RA Business Advisors

tax

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!

Managing Your Cash Flow Over The Holiday Period

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December is usually the busiest time of the year for retail and hospitality businesses. But businesses in other sectors often find that their sales slowdown and their customers stop paying them for a few months. So cash flow dries up.

Whether your business is large or small, well-established or in start-up mode, you need to take a planned approach to managing cash flow during the holiday season. Here are few tips for keeping on top of cash flow management during the Christmas/New Year holiday period.

1. Keep Invoicing In The Lead Up To Christmas

Don’t let your business admin slip in the rushed lead-up to Christmas. This is the most important time of the year to stay on top of your invoicing. You may find that many customers will be slow to pay because their businesses are closed over the Christmas period.

2. Set Clear Expectations With Your Customers

Be clear with your customers that you expect them to pay within the pre-arranged credit terms over the Christmas period. Phone regular slow payers a few days before payment is due to confirm that they’ll be paying on time. The phone is always a more effective method than email. If you’re not comfortable having this conversation with your customers, your accountant or bookkeeper may be able to assist.

3. Service Business – Offer A Discount For The “Quiet Time

If your business is usually quiet in January, why not offer your clients a 10% discount if they book you in for January? Why not offer them a 15% discount if they also refer a neighbour or a friend? Set whatever discount amounts work for you. This is the thing: A strategy like this will keep your business busy and some cash coming through during the usually quiet period.

4. Use The Quiet Time To Work On Your Business

If sales are a little slow in the lead-up to Christmas, use the time wisely to hit the ground running int he new year.

The pre-Christmas slow down is a great time to work through the to-do list you’ve been compiling all year.This might include taking a thorough inventory, searching for more suitable lending alternatives, completing a comprehensive competitor analysis or researching the market for new products and suppliers.W

Would You Like Fringe Benefits Tax With Your Eggnog?

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The end of the year is fast approaching and its finally time we put our phones down, hung up our stockings and sat back with a glass of eggnog. Here at RA this will be accompanied by a wholesome team dinner for our Christmas party, but if you are considering having a Christmas shindig for your team you may be forgetting one thing – fringe benefits tax.  

Fringe benefits tax? 

Fringe benefits tax is a tax employers pay on certain benefits they provide to their employees – including employees’ family or other associates. FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided.  

When would fringe benefits tax apply? 

  • A Christmas party provided to current employees held on the premises on a working day may be an exempt benefit. 
  • The costs associated with a Christmas party (food and drink) are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. 
  • Gifts provided to employees at a Christmas party are exempt from FBT if they meet the minor benefits exemption rule and are worth less than $300. 

What do I keep in mind when I’m planning to make sure I don’t accrue any FBT? 

  • How much is the event/gift going to cost? 
  • When and where is the event going to be held? 
  • Who is going to be invited? Are exclusively current employees going to attend or a wider base of people? 
  • What type of gifts are going to be given if I’m giving gifts?  
  • Who is going to be receiving the gifts? 

What about Christmas parties off-site? 

Costs associated with Christmas parties held off your business premises will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits. For example, if exclusively current employees and their associates attend for $180 per head, there are no FBT implications as the minor benefits exemption applies. However, if current employees, their associates and clients attend at a cost of $365 each – a taxable fringe benefit will arise for employees and associates. For clients, there is no FBT payable and the cost of providing the entertainment is not income tax deductible.  

If you need further advice on your tax needs, give us a call or book a consultation on 07 3367 0852

Staying Safe At Tax Time Begins Now!

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As the year comes to a close and the financial year moves forward at full-steam, it’s important to be on top of your tax time practices now to prevent heartbreak later.   

The ATO have profiled the five most common mistakes Australians are making during the end of the financial year period:  

  • Leaving out some of their income (for example, money earned from cryptocurrency etc.) 
  • Claiming deductions for personal expenses (for example, between work travel, personal phone calls etc.) 
  • Forgetting to keep receipts or records of their expenses (around half of the adjustments the ATO makes are because the taxpayer had no records, or they were poor quality) 
  • Claiming for something they never paid for 
  • Claiming personal expenses for rental properties (either claiming deductions for times when they are using their property themselves, or claiming interest on loans used to buy personal assets like a car or boat) 

If you are worried about what you can claim for work-related personal expenses, just remember these three golden rules:  

  • You must have spent the money yourself and not have been reimbursed 
  • It must be directly related to earning your income 
  • You must have a record to prove it 

With ATO efforts to crack-down on tax time cheats increasing, it’s more important than ever to ensure you don’t get caught off-guard when June 30 comes around. 

If you are worried about any of these, don’t hesitate to get in contact with us! Especially if you are worried about ensuring you are on top of your receipts over the year. Through utilising apps such as ReceiptBank with Xero you can streamline your business and won’t have to worry about storing receipts ever again!  

 

Tick Tock, Time’s Almost Up

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EOFY is just around the corner, so business owners beware. If you haven’t gotten it done, there is still some time left! If you’re a start-up founder, then pay extra close attention as I guide you step by step into your first business EOFY.

Step 1. Get your ducks in a row

Getting your documents in order is absolutely crucial when that panic sticking EOFY rolls around. If you don’t know what your number looks like it’s hard to make a plan on what to do.  As we keep telling you, we are XERO experts and we believe in most circumstances that is the best place to get your business numbers sorted.  For a start-up, there may be more cost-effective options to get you going and we can guide you through that decision.

Step 2. Seek expert advice

Many problems arise when tax time comes around; the biggest one is lack of understanding. That’s why our taxperts (link) are well versed in all the laws regarding tax.  We provide both taxation and business advice to arm you with all the knowledge you need. Penalties apply if your business isn’t compliant with legislation, so avoid unnecessary fees by talking to one of our advisors today!

Step 3. Claiming is the game

Small businesses that purchase new assets under $20,000 are eligible for a tax write-off to the full value of those purchases. Traditionally, you’d have to wait potentially say five years to realise this return but thankfully this upfront deduction has been extended. One catch: the assets must be purchased prior to EOFY and businesses cannot write-off expenditure that they are trying to also claim through an R&D tax incentive.  Other deductions such as superannuation contributions (new rules this year) can also make a big difference to your tax bill.

Step 4. Be aware

Tax rule changes are as frequent as Christmas these days, no matter what they change every year. It’s critical that you stay up to date with these changes. Last year the tax rate for small companies dropped from 30% where it had been stuck for quite some time. This year the rate is 27.5% for businesses earning under $10 million and 30% for businesses earning more.

Step 5. Arm yourself

Before the technological age really took off, owning a small business was a living nightmare. Thankfully the ATO has kept up with the times by offering an endless supply of small business administration information. Or if you’re really a tech head, there’s an app for that. Check out the ATO website for information ranging from start-ups to large businesses.  There is also a huge array of clever apps on the market that can help streamline your business and free up your time for the more important things in life.

Beginners Guide to Surviving Tax Season

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1. Bookkeeping

Whether business or personal, everyone should be doing this in some capacity. Tracking your income and expenses makes tax preparation and filing so much easier for you and your accountant. To file your taxes, your accountant needs an up-to-date balance sheet (businesses), an income statement, and a record of capital-asset activities for the year (buying, or selling of assets).

2. Receipts and records

Record keeping is the number one priority anyone should have regarding expenses. It doesn’t matter if you keep your receipts organised in a shoebox or online, your accountant will thank you.

Protip: Reduce the clutter by choosing software that allows you to upload and store your receipts.

3. More than just receipts

Sometimes a receipt just isn’t enough. I know, it hurts to hear but it’s the truth! Providing fuel receipts for the use of your personal car won’t cut it. You need more information to back your deduction. The most effective way is to create a log. Track your km’s based on business vs. personal. The ATO won’t accept deductions for personal use, so make sure you make it clear how far you drove for business reasons.

Protip: Driving to and from work is NOT deductible

4. Deductions

Business expenses must be ordinary (accepted within your trade) and necessary. It’s also important to separate personal and business expenses, capital expenses, and any expenses related to the selling of goods (cost of goods sold).

5. Tax strategy

Tax-deductible business expenses are a great way for small businesses to reduce their tax liability. This is especially helpful for companies that are aggressively spending in order to expand. These reasons (and many more) are why tax strategies are so paramount for your business. This is why you need to choose a trustworthy and effective business advisor.

Whether you’re clambering to make your 2017 tax deadline or you’re just not sure what expenses you can deduct, you’ll need an accountant that understands your business and its year-long activities.

To speak to someone who will happily get to know you and your business, call RA Business Advisors on 07 3367 0852 and speak about your tax woes today!

 

Are You Paying Enough Attention To Your Super?

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Are you paying enough attention to your super?

The tax incentives on Australians’ super contributions can welcome better investment returns in an environment full of low investment returns. Experts advise that by learning how to properly understand your super, and what it can do for you, you can save a lot of money.

Australian super contributions dropped 0.3 per cent last financial year, despite a growing working population and rising wages, with the June quarter falling a staggering 0.8 per cent. Wealth for Life Financial Planning principal Rex Whitford believes that the lack of trust between Australian people and the government has developed due to the chopping and changing of the rules when it comes to super. If you are unfamiliar with the latest super changes check out some of our ‘super’ blogs.

Despite the changes, super is still the most tax-effective structure to hold your life savings. Your super is more than just cold hard cash. It can hold property, bonds, shares, infrastructure, or a mixture of these. Maximum Wealth Advisers partner Mauro Grossi says that saving diverted to super at only 15 per cent – instead of your marginal tax rate – can add-up over time. “It’s not the government’s money. It’s your money for your future. If it was sitting in a bank account you would be far more worried about it.”

So how can super tax actually help?

  1. Earnings within super are taxed at only 15 per cent, rather than marginal tax rates
  2. Tax-deductible contributions, such as salary sacrifice, get taxed just 15 per cent. Whereas your wage income tax can be up to 49 per cent.
  3. Tax on withdrawals, income and capital gains for most people aged over 60 is zero
  4. The planned rule changes do not affect these tax rates. They only cap how much you can contribute, and will adjust super savings above $1.6 million per person out of the zero-tax environment and into the 15 per cent tax environment.

We highly recommend that you invest some time into understanding your super and learning what it can do for you, even before retirement. We have a team of highly trained, and knowledgeable experts that would love to have a chat with you, should you wish to learn more.