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.
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
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
- 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!
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!
Pay off your home loan sooner, minimise bad debt and maximize your tax deductions for investments.
Debt optimisation (sometimes referred to as “Debt Recycling”) is a financial strategy which creates wealth over time and improves an individual’s debt structure. Achieved, in the majority of cases by:
- Using all surplus income to reduce the home loan (non-tax deductible “bad debt”);
- Creating or increasing investment debt (tax deductible “good debt”) by drawing against equity in the home; and
- Using this borrowed money to build an investment portfolio.
It is a great strategy that can be adapted to suit your goals and time horizons. Though, it is important to note that borrowing money to invest and budgeting are key components.
Here is an example of how the assets and cash flow involved in a debt optimisation strategy using a “split loan”:
Where suitable, it is possible to extend on the strategy above by using the newly created investments as security for a margin loan, with the proceeds used to further invest. In this type of strategy the interest costs are still generally met from the home loan, with investment income also used to reduce the home loan balance.
Your Action Plan
Contact the Eclipse Accounting Group team today for a FREE review of your current loans and advice on whether you would benefit from a Debt Optimisation strategy!
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.