Category Archives: Business Taxation

1 July 2014 Federal Budget Recap

Individuals

Temporary Budget Repair Levy. Adds 2% to the tax rate for every dollar of a taxpayer’s annual taxable income over $180,000
Increase in the Medicare Levy from 1.5% to 2%
Superannuation Guarantee charge increases from 9.25% to 9.5%.
Aged care reforms introduce new assets tests for resident’s accommodation and care fees
Changes to the way the Private Health Insurance (PHI) rebate is calculated requires extra information from individuals for their 2013/14 tax returns, which should be included on their PHI annual statement. There will be two different rebate periods – one from 1 July 2013 to 31 March 2014 and the other from 1 April to 30 June 2014.

Business

New ATO tax tables The ATO is releasing its new 2014/2015 tax rates, updated to reflect the increase inMedicare levy from 1.5 to 2% and the Temporary Budget Repair Levy for employees earning greater than $3,461 per week (i.e. $180,000 per year).
No TFN or ABN. If the employee has not provided a TFN or a supplier business has not provided their ABN, the employer should withhold 49% of any payment made.
Increase in the Superannuation Guarantee rate. The SG rate will increase from 9.25% to 9.5% from 1 July 2014. The government has announced that it would slow the previously announced increases to 12%, (leaving the 9.5% SG rate in place until 30 June 2018) however no legislation regarding this has been introduced.
SuperStream. Employers can opt-in to use SuperStream from 1 July 2014. Large and medium employers must complete their implementation by no later than 30 June 2015. Smaller employers (19 or fewer employees) are not required to start using SuperStream until 1 July 2015, and must complete their implementation by no later than 30 June 2016.
Living away from home allowance (LAFHA) transitional period ended on 30 June 2014. Now, the main condition to be satisfied is that the employee must have a normal place of residence in Australia that is maintained for their “personal use and enjoyment” (i.e. still available to them, not rented out) while they are living and working in another location. In most cases, LAFHAs will also be time limited to 12 months. Employees who qualified for the transitional rules will not be entitled to another 12 month period from 1 July 2014 unless there is a change in the job location. However, if the employee is working on a fly-in- fly-out or drive-in drive-out basis the LAFHA concessions are not subject to the 12 month limit.
Paper activity statements. From 1 July, once an activity statement is lodged electronically, the ATO will no longer issue paper activity statements.
Company loss carry-back repeal. The government has announced that it intends to repeal the carry back tax offset for the 2013/14 and later tax years. Legislation covering this has been reintroduced, but this is not yet law.
Simplified depreciation rules. The government also announced that it would repeal the provision allowing small businesses an accelerated initial deduction for motor vehicles. Legislation covering this has been reintroduced, but this is not yet law.

Self-Managed Super Funds

New SMSF trustee penalties. From 1 July 2014 the ATO has greater powers to enforce the superannuation rules by levying financial penalties directly on trustees.
Concessional contribution cap changes. From 1 July 2014, the concessional (deductible) contribution cap for taxpayers up to the age of 50 is $30,000. And for those 50 and above, the cap is $35,000.
Non-concessional cap changes. The non-concessional contributions cap from 1 July 2014 is $180,000 or $540,000 over 3 years (up from $150,000 per year).
Insurance inside an SMSF. From 1 July 2014, new insurance policies within a SMSF must be consistent with the death, terminal illness, and permanent and temporary incapacity conditions of release in the Superannuation Industry (Supervision) Act.

Employers paying Superannuation Guarantee

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.

Are your contractors really employees?

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.

Clear out the old: New Year housekeeping

Ok, no one likes housekeeping.

But for business, July is the month you need to make sure you have properly closed off the last year and can start the New Year the right way.

Here is the essential checklist to prevent last year overflowing into this year:

Reconcile your GST control account.
Does the income declared in your BAS for the last year reconcile to your annual income?
Check that the minutes for all director and trustee resolutions pre June 30 are documented and signed off.
Make sure that your stock take has been completed and documented.
If you have paid management fees to a related entity during the year, ensure that all of the tax invoices have been documented and that there is a reasonable commercial basis for the charges applied.
Where dividends have been declared to manage Division 7A loan payments, ensure that there are letters of instruction on file that the dividend is to be credited against the loan account. Dividend statements still need to be completed.
If you have cross border related party transactions make sure you have your transfer pricing file completed with all of the requirements signed off.
Review all contractors for the year going forward to ensure that they would not be deemed to be employees.
Get your operating budget completed for the year.
Get your cash flow budget in place.
Check the adequacy of your funding arrangements with your bank.
Check that you meet any loan covenants that you have with the bank at June 30.

Directors personally liable for employee’s super

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
https://www.ato.gov.au/General/Managing-your-tax-debt/In-detail/Debt-fact-sheets-and-FAQs/Our-approach-to-the-director-penalty-regime/

Reporting of Employee Payment Summaries

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

Tax Planning Starts Now

There’s four key things that all business owners MUST consider RIGHT NOW.

Two of them are brilliant wealth creation ideas.

Please read on!

30 June is only 8 weeks away so we need to make the most of the time we have for tax planning. Too often, we end up suffering because we have procrastinated and not made a positive decision to do something. If we all leave your tax planning until June, quite frankly there may not be enough time to do anything significant to legally reduce your tax.

So for 2014, our invitation to you is to START NOW with your tax planning.

4 Key Tax Planning Strategies

These are:

Establish a Self-Managed Super Fund (SMSF) – How to make it your family’s wealth VAULT and legally pay NIL tax at retirement.
Debt Optimisation – Pay off your home loan sooner, minimise non-deductible interest and maximise your tax deductions for investments.
Trust Distribution Resolutions needed BEFORE 30 June 2014 – or pay up to 46.5% tax on trust profits.
General tax planning strategies – Key items that mean $ in your pocket.

How our Tax Planning Process works

First of all, we request from you details of your expected income and business profits for the 2014 tax year (1 July 2013 to 30 June 2014). This includes all wages (employment income), interest and dividends and rental income received, business profits (or losses), and any capital gains/losses you expect to make.

Based on this information, we estimate your taxable income and your tax payable BEFORE any tax planning strategies. For example, we may calculate (based on your information) that you may have a taxable income of $200,000 for 2014. This would result in $66,547 tax and Medicare levy payable.

Secondly, we discuss all of your tax planning options. Some of these may be things to do in your business, and some of these may be investment or wealth creation options.

Third, we provide you with a report that explains in plain English the tax planning strategies we recommend and exactly how much tax you will save.

And finally, we provide you with an easy-to-follow Action Plan to ensure that both you and we can do everything that needs to be actioned before 30 June.

Contact our office TODAY to start your tax planning for 2014.

Don’t wait until June!

Key items that means $ in your pocket

How would you like to legally reduce your tax by $500 or $1,000 or $5,000 or more?

Here’s how to do it:

The Strategy behind Tax Planning

The tax you pay depends on your taxable income (all assessable income less allowable tax deductions), and the tax rates that apply to that income.

Therefore, your tax is reduced if you:

1. Reduce your income, or
2. Increase your tax deductions.

Seeing we all want to earn more, reducing your income isn’t an option! But increasing your tax deductions definitely is. Below we have given you a link to 2 Tax Planning Flyers which both list out a number of items that could be claimed as tax deductions. Use these as a guide, but please CONTACT US if you have any questions or uncertainties about this.

To illustrate: If you need something in July that is classified as a tax deduction, it makes sense to bring this purchase forward and buy it in June. You then get the tax deduction this year, and not next year.

Warning: Don’t fall into the trap of buying something simply to get the tax deduction for it. If your tax rate (including Medicare Levy) is say 34%, you would only get 34% of the purchase price back as a tax refund (or reduced tax payable) from a tax deductible item. You DON’T get 100% of the amount that you spend back as a tax refund (or reduced tax payable).

But if you do need an item for your business or your work and it is tax deductible, we recommend buying it BEFORE 30 June so that you get the tax deduction this year.

Your Tax Planning Strategy Checklists

Business Owners: CLICK HERE for our Tax Planning Flyer for Business Owners.

Individuals: CLICK HERE for our Tax Planning Flyer for Individuals.

If you have any questions regarding these flyers please contact our office on 9531-0922. We can prepare a Tax Planning Report to confirm what you need to do BEFORE 30 June 2014 to reduce your tax.

If you are a business owner, please note that we will review BOTH the Business Owner’s Flyer and the Individual Flyer because both of these apply to you.

Help us to help You!

If you spend a little bit of time with us to review your financial situation and discuss your tax planning options, you could end up saving yourself thousands of dollars.

Now’s the time to do it – please contact our office today to get started!

Building & Construction – Industry Annual Reports

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:

ABN
Name
Address
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.

Hire an accountant and ROCK your business!

You are a business person.

You’ve got a fantastic product / service to offer to the world. While you are busy doing so, let your trusted accountant get you started on the right foot.

There is a fairly long list of things that an accountant could be handling for you, but let’s cover the basics.

Well begun is half done. Having your financial systems set up correctly from the get go is really going to be the strongest ally for you and your accountant. Proper set up will make your job and their job simpler. Daily transactions will require easy data entry and auditing of records. An accountant will know how to set up the proper records for bank accounts, vendors and customers.

You’ll need a budget. Unless you want to be operating on an expensive line of credit, why not live by your budget whenever possible? Having a budget set up will allow your accountant to help keep you abreast of your current bottom line, and how much operating capital you have.

Working from that budget, your accountant can advise you on your spending. Let’s say you need a new vehicle for your fleet. Do you have any idea how much the loan payment will be? How about the insurance? What about the branding that needs to be applied to it’s doors? Knowledge is power, take that knowledge to the negotiating table with you to get your best and most affordable deal.

Time flies when you’re having fun but now it’s tax time. Oh no. The dreaded tax time! You don’t have time for this. When will you be able to find the time to gather all of the receipts and invoices and ageing reports along with every other piece of paper you’re going to need to file your corporate taxes? Never fear, your accountant will have this info all packed into a pretty little report. Have all of your reports and forms printed out, gather them up, and proudly mail in those tax returns. If you’ve hired the right person, all you’ll need to do is sign your name before the package goes in the mail!

Having all of the above set in motion will really leave you sparkling and rocking your business, but don’t become so comfortable that you forget to check in now and again with your accountant, and your bottom line! Stay involved, but do so knowing that your financial systems and records are trusted to a professional.

Eclipse Accounting offers the below services that can assist you ROCK your business!!