New legislation could see businesses lose tax deductions for payments to employees and contractors. This article details this new law, and provides a checklist of how to be compliant…
In March, legislation was passed which will deny an income tax deduction for certain payments if the associated withholding obligations are not complied with by the business making the payment. This new law commences on 1 July 2019, and provides a very strong incentive for employers to comply with their withholding obligations. Under current law, employers are entitled to a deduction for actually having made a payment to an employee or contractor – irrespective of whether they have correctly met the withholding requirements in respect of these payments. This is, the payment itself is sufficient to claim a deduction.
From 1 July 2019, a deduction will no longer be allowed in relation to the following payments:
Of salary, wages, commissions, bonuses, or allowances to an employee
Of directors’ fees
To a religious practitioner
Under a labour-hire arrangement
For a supply of services – excluding supplies of goods and supplies of real properyt – where the recipient of the payment has not quoted their Australian Business Number (ABN)
….if withholding applied to the payment, and the payer was required to withhold an amount from the payment and did not withhold an amount OR did not notify the ATO when required. To be clear, deductions will only be denied where no amount has been withheld at all from the payment that attracts withholding or no notification is made to the ATO. Withholding an incorrect amount (such as from an allowance etc.) or reporting the withholding incorrectly will not result in a deduction being denied.
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The Government’s proposed Superannuation Guarantee (SG)
Amnesty will not proceed. To recap, the SG amnesty was to be available for the
12-month period from 24 May 2018 to 23 May 2019. To get the benefits of the
Amnesty (set out below) employers must have during this 12-month period
voluntarily disclosed any SG underpayments that existed in the past (going as
far back to when SG commenced in 1992). For an employer, the tax benefits of
the amnesty were:
* The administration component of the SG
Charge (SGG) would not be payable (this is a $20 per employee, per quarter, for
whom there is an SG Shortfall)
* Part 7 penalties would not be applied. This
can be up to 200% of the SG Charge that is payable (note that SG Charge
includes the SG Shortfall that is owed to employees)
* All catch-up payments made during the
12-month amnesty period were to be tax deductible.
By contrast, under the current law, when SG has been
underpaid or paid late, the SG Charge that must paid to the ATO is not
deductible, and late contributions that an employer has made to an employee’s
superannuation fund and has elected to offset against their SG Charge liability
are also not deductible.
With Parliament having been prorogued for the Federal
Election, the legislation to enact the Amnesty (which is opposed by the Labor
Party) will not pass into law. Therefore, employers who disclosed SG shortfalls
during the Amnesty period will be subject to the current law and not enjoy the
Amnesty concessions, irrespective of any assurances offered by ATO employees at
the time employers made disclosures. The ATO have however indicated that it
will exercise its discretion and not apply Part 7 penalties to these employers.
The Part 7 penalties aspect of the SG Charge regime did not require a change to
legislation as the discretion to waive penalties already sits with the ATO.Going forward, with super funds now reporting to
the ATO more regularly (at least once per month), we would strongly urge all
employers to pay SG on time and in full by the quarterly cut-off dates
In the Budget on Tuesday, the Government announced that
it would increase the instant asset write-off threshold to $30,000 and extend
it to medium sized businesses (those with an aggregated annual turnover of less
than $50 million).
This, and the earlier change announced in January (to
extend the write-off threshold to $25,000) passed both Houses of Parliament
yesterday and is now law (subject to the formality of Royal Assent).
The amendments mean there will be three tiers in the
2018/2019 financial year:
threshold for depreciable assets that are acquired and installed ready for use
before 29 January 2019. Only available for businesses with an aggregated
turnover less than $10 million.
2. $25,000 threshold for assets first used or
installed between 29 January 2019 and 2 April 2019. Only available for
businesses with an aggregated turnover less than $10 million.
threshold for assets first used and installed after the 2 April budget
announcement and before 1 July 2020. Available for businesses with a turnover
of less than $50 million.
Going forward, all businesses with a turnover under $50
million are now eligible for a write-off of $30,000. This will be available
under 30 June 2020.
To get the taxation benefit of this in the current financial year, you will need to have the asset installed ready for use on or before 30 June 2019.
Following is a brief summary of some of the headline Budget measures.
Asset Write-Off Boosted and Expanded – Two key changes have been made:
o The write-off
has been extended to medium-sized businesses (those with an aggregated annual
turnover of less than $50 million.
o The threshold
has been increased to $30,000.
Therefore, subject to legislation, businesses with an
aggregated turnover of less than $50 million will be able to immediately deduct
purchases of eligible assets costing less than $30,000 that are purchased and
then first used, or installed ready for use, from Budget night (2 April 2019)
to 30 June 2020.
on Unpaid Tax and Super by Larger Businesses – The Government will provide more
than $40 million to the ATO to recover unpaid tax and Superannuation Guarantee
owed by larger businesses.
Strengthening ABN Rules – This measure imposes new compliance
obligations on ABN holders to retain their ABN. From 1 July 2021, ABN holders
with an income tax return obligation will be required to lodge their income tax
return and from 1 July 2022 confirm the accuracy of their details on the
Australian Business Register annually.
Sham Contracting – The Government will provide more than $9 million to
establish a dedicated unit within the Fair Work Ombudsman to address sham
contracting. This is where employers seek to avoid statutory obligations and
employment entitlements (such as paid leave and superannuation) by
misrepresenting employer/employee relationships as independent contracts.
PERSONAL TAX CHANGES
Tax Cuts by Increasing Tax Offset – Subject to the passage of legislation, tax
relief will be granted to individuals via the non-refundable low and middle
income tax offset (LMITO). The LIMTO will increase from a current maximum of
$530 per year to $1,080. Further, the base rate will increase from $200 to $255
per year for 2018/2019 through to 2021/2022. Depending on your level of income,
the changes will benefit individuals as follows:
o The LMITO will
now provide a reduction in tax of up to $255 for taxpayers with a taxable income
of $37,000 or less.
taxable incomes of $37,000 and $48,000, the value of the offset will increase
at a rate of 7.5 cents per dollar to the maximum offset of $1,080.
o Taxpayers with
taxable incomes between $48,000 and $90,000 will be eligible for the maximum
offset of $1,080.
o For taxable
incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents
The LMITO will be enjoyed straight after individuals
lodge their income tax returns for the above years.
Tax Cuts via Rate and Threshold Changes – The following changes are slated for
future income years:
o From 1 July
2022, an increase to the top threshold of the 19% personal income tax bracket
from$41,000 to $45,000.
o From 1 July
2022, an increase in the low income tax offset (LITO) from $645to $700.
Deductible Gift Recipients (DGRs) Approved – The following organisations have
been granted DGR status from 1 July 2019 to 30 June 2024: Australian Academy of
Law, China Matters Limited, Foundation Broken Hill Limited, Motherless
Daughters Australia Limited, Superannuation Consumers Centre Limited, and The
Headstone Project (Tasmania) Incorporated. The Government will also establish a
deductible gift recipient (DGR) general category to enable Men’s Sheds and
Women’s Sheds to access DGR status from 1 July 2020.
* Removal of Work Test for Certain Taxpayers –
The current superannuation work test will be removed for people aged 65 and 66
from 1 July 2020.
* Extending Eligibility for the Bring-Forward
Cap – From 1 July 2020, access to the bring-forward cap will be extended from
taxpayers aged less than 65 years of age to those aged 65 and 66.
* Increase to Age Limit for Spouse
Contributions – The age limit for spouse contributions will increase from 69 to
75 from 1 July 2020.
With large swathes of Eastern Australia in the midst of one of the most severe droughts in years (indeed Autumn rainfall was the least since 1902). Be mindful that there are a number of assistance measures open to affected clients across a range of Government departments. On the ATO front, they can help by giving affected taxpayers more time to pay, waiving penalties or interest charged at a time a client was affected by drought, offering payment plans with interest free periods, and adjusting PAYG instalments to better suit the circustances. Furthermore, in special circumstances the ATO can release clients from paying some taxes, if the paying of those taxes would cause serious financial hardship.
21 March February monthly Activity Statements – due for lodgement and payment.
21 April March monthly Activity Statements – due for lodgement and payment. 21 April Quarter 3 (January-March) PAYG instalment Activity Statments for head companies of consolidated groups – due for lodgement and payment. 28 April Quarter 3 (January-March) Activity Statements – due for lodgement and payment (if lodging by paper). 28 April Quarter 3 (January-March) PAYG instalment notices (forms R and T) – final date for payment and, if varying the instalment amound, lodgment. 28 April Quarter 3 (January-March) GST instalment notices (forms S and T) – final date for payment and, if varying the instalment amount, lodgement. 28 April Quarter 3 (January-March) superannuation guarantee contributions to be made to a complying fund on behalf of your employees. 30 April Quarter 3 (January-March) TFN Report for closely held trust for TFNs quoted to a trustee by beneficiaries – fiinal date for lodgement.
Where one of these dates falls on a weekend or a public holiday, the due date is extended to the next business day.
15 January Due date for lodgement of income tax returns for companies and trusts that were taxable medium to large businesses in the prior year and are not required to lodge ealier. If you fail to lodge by the due date, your 2017/2018 income tax return will be due on 31 October 2018. 21 January Due date for lodgement and payment of December 2017 monthly Activity Statements. 28 January Due date for October-December 2017 Superannuation Guarantee contributions to be made to a complying fund on behalf of your employees. 31 January Final date for lodgement of october-December 2017 TFN report for closely held trusts for TFNs quoted to a trustee by beneficiaries.
21 February Due date for lodgement and payment of January monthly Activity Statements. 28 February Due date for lodgement and payment of October-December 2017 quarterly Activity Statements, including electronic lodgments. 28 February Due date for lodgement and payment of Annual GST returns or Annual GST information reports – if you do not have an income tax return lodgment obligation. 28 February Due date for lodgement and payment of income tax return for self-preparing entities that were not due at an earlier date. If you fail to lodge by this date, your 2017/2018 reutrn will be due by 31 October 2018. 28 February Due date for lodgement and payment of income tax returns for medium to large businesses (taxable and non-taxable that are new registrants) 28 February Due date for lodgement and payment Superannuation Guarantee Charge Statement if you failed to pay Superannuation Guarantee Charge on time for the October-December 2017 quarter. Superannuation Guarantee Charge is not deductible.
Where one of these dates falls on a weekend or public holiday, the due date is esxtended to the next business day except in the case of October-December 2017 Super Guarantee contributions – these are due on Sunday 28 January 2018.
Many key dates are looming for business including those relating to Activity Statements, superannuation, and more
11 November July-September quarterly Activity Statements – due for lodgement and payment (if lodging electronically) 21 November October monthly Activity Statements – due for lodgement and payment 28 November Superannuation Guarantee Charge (SGC) Statement – due for lodgement and payment if insufficient contributions or late contrifutions were made for the July-September quarter
01 December Due date for income tax payment for companies that were required to lodge by 31 October 2017 21 December November monthly Activity Statements – due for lodgement and payment
Single Touch Payroll reporting starts from 1 July 2018 for employers with 20 or more employees.
To find out if you need to be ready by then, you will need to do a headcount of the employees you have on your payroll on 1 April 2018 (seeHow to count your employees).
If you have 20 or more employees on that date you will be a ‘substantial employer’. You will need to report through Single Touch Payroll from 1 July 2018. This is now law.
If you have 19 or less employees, Single Touch Payroll reporting will be optional until 1 July 2019. It will be mandatory from that date, subject to legislation being passed in parliament.
How your reporting will change
Your payroll solution will need to be updated for Single Touch Payroll reporting.
When you pay your employees through your Single Touch Payroll-enabled solution you will be reporting payments such as their salaries and wages, allowances, deductions (for example, workplace giving) and other payments, pay as you go (PAYG) withholding and super information to the ATO at the same time.
Your payroll cycle does not need to change. You can continue to pay your employees weekly, fortnightly or monthly. You may have different pay cycles for different employees.
It simply means that when you complete your payroll, the tax and super information for each employee will be sent to us. This is a more streamlined way of reporting to us.