PAYING YOUR TAX BILL JUST GOT EASIER
The ATO has announced improvements on how you can use and manage your credit or debit card details in Online Services for Business, making it easier to pay your tax or super bill.
The new payment features allow you to:
- add and manage up to three credit or debit cards in your account profile
- set up a payment plan with automatic direct debits from a card
- make one-off payments using a card.
Online services for businesses offer a simplified process to make it easier for you to create a payment plan if you owe less than $100,000.
If you set up a payment plan in Online Services for Business, the system will give you a recommended plan. The plan will include an upfront amount to pay as well as your instalment amounts. You can accept the recommended plan, or tailor it to your needs.
When setting up your payment plan, you can opt-in to receive reminders for your payment plan instalments via SMS or email.
If you are worried that you will have difficulty paying on time or are having trouble setting up a payment plan online, contact us and we can help you.
FCT V TRAVELEX LIMITED  HCA 8
The High Court has allowed the Commissioner’s appeal regarding when interest on a taxpayer’s overpaid GST liability begins to accrue. The court found that the Commissioner was not obliged to pay interest on refunded GST as the refund did not create a running balance account surplus.
$13.8 BILLION IN LOST AND UNCLAIMED SUPER. COULD ANY OF IT BE YOURS?
While many Australians have been reunited with lost and unclaimed super in the past 12 months, around $13.8 billion in Australians’ hard-earned wages is waiting to be claimed.
Data released by the ATO for the financial year ending June 2020 shows that the Government’s reforms have had a big impact, reducing unclaimed super by $7 billion compared to 30 June 2019. But there is more to be done.
Workers may have lost or unclaimed super if they have:
- changed their name
- moved jobs or changed addresses
- forgotten to update details with their super fund in the last few years.
Lost super occurs when members have lost contact with their fund or the member’s account has been inactive for a period of time. By law, the fund is required to transfer certain accounts to the ATO, which then becomes ‘unclaimed super money.
Unlike super funds, the ATO does not charge fees, and thanks to reforms passed by the Morrison Government, proactively consolidates any unclaimed super into an eligible, active super account where possible.
There remains around $13.8 billion in unclaimed super, and all Australians should take a moment to log in to the ATO via MyGov and check if it is yours- it only takes a moment.
Recent reforms empower the ATO to do this proactively and without fees.
From 1 November 2019 to 28 February 2021 almost 3.3 million accounts worth almost $4.3 billion have been proactively reunited and paid out to their rightful owners.
This includes approximately 2.3 million accounts worth $3.7 billion that have been transferred into individuals’ active super accounts, and approximately 995,000 accounts worth $573 million paid proactively into individuals’ bank accounts – a power that only the ATO has.
Further information about lost and unclaimed superannuation is available on the ATO website.
Australians can find lost superannuation in just a few clicks via the ATO, through MyGov. This could put thousands of dollars back in their super funds – ready to earn the magic of compounding interest in the super system. More information on the ways to search for lost and unclaimed super can be found on the ATO website.
ARE YOU USING YOUR ABN?
Keeping up to date with your tax, super, and business registration obligations helps the ATO know your business is active and you need an Australian business number (ABN).
If you have not used your ABN for a while, the ATO may contact you about cancelling your ABN. They may also contact you about your ABN if your business situation has changed.
Your ABN data is a vital source of information for businesses, the government, and the community. ABN data provides important business details so that government agencies can deliver support measures, including during unfortunate events.
To ensure you do not miss out on government support, you must regularly review your ABN details and keep them up to date. You should cancel your ABN if your business is no longer operating so that government agencies can tailor their support to those that need it.
It is important to check that you have listed the physical address of your business.
You can check and update your ABN details online at any time or contact us if you need further assistance.
IS YOUR CURRENT TIME OFF IN LIEU (TOIL) POLICY MUTUALLY BENEFICIAL?
This article aims to remind us of the risks of consistent unpaid overtime – or ‘time theft’ – both to workers and the economy.
Time off in lieu can offer an alternative to paid overtime in some scenarios. But what obligations do you have to your employees?
The pros and cons of offering time off in lieu (TOIL):
|· Gives you time back||· Tough to implement consistently|
|· Keeps costs under control||· Difficult to measure indirect costs|
and remember…Time off in lieu should never be used in place of a clear, fair annual leave policy.
With more people working from home than ever before, it is easy for the boundaries between work and home life to become slippery.
Since early 2020 full-time employees in Australia have worked, on average, more than six hours of unpaid overtime every week.
While chronic overtime should be avoided, occasional overtime is a reality for many jobs. But it raises some very valid questions like:
- Are workers entitled to overtime pay or time off in lieu (TOIL)?
- What do employers need to do to avoid underpayment claims?
- How can employers stay out of trouble in these scenarios?
When is an employee entitled to overtime or time off in lieu?
Time off in lieu (TOIL) is sometimes offered to employees who have worked outside their usual hours as an alternative to extra financial compensation.
If an employee is covered by a modern award or enterprise agreement, they may be eligible for paid overtime or TOIL. But if they are not, their employment contract will unlikely include TOIL or overtime provisions unless there is some company practice or convention.
Some modern awards include a TOIL model clause, which provides, among other things, for an employee to take paid time off instead of receiving overtime pay. It may also specify how TOIL is calculated and how employees and employers agree to it, such as if it needs to be in writing.
But there are variations between awards, in terms of modern awards, there isn’t an all-encompassing approach e.g., some TOIL terms may have slight variations in them to accommodate the industry, or because of submissions made by various employer groups or unions.
For example, the Hair and Beauty award specifies that TOIL is calculated at the rate of pay. So, if an hour of overtime is worked at double-time pay, the employee receives two hours of time off. The Clerk – Private Sector award, however, simply states that one hour of overtime equals one hour of time off.
To be safe, employers should always refer to the instrument that covers their employees, whether this is a modern award, enterprise agreement, or employment contract.
When should you grant TOIL?
If an employee has requested TOIL, the employer does not necessarily have to accept (and vice versa) but giving employees the option can suit flexible working.
Some businesses have policies that prevent people from working overtime unless they have express permission. This avoids a scenario in which someone wants to stay late at work because they have not finished their ordinary tasks and then asks for paid overtime or TOIL.
Before you grant TOIL, you should make sure there is, for instance, an agreement or policy, or procedure that regulates how an employee would receive TOIL. If the employee works overtime regardless of the employer’s direction, the employer may have a defence to say, we have a policy or convention in place that provides that an employee needs to have permission, and the employee was aware of those rules.
Should an employer breach a modern award, the ramifications can be significant. An employee could initiate an industrial dispute; the Fair Work Ombudsman may investigate the alleged breach; there could be civil penalties – depending on what the breach is.
When can employers ask staff to work extra hours?
So, what rights do you have as an employer to request employees to work more hours on top of their regular workload? It comes down to what is considered as “reasonable additional hours”.
What should be considered as “reasonable”, will differ according to a variety of factors. For example, it may be when a project deadline is due or there is a deadline given by a client or supplier, or customer.
However, the employee has the right to refuse to work the proposed additional hours if it is unreasonable for them to do so. For example, if they have caring responsibilities.
There are some other important factors to keep in mind when determining if an overtime request is reasonable or not. Some considerations are:
- Any risks to health and safety (i.e., have they been doing a lot of overtime lately?)
- The employee’s circumstances (i.e., are they a working parent who needs to be at home with their kids by a certain time?).
- The needs of the business.
- Whether the employee is entitled to receive overtime payments, penalty rates, or other compensation for (or a level of remuneration that reflects an expectation of working additional hours).
- The notice given by the employer to work the additional hours.
- The notice given by the employee of their intention to refuse to work the additional hours.
- The usual patterns of work in the industry.
- The nature of the employee’s role and level of responsibility.
- Whether the additional hours are in accordance with a modern award or agreement that applies to the employee.
What happens when longer hours become chronic in the workplace?
Frequent additional hours open employers up to risks related to both underpayment and workplace health and safety.
We are seeing that more and more employees are burning out because they are not able to disengage from their devices and their work. This reminds us of the need to protect the work-life balance. Compensating employees fairly for their overtime can help employers avoid allegations of ‘time theft’ or underpayment.
TOIL quick facts
Remember that awards, enterprise agreements, and employment contracts do differ, so you will need to check your individual situation, but here are some common TOIL aspects in modern awards.
- TOIL must be taken within six months of the additional hours being worked.
- Employers can ask staff to work “reasonable additional hours”, but staff can refuse if “unreasonable” for them.
- TOIL is by agreement. The employer can refuse if it is deemed unreasonable. And the employee can also refuse to work additional hours if it is deemed unreasonable.
- The employee can change their mind and ask to receive the overtime as pay (if TOIL and unpaid overtime are featured in their contract, Award, or EBA).
- If employment comes to an end, the TOIL or overtime must be paid out to the employees (again, if TOIL and unpaid overtime are featured in their contract, Award, or EBA).
By listening to your staff and understanding their motivations and needs, a time-off in lieu policy could greatly benefit both your workplace and your employees’ well-being.
YEAR END TAX PLANNING TIPS 2020-21
While many of us have struggled due to COVID-19, tax minimisation is still very important.
The fringe benefits tax (FBT) year ended on 31.3.2021. If you operate through a company or trust, carefully consider whether all FBT matters have been attended to and whether a FBT return needs to be lodged. The most common fringe benefit supplied to staff is a motor vehicle benefit. In a small business audit, the two main areas of ATO focus are fringe benefits and Division 7A loans – see below.
Also carefully consider the effect COVID-19 has had on the calculation of the taxable fringe benefits, in particular motor vehicle and car parking fringe benefits. Carefully consider what has transpired over the year and do not pay any more FBT than you need to.
Check Eligibility for Small Business Tax Regime
Small businesses (sole traders, partnerships, companies, and/or trusts with a turnover of less than $10 million) may be eligible for a range of tax benefits including immediate write-off assets costing less than $150,000 a 26 per cent company tax rate, simplified depreciation, capital gains tax concessions and accounting on a cash basis.
Also, see the instant asset write-off below.
Maximise Depreciation Deductions
Until 30.3.2021, small businesses can get an immediate tax deduction for nearly all individual assets purchased costing less than $150,000, to the extent such assets are used for an income-producing purpose and are installed ready for use by the end of the financial year.
For businesses registered for GST, the $150,000 threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.
In addition, the instant asset write-off, explained below is available until 30.6.2022.
Review Salary Sacrifice Arrangements
Employees can consider salary sacrifice arrangements under which their gross salary may be foregone to obtain either packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.
We note that the option for employees to make tax-deductible superannuation contributions themselves became law on 29.11.2016 and took effect from 1.7.2017.
Make Trust Resolutions By 30 June
Trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2020-2021 financial year by 30 June.
In the event, a valid distribution is not made then a default beneficiary may be assessable. If there are no default beneficiaries, then the trustee will be assessable at the highest marginal rate.
Seeking Professional Advice When Starting A Business
Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the year those expenses are incurred rather than deducted over a five-year period as was the case prior to 1.7.2015.
Small Business Restructure Rollover Relief
Since 1.7.2016, small businesses have been able to change the legal structure of their business without incurring any income tax liability when active assets are transferred from one entity to another. This rollover applies to active assets and depreciating assets used or held ready for use, in the course of carrying on a business. Seek out professional advice.
Stream Trust Capital Gains and Franked Dividends
Trustees of discretionary trusts may be able to stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts, the trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.
It may be necessary to make a family trust election for this to be effective.
Private Company Loans
Income Tax law can potentially treat a payment or loan by a private company to a shareholder or an associate as an unfranked deemed dividend unless an exemption applies.
The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether or not the loan is secured.
Prior to 30 June, you should carefully review such debit loans on the company’s balance sheet.
Prevent Deemed Dividends in Respect of Unpaid Trust Distributions
An unpaid distribution owed by a trust to a related private company beneficiary that arises from 1.7.2017 will be treated as a loan by the company if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the amount of the unpaid trust distribution in 2019-2020 and prior.
However, a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company’s 2020-2021 income tax return needs to be lodged. Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied. These rules are complex and professional advice should be sought.
Write-Off Bad Debts
Businesses can only obtain income tax deductions for bad debts, if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as a bad debt in the accounts no deduction will be available. The debt must also be unrecoverable and written off in the accounts as bad prior to 30 June. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business.
Year End “Tax Effective” Investment Products
Proceed with caution and make sure you get independent professional advice.
In general, individual income is derived and deductions are incurred on a receipt’s basis. The following suggestions may reduce your current tax year liability.
Prepayment of Deductible Expenses
An individual can claim a deduction for prepaid expenditure for a period not exceeding 12 months. The most common types for prepayment include:
- Income protection insurance
- Interest on investment loans
- Interest on share portfolio loans
- Membership and subscriptions
- Investment property expenses
- Corporate Body levies
- Repairs and maintenance
Prior to year end, an individual should review the gains and losses on each asset within their investment portfolio. There may be opportunities to:
- Make sure assets have been held greater than 12 months before sale so the 50% discount can be applied to the gross capital gain – remember this is from “contract” to “contract”… not settlement.
- Realise capital losses to offset any capital gains that were made earlier in the income year.
- Defer realisation of capital gains until July.
Salary Packaging Arrangements
An effective salary sacrifice arrangement will reduce an individual’s marginal rate of tax.
The contractual arrangements should be documented or amended before year end as an individual cannot make a retro perspective salary sacrifice arrangement for income already earned. A typical salary sacrifice arrangement may include the following components:
- Motor vehicle expense
- Additional superannuation contributions
- School fees
The top marginal tax rate applied on income in excess of $180,000. With the “mark-up” factors, fringe benefits tax effectively applies the top marginal rate regardless of your income. However, for taxpayers not on the top marginal rate it is still possible to take advantage of FBT concessions.
Ongoing Tax Planning
Kindly note, there is no tax deduction for the non-concessional contribution.
2021 Contributions Caps:
- Concessional contributions (employer contributions) $25,000.
- Non-concessional contributions (personal contributions) $100,000 or 3-year limit of $300,000.
Again, if you want to contribute more than $100,000 in non-concessional contributions contact your accountant as this involves a 3-year average and you need to be certain you are eligible.
Salary Sacrifice Bonus into Superannuation
You may be able to optimise your tax position by salary sacrificing any prospective end-of-year bonus into super. Seek advice to ensure it is tax effective and that the contributions caps are not breached.
Superannuation – Income
Individuals aged over 60 and retired are generally not taxed on any payments from a superannuation fund. Individuals aged between 55 and 60 will generally be taxed concessionally.
Superannuation – Rebate
A rebate up to $540 is available for superannuation contributions made during the 2020 year for your spouse where your spouse’s income is less than $37,000 p.a. (this rebate reduces for income amounts up to $40,000 p.a.).
Superannuation – Government Co-Contributions
The maximum co-contribution amount that you received is $500, based on an after-tax contribution of $1,000 (i.e., for every $1 contribution made, the government contributes $0.50). This is reduced by 3.33 cents for each $1 of income over $39,837 p.a. up to $54,837 p.a. As there are also other qualifying criteria, you should contact your accountant if you wish to access this benefit in 2021.
Eligibility for Super Concessional Contributions
The 2020-2021 financial year is the second year when carry-forward provisions come into effect, where you can carry forward unused contributions for five consecutive years.
To be eligible, your Total Superannuation Balance (TSB) must be less than $500,000 at 30 June of the previous year. This is assessed at June of the prior year for each year in the rolling five-year period in which you intend to use the unused cap.
This strategy can be used for taxpayers expecting to have higher taxable income in an income year and would like to reduce the tax liability they have to pay, whether it is for work bonuses, large capital gains, retirement payouts, or large trust distributions.
Individuals aged 65 to 74 and who meet the work test (and TSB test) will also be eligible to access the catch-up concessional contributions.
Transition to Retirement Income Streams
If you are 55 or older at 30 June 2021, you may be eligible to commence a “Transition to retirement” pension. Benefits may include:
- Receiving pension income while still working.
- Ability to salary sacrifice to superannuation to access lower tax rates; and
- Concessional tax treatment within your super fund.
Note that up to 30.6.2017, the income from assets supporting a transition to retirement income stream was tax-exempt. Since 1.7.2017 this exemption no longer applies.
Medicare Levy Surcharge (MLS) and Private Health Insurance Rebate (PHIR)
The threshold for the imposition of the MLS (If not covered by private hospital insurance) are broadly as follows:
- Singles (do dependants) – $90,000 pa, and
- Families – $180,000 pa (plus $,500 for each dependant child after the first)
There are a number of income amounts such as reportable fringe benefits, reportable superannuation contributions, and investment losses counted in calculating these thresholds.
Further, there is a “tiered” system for calculating MLS in the 2021 income year. The rate of the rebate will be between 1% and 1.5% depending on the extent to which income exceeds the relevant threshold.
Besides, PHIR is also means-tested in the 2021 income year under a “tiered” system. The rate of the rebate will be between 0% and 30% depending on income levels. This means some taxpayers who have claimed a full 30% rebate from their health insurance provider on their premiums will have an additional liability upon lodgement of their return.
ATO Recovery from Higher Education Loan Program and Trade Support Loan Debt
The Higher Education Loan Program (HELP) and Trade Support Loan (TSL) repayment rules for debtors who reside overseas have been extended by assessing their repayment obligations on their worldwide income. Repayment obligations commenced from July 2017.
Since January 2016, HELP and TSL debtors who are going overseas for more than 6 months were required to register with the ATO. Debtors already living overseas are expected to register.
ATO Data Matching
The ATO’s extensive data matching capabilities are based on the information it receives from various sources including banks, share registers, employers, government agencies, and via its network of global information exchange agreements.
In terms of focus areas for compliance activities, the ATO continues to closely monitor:
- Claims for work-related expenses that are unusually high relatively close to others across comparable industries and occupations.
- Excessive rental property expenses.
- Non-commercial rental income received for holiday homes.
- Interest deductions claimed for the private proportions of loans; and
- People who have registered for GST but are not actively carrying on a business.
In 2021 an area of ATO focus is contractors not declaring income detectable under the taxable payments reporting system (TPRS).
INCUR EXPENSES BEFORE YEAR END
Expenses that are incurred before year end can reduce taxable income. Consider forthcoming liabilities and the value in incurring them before year end.
If you have rental property, consider whether you are maximising claims for capital works deductions on the property. A report from a quantity surveyor or suitably qualified specialist will maximise your entitlements.
Pay income protection insurance premiums before year end.
Motor vehicle expenses
There are now only two methods that can be used to claim a deduction for motor vehicle expenses.
- The cents per km method (for up to 5,000 business kilometres travelled); and
- The logbook method (logbook kept over 12 weeks and updated every 5 years)
For the year ended 30 June 2021, the single rate of deduction determined by the Commissioner is 72 cents per kilometre.
Detailed records assist in maximising deductions.
Zone Tax Offset
Since 1 July 2015, the zone tax offset has been limited to those taxpayers whose usual place of residence is within the designated zones. The zone tax offset is a concessional tax offset available to individuals against their income tax liability in recognition of the isolation, extreme climate, and high cost of living associated with living in designated zones.
This means “fly-in-fly-out” and “drive-in-drive-out” employees, whose usual place of residence is located outside of the zone, are ineligible to claim the zone tax offset for the 2016 income year and later income years.
Claiming Travel Allowance Deductions
An audit focus by the ATO continues on travel allowance expenses being claimed by individual taxpayers.
If you intend to use exception for retaining substantiation or these claims the following must apply:
- You must be receiving a bona fide travel allowance from your employer.
- You must be working away from home (on overnight stays) in the course of performing employment duties.
- You must calculate the claim correctly for your salary level and location of work; and
- You must be able to show that you are incurring travel expenses.
OTHER BUSINESS DEDUCTIONS
- Cash or accruals reporting – recognition of income on a receipt’s basis will generally defer the point of derivation.
- Review service contacts – do the terms of the contract mean income can be recognised periodically when the services are performed?
Write off bad debts in the books of accounts prior to 30 June 2021.
Ensure all bonuses are determined and properly documented before year end.
- Scrap obsolete items of plant and equipment.
- Utilise depreciation pools to their full extent; and
- For SBEs (see above) consider taking advantage of the immediate write-off of up to $150,000 for each asset acquired after 12.3.2020 until 30.6.2021.
Note that from 12.3.2020, eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).
From 7.30 pm AEDT on 6.10.2020 until 30.6.2022, temporary full expensing allows a deduction for:
- The business portion of the cost of new eligible depreciation assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test.
- The business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover of under $50 million.
- The balance of a small business pool at end of each income year in this period for businesses with an aggregated turnover under $10 million.
Temporary full expensing is not subject to the $150k limit.
Consider there may be obsolete stock to write off and note closing stock can be valued at year end at the lesser of cost, market value, or the replacement value.
Generally, an entity must perform a stock take to determine the physical quantity and value of each item at year end.
Prepayment of Expenses
In some circumstances, small businesses (with a turnover of less than $10 million) should consider prepaying expenses prior to 30 June 2021. A tax deduction can be brought forward into this financial year for expenses like insurance premiums, subscriptions and memberships, travel advertising, and interest. A deduction for prepaid expenses will generally be allowed where the payment is made before 30 June 2021 for services to be rendered within a 12-month period.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.