rent relief system to 31st December.

So businesses that qualify for JobKeeper through to the end of the December quarter can now re-apply for extended rent relief.

To do so, a business must provide to the landlord:-

  1. A statement confirming turnover is under $50million.

  2. A statement that the lease is eligible to be covered by the scheme.

  3. JobKeeper registration number.

  4. A statement stating decline in turnover support by one of:-

    – accounting record extracts or

     – BAS’s for the relevant periods (which means that those who lodge an Annual GST Return can’t use this method) or

     – Bank statements or

     – A letter from your accountant (for which we have supplied a number).

TIP   Make your application as soon possible as the relief only applies from application date.

Practically speaking, an application can’t fail.  It is true that a landlord can refuse an application.  But should they refuse the matter can then be referred to mediation.  And if they refuse to enter mediation, then the matter can be referred to VCAT.  Either way the landlord is bound to lose as there will be a hearing and they are acting outside the mandatory code.

It is beyond the scope of this blog to explore every nuance and possible scenario.  We do though welcome any query you may have.

 

Alternative ways to qualify for JobKeeper

Did you miss out on qualifying for JobKeeper? 

Maybe you don’t.

The 30% fall in turnover test where a small business compares its turnover for July, August and the September last year to this year is not the only test.  And yes, that test can yield some unexpected and unfair results as for most small businesses it measures what was banked during those two periods.  

There are many circumstances where that test is an improper measure.  In recognition of this, the ATO have released 7 alternative tests and include tests for:-

  1. A businesses started in the last year.

  2. Where there has been a substantial rise in turnover (which is often the case in a business progressing through its second or third year).

  3. Businesses with irregular turnover.

  4. Sole traders or small partnerships where there has been injury, illness or leave taken.

Maybe one of these four tests or the other three will see you qualify for another 7 fortnightly JobKeeper payments.

And if you do, you may then qualify for another $10,000 state grant.

And you will also qualify for extended commercial rent relief to the end of December.

Just as we achieved at the start of JobKeeper, working through these tests has resulted in clients qualifying for JobKeeper who failed the basic test.

So perhaps you do qualify for the extended JobKeeper period.  As we are passionate about helping small businesses survive (and which are after all the engine room of the economy) we welcome the opportunity to explore your situation.