The introduction of Single Touch Payroll (STP) has changed the year end processes for both employers and employees. Payment Summaries (or Group Certificates) are now a thing of the past, with income statements replacing these. Here’s what it means for both employers and employees:
Employers no longer need to provide payment summaries to your employees or lodge a payment summary annual report with the ATO. STP replaces this need as information that is reported on these forms have already been reported to the ATO when you file your pays.
Submitting an STP Finalisation is easy and XERO have provided some easy to follow instructions for this: https://central.xero.com/s/article/Finalise-Single-Touch-Payroll-data
We recommend that you let your employees know that they will no longer be receiving a payment summary. Once the STP Finalisation has been submitted, we should advise your employees that the income statement is ‘tax ready’ and that they can proceed with preparing their 2020 income tax returns.
For the 2020 financial year, the finalisation declaration deadline is:
- 31 July if you employ 19 or fewer employees
- 14 July for businesses with 20 or more employees
Instead of receiving payment summaries, employees will find their year-end income information on ATOs Online Services – being either MyGov if they prepare their return themselves; or through the Tax Agent Portal if they have an accountant prepare them.
Once you have been advised by your employer that your income statement will display as ‘tax ready’, meaning your tax return is ready to complete.
As your registered tax agent, we have access to your income summary from ATOs Online Services. So the good news for you is that there is no longer a need to – provided your employer has submitted the STP Finalisation.
If your income statement doesn’t not display as ‘tax ready’ by the due dates above, we recommend contacting your employer to discuss this further.
Please don’t hesitate to contact our office on 02 9531 0922 if you have any queries regarding this new process.
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.
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 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
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!
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!
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!