Employers can expect a renewed focus from the ATO on superannuation guarantee (SG) payments made to employees.
With the SG rate increasing from 9.25% to 9.5% on 1 July 2014, employers will need to make sure that payments are made on time and that the calculations are accurate.
Just be aware that the increase in SG should not necessarily reduce the take home pay of employees.
In many cases employee contracts are ‘base plus superannuation’. In this case, the employer absorbs the increased SG rate not the employee.
The June 2014 SG must be paid no later than 28 July.
Refer to the ATO website for your options when you are late paying your quarterly SG liability.
The ATO continues to enjoy a high success rate challenging the treatment of contractors under the superannuation guarantee (SG) legislation. Despite recent comments made by the Government that the ATO should ‘relax’ its approach to contractors, the ATO has no reason to simply walk away from such a potentially lucrative revenue stream – why would they when the law is on their side?
As there is no real time limit on the recovery of outstanding SG obligations, business owners need to take a proactive approach to reviewing arrangements and ensure that the business is not exposed to material liabilities – the start of the new financial year is a great time to do this.
The underlying issue is often that employers take the contractor relationship at face value – that is, what the piece of paper describing the relationship actually says. The reality is quite different as the law is based on the character of the relationship not what is stated in writing. So, if your business has contractors (or are a contractor) performing the same role as an employee, then it’s possible the ATO will classify them as an employee for SG purposes.
A genuine independent contractor who is providing personal services will typically be:
- Autonomous rather than subservient in their decision-making;
- Financially self-reliant rather than economically dependent upon the business of another; and,
- Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.
There are a number of tests that can apply to help determine the status of a contractor – such as control, whether the worker has been hired to produce a result, the ability for them to freely delegate work to someone else, risk exposure, ownership of tools and equipment, and the treatment of business expenses, etc.
Employers cannot contract out SG responsibilities by adding fail safe clauses in contracts. And, there is no certainty that a contractor using an interposed entity (for example setting up their own company and operating through the company) is fool proof.
Directors are now personally liable for unpaid superannuation guarantee charge (SGC) payments to staff. While initially designed to prevent phoenix company activity, the new laws that applied from 1 July 2012, extend well beyond phoenix company activity (whereby the assets of a struggling company are transferred to a new business, leaving behind debts, tax bills and unpaid employee entitlements).
The new law extends the director penalty and estimates regime beyond PAYG withholding to the super guarantee charge. That means that if a company fails to remit SG to the employee’s funds on time, the Directors can be personally liable for the payment.
A director penalty is triggered when a company’s liability for PAYG withholding or Superannuation Guarantee remains unpaid and unreported 3 months after the due date. The Tax Commissioner will then issue a Director penalty notice to either the Director or their tax agent. The director penalty applies even if the company is placed into administration.
In particular, directors should be aware that they can no longer avoid personal liability under the Director Penalty Regime (DPR) by placing their company into administration or liquidation, even if prior to a Director Penalty Notice (DPN) being issued. As a result of recent changes, the ability of a director to avoid personal liability in this way has been removed in circumstances where the company’s PAYG withholding and/or Super Guarantee charge remains unpaid and unreported 3 months after the relevant due date. The ‘due date’ is the 28th of the month following the end of the relevant quarter.
This area of law is currently on the ATO Hit List. Specifically, the ATO has begun making use of its recently expanded powers under the DPR and are cracking down on the directors of non-complying companies. In fact, over the past few months, the ATO have been sending warning letters to directors of companies with unpaid SGC obligations. If a director receives a ‘warning letter’, they must take immediate action to avoid personal liability under the DPR.
Be careful if you use contractors
If your company uses contractors, ensuring that your contractors meet the definition of an ‘independent contractor’ is more important than ever. Remember that where a contract is principally for labour, that person might be treated as an employee and in those circumstances, superannuation guarantee will be payable regardless of what your agreements call the relationship. The director penalty regime will extend to SGC payments for employees misclassified as contractors. The only out is if it was reasonably arguable that the company took reasonable care in applying the law – however, naivety is not an excuse under the law.
For more details on the ATO approach to the Director Penalty Regime, click this link
Each year, employers must provide Employee Payment Summaries to Employee by 14 July and also send an Annual Payment Summary Annual Report to the ATO.
In the past, employers have been able to lodge their annual report using disks or flash drives. The ATO are closing this service and employers will now need to lodge Payment Summary Reports online.
In order to lodge online, employers will need an AUSkey. This protects the security of information transmitted. Employers can register for an AUSkey at www.auskey.abr.gov.au
Employers can lodge their annual report online by:
- Lodging directly from your accounting or payroll software (if it is Standard Business Reporting enabled). MYOB and Xero are both listed on the SBR Product Registrar.
- Using the file transfer facility on the ATO business portal at www.ato.gov.au/businessportal
Trust Distributions Resolutions
needed BEFORE 30th of June, 2014 – or pay up to 46.5% tax.
If you have a Family Trust (also known as a Discretionary Trust) YOU NEED TO READ THIS!
From the 2011/12 financial year, Trustees who distribute the income of a Trust through a resolution to beneficiaries must do so BEFORE the end of the financial year (June 30 for most of our clients) for the resolution to be effective in determining who is to be assessed on the Trust’s income.
This is a recent change to the Trust taxation laws that applies to this financial year, and future years.
If a Trustee fails to make a resolution to appoint the income of the Trust before the end of the financial year, the Trustee may be assessed by the ATO on the Trust income at the highest marginal tax rate (i.e. 45%), rather than the intended beneficiary(s).
Before 2012, the ATO allowed a certain amount of discretion as to when a resolution could be prepared.
However, the ATO now takes the view that following the recent decision in Colonial First State Investments v FC of T 2011 ATC 20-235, trustees must now resolve to distribute the current year’s income on or before year end to ensure the beneficiary is presently entitled to trust income.
What You Need to Do
You need to provide us with a Profit & Loss Statement for each Family Trust that you have for the period 1 July 2013 to 30 April 2014. You also need to send us details of all income earned by all family members during the period 1 July 2013 to 30 April 2014, and your estimated income for the period 1 May 2014 to 30 June 2014, including any capital gains.
We will then review all options for you, and recommend the most tax effective manner to distribute your Family Trust profits. We will then prepare the appropriate Trust Distribution Resolution for you to sign before 30 June 2014.
Contact our office TODAY (02) 9531 0922, if you have any questions about this information.
Your action now may save you thousands of dollars of unnecessary tax payments!
The ATO is sending out letters this month to building and construction industry businesses, reminding them that the 2013/2014 Taxable payments annual report is due by 21 July 2014.
Businesses affected are those that:
- Are primarily in the building and construction industry. These are businesses that have any of the following characteristics:
– 50% or more of business income is derived from providing building and construction services in2013/2014
– 50% or more of business activity relates to building and construction services in 2013/2014
– In 2012/2013, 50% or more of business income was derived from providing building and construction services.
- Make payments to contractors for building and construction services, and
- Have an ABN.
For each contractor, businesses need to report:
- Gross amount paid for 2013/2014 (including GST)
- GST paid in the gross amount
You should contact Eclipse Accounting Group if you would like assistance with this reporting or are unsure whether it applies to your business’s circumstances.
On 27 March 2014, the ATO announced “Project DO IT: disclose offshore income today”, focussed on taxpayers who earn income from overseas sources and have foreign assets. As part of this project the ATO will provide an opportunity for taxpayers to make voluntary disclosures until 19 December 2014 in return for reduced penalties.
The ATO notes that its ability to detect undisclosed foreign income is increasing and it will soon automatically exchange tax information with a greater number of countries. The ATO is targeting taxpayers who omit foreign income and capital gains or over-claimed deductions in their returns.
Taxpayers who make a voluntary disclosure and the ATO accepts into the project will receive a number of assurances from the ATO, including:
- This will be treated as a voluntary amendment request;
- Assessments will only go back as far as the amendment period for the taxpayer, typically 4 years;
- The tax shortfall penalty will be applied at 10%, or if their additional income is less than $20,000 no shortfall penalty will apply (interest will still apply); and
- They will not be referred for criminal investigation.
It’s important to ensure that clients are aware of this opportunity so they can decide whether to approach the ATO. Clients who have unreported foreign income or assets but do not participate in the program are at risk of much more aggressive review and audit activity.