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Directors beware: Penalties for Unpaid Super

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Company Directors can be held personally liable for a company’s unpaid employee superannuation. 

Any unpaid superannuation is payable to the ATO after three months as a Superannuation Guarantee Charge (SGC). The ATO can issue a Director Penalty Notice for unpaid GSC and the Company Director’s personal assets can be sold to pay for the debts in the penalty notice. In other words, Company Directors can be held personally liable for the company’s unpaid superannuation. 

If a company fails to pay superannuation, but it lodges its SGC Statements by the SGC Statement due dates, the ATO can issue a Director Penalty Notice to the company’s directors. The Directors can become liable to the ATO for the amount of SGC claimed in the Director Penalty Notice. Directors can avoid personal liability if the SGC is paid by the company. 

If a company fails to pay superannuation and it also fails to lodge SGC statements by the SGC Statement due dates, the Directors are automatically personally liable for unpaid superannuation. In these circumstances:

  • The ATO can estimate unpaid superannuation if it chooses 
  • The ATO can and will issue a Director Penalty Notice to recover superannuation from the Directors 
  • Placing the company in liquidation or voluntary administration will not avoid liability for the Directors 
  • The ATO can and will issue Director Penalty Notice after a company is already in liquidation or voluntary administration 

In May 2019, new legislation was passed to change the date upon which company directors become automatically liable for SGC amounts. The new date is the date which SGC Statements are due, which are: 

Quarter Period Super Due for Payment SGC Statement Due Date 
1 1 July – 30 September 28 October 28 November 
2 1 October – 31 December 28 February 28 February 
3 1 January – 31 March 28 April 28 May 
4 1 April – 30 June 28 July 28 Aug 

If your company cannot pay superannuation, the best thing to do to avoid liability is to lodge SGC Statements within three months of them being due. If this is done, then you will be able to avoid liability under any Director Penalty Notice issued by placing your company in liquidation, if this is the best option available. The ATO will also not be able to issue you with a Director Penalty Notice after your company has been placed in liquidation. 

But if your company is unable to pay superannuation within three months of it being due, then it probably has some underlying financial problems and you should see advice regarding the company’s circumstances, strategies which may be put in place and risks to you as a Director personally. 

Contact our expert Accountants for assistance if you have any questions about this information or if you need help in working out what to do if you have unpaid superannuation in your company. Don’t leave this too late. If you do, then your personal assets will be at risk! 

Christmas Party, Gifts and FBT: What you need to know. 

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Christmas party Fringe Benefits Tax

‘Tis the season to be jolly!  

Fringe Benefits Tax (FBT) can be confusing, especially when there is no separate FBT category for Christmas parties. You may encounter different circumstances when providing these parties for your team and preparing gifts. We understand your struggles and have simplified things for you. 

1, Christmas Parties and Gifts for staffs 

If you are not a tax-exempt organisation and do not use the 50-50 split method for meal entertainment, the following explanations may help you determine whether there are FBT implications arising from a Christmas party. 

  • Exempt Property Benefits:

    The costs associated with Christmas parties (such as food and drink) are exempt from FBT if they are provided on a working day, on your business premises and consumed by current employees. These costs are an “Exempt Property Benefit”. The property benefit exemption is only available for employees. 

  • Exempt Benefits – Minor Benefits:

    The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300. The threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits. 

  • Gifts provided to employees at a Christmas party:

    The giving of a gift to an employee at Christmas time may be a minor benefit that is an “exempt benefit” where the value of the gift is less than $300. 

Where a Christmas gift is provided to an employee at a Christmas party, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value each and the other conditions of a minor benefit are met, they will both be exempt benefits. 

2, How about Client gifts? 

As the gift is an expense to your business, it is generally considered to be a tax deduction. The ATO has considered the act of gift making to clients, and several cases exist where the tax treatment has been tested in the courts. If there is an expectation that the gift will either generate future business from the client or motivate them to refer your services to others, it is considered that the expense of the gift was business promotion and is a tax deduction. 

It should be noted that the gift does not constitute the provision of entertainment which is a non-taxable deduction. 

If you are unsure about the FBT implications of your Christmas party or gifts, please contact our expert Accountants today, and they can assist you! 

 

Top 3 small business challenges and how to solve them

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small business problems solution

 

1, Finding and approaching the right customers 

This is the problem that many businesses face. Even big firms still spend a lot of time and energy coming up with strategies and plans to find and attract more customers every day. For small businesses, it might be more difficult considering the scale of operation and tight budgets. Having a great product or service is not enough to let customers find and trust your business. Your team must go out and actively look for potential customers using a variety of strategies.  

No matter what your strategy is, it is crucial to consider who your ideal customers are. Mass targeting doesn’t work on a tight budget, so you need to be careful about targeting the right consumer. Get started by crafting buyer personas: what they do, where do they spend time online, what are their buying behaviors, etc.  

Here is a persona template for you to get started:

Buyer persona - 1

Buyer persona Pain point

2, Raising brand awareness   

Brand awareness is extremely important for every business to grow. It represents how familiar your customers are with your brand and how well they recognize it. Raising brand awareness helps your customers remember your brand better, build trust over time and increase your company’s value. In other words, once your customer is aware of a brand, they start to recognize it, make a purchase, prefer it to other brands, and trust the brand more overtime. This means that they will be likely to make more purchases in the future and recommend the service/product to their friends and families as well.  

Here are a few ideas to boost your brand awareness:  

  • Offer freemium: Offering a free basic product/service line and only charging for products at the premium level is a very popular (and effective) strategy for software companies like Hubspot, Typeform or Hootsuite. This gives consumers a free chance to experience the product/service before purchasing, and the company will get free advertising when consumers use it.  
  • Co-marketing: Partnering up with another company can help you get a better reputation and awareness outside of your circle. Unlike co-branding, co-marketing doesn’t involve releasing new products/services and are easier to plan, launch and manage. It provides a win-win situation for both companies to reach a wider market, learn more about customers and earn better attention. 

3, Hiring talent 

Hiring talented people remains one of the biggest challenges for businesses, according to the Conference Board Annual Survey. Hiring new people is a complex process that requires a lot of time and money. It is easy to just send out a job description, screen applicants, and make a decision. But how do you make sure that the candidate is the right one for the job?   

To answer this question, companies can create a candidate persona, which is like the buyer persona described above, but for candidates. This persona should showcase the ideal traits and skills suitable for the job and align with the company culture. Finally, don’t forget to measure the results to better tailor your hiring strategies in the long term.   

5 Powerful ways to improve your small business marketing

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As a small business, we understand how other small businesses struggle with managing a budget for marketing strategies. A small budget doesn’t mean that you can’t get creative and succeed with your marketing campaigns. Our blog is here to guide you through some powerful tactics to utilize your marketing game and not spending too much money.  

Small business marketing

1, Profile your target market based on certain characteristics  

Conducting research about your market is not enough, you need to identify your target audience and classify them into groups based on characteristics. Some common (and effective) ways to segment a market are:  

  • Demographics (Age, gender, income, education, social status, occupation,…)  
  • Geographics (City, country, living area,…)  
  • Psychographics (Lifestyle, personality, attitude, values,…)  
  • Behavioral (Benefits sought, purchase usage, intent, occasion,…) 

It is also important to keep in mind that your target market should have a need for your product/ service and be willing to pay for your offer.  

2, Create and share content that adds value  

By publishing content that brings value to your audience, your brand will attract people and gain more audience overtime. You don’t even need to attempt to sell your products, sharing knowledge and value-added content is enough to give people a reason to follow and listen to the brand. Consider sharing content that is relevant to your business and your followers as well.  

  Content creation

3, Level up your Google My Business profile game  

You see Google ratings and business profiles everywhere, but did you optimize this yet? Filling out your Google My Business profile now to take a big step in local marketing. Make sure to include important keywords to optimize your SEO. Additionally, putting up some nice photos would improve your credibility. 

4, Get listed in online directories  

Getting on directories will drive traffic to your site and increase awareness. Depending on your industry and product/service, you will find different online directories that are suitable for your company. Many of them are free or have paid options but the basic one is usually free.  

5, Leverage micro-influencer marketing 

Micro influencers (those with small reaches) are often cheaper than highly regarded celebrities. Research has shown that these influencers usually communicate and engage with their audience more. In other words, they are perceived as trustworthy and influential among their followers. Working with them can form a strong community around your brand and build better awareness. For instance, you can easily use tools like TRIBE or Scrunch to connect with micro-influencers based on your product and desired audience.  

influencer marketing

How Much Documentation Do You Really Need For a Tax Return?

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Tax time article headerTax time is one of the few times of the year where keeping an absurd amount of paper in your possession is socially acceptable. But while most of us can confide in our receipts to keep us safe navigating our tax return, receipts aren’t always enough – especially if you get audited by the ATO. 

As one such Australian told the ABC some weeks ago, claims for $120,000 of self-education over three years lead to a full-scale audit.  When asked to supply bank statements as well as receipts for their education, they were taken aback, but this is not an alien concept for audits from the ATO. Unfortunately for this person, they made mistakes in previous returns leading to a $24,000 debt – but this doesn’t have to be the case for you.  

Jumping through various hoops to only get stung with a big debt is a pretty jarring experience and you are destined to learn some lessons going through that type of hardship. The number one lesson they learned?  

Keep records and use a tax agent 

The ability for tax agents to easily change previous years returns and to accommodate sudden changes in your financials makes keeping yourself safe during an audit much easier. Furthermore, keeping records needs to stop being an exclusively analog process. Scanning your receipts into software such as XERO or Dropbox not only frees up space in your pocket but makes it far easier to organise and recall receipts.  

At the end of the day, if you have correctly worked out your claims so you aren’t claiming more than you should be and have your documentation in order, you have nothing to worry about. If you aren’t confident that you can correctly work out your deductions, take the stress away and contact a tax agent. We can help you get the most out of your tax return, give us a call today on 3367 0852 or email us through mail@raaccountants.com.au 

Minimum Wage Increases, What They Mean For You

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The Minimum Wage Panel on 30 May 2019 handed down its minimum wage decision for 2019. 

From the first pay period commencing on or after 1 July 2019, the National Minimum Wage will increase to $740.80 per week, or $19.49 per hour.

Feature for Minimum Wage article

What this means for you: 

  1. Employers who pay their employees at the National Minimum Wage or Modern Award rates of pay will need to apply the increase in the first full pay period commencing on or after 1 July 2019; 
  1. Employers who currently pay above National Minimum Wage or Modern Award rates of pay are not obliged by this decision to increase their rates of pay, but need to ensure their rates remain at least as beneficial, once the increase is applied; and 
  1. Employers who pay under enterprise agreements must ensure that the base rates in those agreements remain at least equal to the new minimum Modern Award rates. If you pay any of your employees under annualised salary arrangements you will need to conduct an audit of those annualised salaries against the new Award rates and working patterns to ensure the annual salary compensates for award entitlements. 

If you are an employee unsure of the award rates for your line of work, you can check out the award calculator HERE

Need Help? 

If you need help with updating your pay systems for these new rates, don’t hesitate to contact our expert accountants!  

Non-Compliant Payments: How Are They Changing in 2019?

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When you are paying your employees, there are certain parties you need to withhold amounts from and instead send this to the ATO. This is to ensure these parties don’t have to pay larger amounts of unnecessary tax at the end of the year. We’ve put together a handy guide to make sure you don’t get caught out heading into the end of the financial year.  

From July 1, 2019 you can only claim deductions for payments made to your workers where you have met the PAYG withholding obligations for that payment.  

If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must: 

  • Withhold the amount from the payment before you pay it 
  • Report the amount the ATO 

Any payments you make where you haven’t withheld or reported the PAYG tax are non-compliant payments. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax.  

You can only claim a deduction for the following payments if you comply with the PAYG withholding rules: 

  • Salary, wages, commissions, bonuses or allowances to an employee  
  • Directors’ fees 
  • To a religious practitioner  
  • Under a labour hire arrangement 
  • For a supply of services where the contractor has not provided you with their ABN 

These are all well and good, but what if you are providing something which is not cash, goods and services for example. If this is the case, you will still have to report the PAYG tax in order for this to be classified as a compliant payment and allow you to claim a deduction.  

It’s important that you ensure you are complying with PAYG withholding and reporting obligations for a payment. If you don’t, you face losing your deduction for that payment or existing penalties that apply, which can be a hefty fine. 

If you do make a mistake, you don’t need to start hyperventilating, instead you should lodge a voluntary disclosure form and correct your mistake as soon as possible. However, if you should have withheld PAYG tax and didn’t, you do stand to lose your deduction for that payment.  

As always, you can get in contact with us if you have any worries about your PAYG activity.

 

How Will Tax in Australia Change After the Election?

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There is only a short time before the Federal Election on 18 May 2019, and there’s a lot of wild speculation.

We’re not trying to recommend who you should vote for, but instead we believe that it is vital that our clients understand how they will be affected by the result of the Election.

Here are some of the key ways you may be impacted:

  • The amount of personal income tax and Medicare levy you will pay
  • The amount of capital gain that will be subject to personal tax
  • Opportunity to continue to convert excess franking credits into cash tax refunds
  • Altering the tax treatment of trust distributions
  • Ability to offset prospectively investment losses against other income (i.e. negative gearing)
  • Ability to claim a full deduction for the cost of managing your tax affairs; and
  • Remove deductibility on personal superannuation contributions and lower the annual concessional contribution cap

A note of caution here, as there is little detail associated with some of the proposed changes. While we have listed below the main policy announcements, the detailed legislation might differ substantially, so we encourage you to be mindful of this!

This is what we know so far (at time of writing):

Labor’s Tax Policies

  1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.

 

  1. Doing away with the cash refunds for excess franking credits through a SMSF.

 

  1. Increasing the personal tax rate in the top tax bracket by an additional 2%.

 

       4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.

 

  1. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).

 

  1. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted.

If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains.

It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses;

 

  1. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;

 

  1. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.

 

  1. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.

 

  1. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.

 

  1. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.

 

       12. Superannuation:

  1. Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
  2. Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
  3. Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
  4. Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
  5. Higher penalties for employers not paying SG.

 

The Coalition’s Tax Policies

  1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
  • 5 per cent 2019-20 income year
  • 26 per cent for the 2020-21 income year
  • 25 per cent for the 2021-22 income year and for subsequent income years

The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;

 

  1. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;

 

  1. No change to current arrangements regarding negative gearing of investment property;

 

  1. No change to the CGT discount, which currently sits at 50 per cent for individuals;

 

  1. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;

 

  1. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;

 

  1. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;

 

  1. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and

 

  1. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.

 

It’s hard to imagine not being impacted in any way.

There are many other election issues that will influence a voter’s preferences and, at the end of the day, it is about making informed choices.

Please contact us anytime if you would like our advice (before and after the Election) about these proposed tax policies and how they may affect you. We’re here to help you!

What the Election Means for Tax

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The federal election is looming with a speculated May election, but all the major parties stand quite differently on tax. How are we meant to make sense of the policies amongst the politics? 

With the both major parties budget intentions now on the table, it’s time to unpack what these would mean for Australians. There are five major areas of tax that we can expect to be shaken up, particularly if there is a change of government. 

  • Personal tax cuts 
  • Franking credits 
  • Discretionary trusts
  • Negative gearing
  • Capital gains tax

Personal tax cuts 

For starters, the coalition have announced a three-stage process for tax cuts. This begun in 2018 with the increasing of the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000. Following this, the coalition plan to increase this bracket again from $90,000 to $120,000 at the start of financial year 2022/23. Finally, the coalition plans to increase this bracket yet again from $120,000 to $200,000 thus removing the 37 per cent bracket completely.  

Labor intend to roll back the latter two stages of this if elected, as well as looking to cap the amount individuals could deduct for the management of personal tax affairs. There is intended to be a carve-out for individual small businesses with positive business income and annual turnover up to $2 million.  

Franking credits 

Labor intend to do away with the current system of individuals earning below the $18,200 threshold receiving refund for all their imputation credits. Proposing a return to the system instated in the 80s during Bob Hawke’s stint as PM whereby imputation credits can be used to reduce tax, but shareholders will not receive cash refunds from the government.  Pensioners will be excluded from this system through a “pensioner guarantee.”  Scott Morrison and the coalition currently have no policy in place for removing franking credits.  

Discretionary trusts 

While the coalition has no plan to tax discretionary trusts, Labor intend to introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to mature beneficiaries. Labor intend to reduce income splitting use through this plan, minimising tax. There are some carve-outs intended for non-discretionary trusts with this plan, such as deceased estates, etc. Farm or charitable trusts will also be exempt.  

Negative gearing 

While the coalition have not announced any intention to change the current policies for negative gearing, Labor intend to limit negative gearing to newly built housing from 2020. Investments previous to 2020 will not be affected, being grandfathered and still allowed to claim deductions.  

Capital gains tax

Labor hope to reduce the capital gains tax discount for assets held longer than 12 months from 50% down to 25%. The CGT discount is not intended to change for small business assets. The coalition’s focus for CSG changes are on eliminating foreign residents’ entitlements to claim the main residence exemption when they sell property in Australia. However, these have seemingly been put on hold.  

With budgets and the election just around the corner there are bound to be further changes proposed and will update you on those as they are announced. 

ATO Waving Penalties For Unpaid Superannuation Payments

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The ATO will be waiving penalties for the hundreds of businesses who have admitted failures to pay superannuation to their staff after a ‘botched’ amnesty.

An amnesty was rolled out in May of 2018, which offered employers who failed to pay super entitlements stretching back to the 1990s a “clean slate.” Unpaid super is estimated as being worth up to a whopping $6 billion a year in Australia, with the government hoping this initiative would encourage employers to pay their workers super entitlements. 

While the policy has been dumped, the amnesty for employers will still run for 12 months. Anyone failing to use this amnesty as a time to declare their past wrongdoings is warned they will face penalties in the future to the sum of half the money owed, on top of the unpaid super. 

Employers who have already made claims to the ATO are being treated as though they had voluntarily reported themselves under current rules. This means they must repay unpaid super as well as interest to the employee and an administration fee per employee of $20 per quarter. 

To be eligible for the superannuation amnesty, businesses will need to:

  • Not be subject to an audit of your Superannuation Guarantee (SG) for the relevant periods 
  • Voluntarily disclosed amounts of SG shortfall or late payments that have not been previously disclosed for any period from 1 July 1992 to 31 March 2018 
  • Made the voluntary within the proposed 12-month amnesty period (24 May 2018 to 23 May 2019) 

If you are unsure whether you are meeting your superannuation requirements effectively, give us a ring on 07 3367 0852 or email us at mail@raaccountants.com.au