Category: Business Tax

ATO Bushfire Relief

If you or your business has been impacted by the recent bushfires, the ATO don’t want you to be concerned about your tax affairs.

The ATO will help you sort out your tax affairs later.

For identified impacted postcodes, the ATO will automatically grant deferrals for lodgements and payments due.

You, or your accountant, don’t need to apply for these deferrals.

The postcodes are broken down by State: 

Tough Time Strategies

With the economy slowing and growth stagnant, this article offers business owners and individuals some ideas for financial relief. 

ATO PAYMENT ARRANGEMENT 

From time-to-time, all businesses are in debt with the ATO. Consider entering into an ATO payment arrangement if your business is. The ATO offers flexible arrangements which allow you to pay off your debt in amounts that are affordable and won’t unduly impact your cash flow or cash reserves. Where you enter into such an arrangement, the general interest charge will still be levied on any amounts outstanding after the due date. To enter into an arrangement, you our your advisor can phone the ATO. 

INTEREST-ONLY 

Almost all business owners have outstanding loans. Some business loans and many home loans have an interest-only option which reduces your repayments as you only pay the interest portion of your loan for a set period. Revisit the terms of your loan agreement to see if you have this facility, some financiers will allow you to pay interest-only on application when you or your business is struggling financially. 

INSTALMENT VARIATIONS
 
If your business is less profitable this year than last year, then you should consider varying your PAYG instalments downwards. 

PAYG instalments are effectively prepayments towards your expected end of year tax liability. The amount of instalments you are required to pay is generally based on your income from the prvious year. The instalment amounts are provided to you by the ATO as either an instament rate (which you then multiply by your income) or a fixed dollar amount. Because the amounts and rates are based on your income from a prior year, you should consider varying the PAYG instalment dollar amount downwards if your current year turnover is trending less than last year. By doing so, it may provide your business with significant short-term relief.

In making a downwards variation, be aware that penalties may apply if your variation resutls in you paying an amount that is less than 85% of the actual tax payable on your business and investment income for the financial year. Therefore, before you make a variation, consult your advisor. 

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Key Dates for Summer 2019/2020

Many key dates are looming for business including those relating to Activity Statements, superannuation, and more…. 

DECEMBER 2019 

1 December – Due date for income tax payments for companies that were required to lodge by 31 Oct.  
21 December – November monthly Activity Statments – due for lodgement and payment . 

JANUARY 2020 

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 earlier. If you fail to lodge by the due date, your 2019/2020 income tax return will be due on 31 October 2020. 
21 January – Due date for lodgement and payment of December 2019 monthly Activity Statements. 
28 January – Due date for October-December 2019 Superannuation Guarantee contributions to be made to a complying fund on behalf of your employees. 
31 January – Final date for lodgement of October-December 2019 TFN report for closely held trusts for TFNs quoted to a trustee by beneficiaries. 

FEBRUARY 2020

21 February – Due date for lodgement and payment of January monthly Activity Statements. 
28 February – Due date for lodgement and payment of October-December 2019 quarterly Activity Statements, including electronic lodgements. 
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 lodgement obligation. 
28 February – Due date for lodgement and payment of income tax returns for self-preparing entities that were not due at an earlier date. If you fail to lodge by the due date, your 2019/2020 return will be due on 31 October 2020. 
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 of Superannuation Guarantee Charge Statement if you failed to pay Superannuation Guarantee charge on time for the October-December 2019 quarter. Superannuation Guarantee Charge is not deductible. 

Where one of these dates falls on a weekend or a public holiday, the due date is extended to the next business day except in the case of Superannuation Guarantee contributions. 

Can You Claim GST Credits?

To claim GST credits on your purchases, you must be able to demonstrate you’re in business through activities such as: 

  • aiming to make a profit 
  • keeping records and account books 
  • making commercial sales of a product or service 
  • marketing and advertising to attract clients 
  • drafting a business plan. 

It’s more likely you’re not in business and your activities are a hobby if they’re: 

  • not aimed at making a profit 
  • not carried out in a businesslike manner 
  • irregular 
  • done mostly for your own enjoyment and satisfaction. 

If your activities are a hobby rather than a business you can’t claim GST credits on purchases associated with your hobby. You should consider if you have to cancel your ABN and GST registrations. You may also need to amend past activity statements if you have claimed GST credits for purchases associated with your hobby.  

Characteristics of a Business 

There is no single factor that determines if you are in business, but some of the factors you need to consider include: 

  • You’ve made a decision to start a business and have done something about it to operate in a businesslike manner, such as  
    • registered a business name, or 
    • obtained an ABN. 
  • You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term. 
  • You repeat similar types of activities. 
  • The size or scale of your activity is consistent with other businesses in your industry. 
  • Your activity is planned, organised and carried out in a businesslike manner. This may include    
    • keeping business records and account books 
    • having a separate business bank account 
    • operating from business premises 
    • having licenses or qualifications 
    • having a registered business name. 

If you aren’t in business yet, it is important to keep these factors in mind as your activities change or grow, so you’ll know when you need to register for tax and other business responsibilities. 

Hobby 

If you determine your activities are a hobby then you do not have any additional tax or reporting obligations. 

If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you. 

Because you do not have an ABN and your activity is done as a hobby, you should use the ‘Statement by a supplier’ form. This will avoid the business you are supplying having to withhold an amount from their payment to you. 


Members read all about GST in our Special GST publication, available in your members area.

ATO Announces Motor Vehicles Data Matching Program

 

One of the largest claims made by business and by employees for that matter is the use of a vehicle for business or work related purposes.  Much of the claim relates to depreciation on the cost of the vehicle.  As technology continues to advance and with data sharing amongst authorities becoming more prevalent, the ATO together with each of the State motor vehicle registry departments have announced that they have developed a data matching program to assess the overall taxation compliance of individuals and businesses when buying or selling vehicles.

 

Details will be requested by the ATO from the States when a vehicle has been transferred or has been newly registered and where the purchase or transfer price exceeds $10,000.

This data is going to allow the ATO to do a range of compliance audits on taxpayers in relation to Fringe Benefits Tax, fuel scheme claims as well as legal ownership of vehicles impacting the entitlement to make a claim for a tax deduction or under declaring income if a vehicle is sold.  The ATO advised in their press release that they anticipate this will impact around 2 Million taxpayers per year that acquire or transfer vehicles.

The takeaway this week is to ensure that if you are purchasing, selling or having a vehicle transferred for business or work related purposes that you ensure the correct entity is the registered owner of the vehicle and that any cost base used for making a claim uses the true cost of the vehicle adjusted for the luxury car tax limit or that the selling price is accurately recorded with any GST correctly accounted for. 

The New Importance of Tax Compliance

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…

BASICS

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.

NEW RULES

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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Update – Instant Asset Write-off Changes now Legislated

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:

1.     $20,000 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.

3.     $30,000 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.

2019 Federal Budget Wrap

Following is a brief summary of some of the headline Budget measures.

BUSINESS

*         Instant 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.

*         Division 7A Changes Deferred – The Government’s proposed Division 7A changes will be deferred by 12 months to 1 July 2020. To recap, Division 7A is designed to prevent profits or assets being provided to shareholders or their associates tax-free. You can read more about these proposed changes – which are not yet even in draft legislative form – on the ATO website.<https://www.ato.gov.au/General/New-legislation/In-detail/Other-topics/Targeted-amendments-to-Division-7A/>

*         Crackdown 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.

*         Tackling 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

*         Income 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.

o    Between 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 per dollar.

The LMITO will be enjoyed straight after individuals lodge their income tax returns for the above years.

*         Income 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.

*         New 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.

SUPERANNUATION CHANGES

  *   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.

Interest Rates on Hold

Last week (05/03/19), the Reserve Bank of Australia decided not to change the official cash rate of 1.5%. Two days later the December quarter economic growth figures showed that the economy had slowed considerably – growing by just 0.2% from October to December, and 2.3% over the previous 12 months. This is considerably less than the forecast 3% in the Federal Budget. As a result, many economists are now expecting the Reserve Bank to reduce interest rates even further in the coming year; which would represent record lows. It’s an opportune time therefore to review whether you are making the most of this low rate environment. 

Have you considered the following? 

*         Fixed rate options. While rates are at an all-time low there may be opportunities to fix your loans for 3 or 5 years at under 5% per annum. Explore your options. Some borrowers may wish to fix just a portion of their loan. 

*         Review your position. Low interest rates offer an opportunity to refinance or revise your payment schedule to pay your loan off sooner. Talk to your broker to see if there’s a home or business loan that better suits your needs. 

*         Debt reduction. With lower rates, your monthly/fortnightly repayments will be less. Rather than pocketing the difference, if you put the difference into extra repayments, you can shave years off your loan and, in doing so, save thousands in interest. For example, a $500,000 home loan at an interest rate of 7% requires repayments of $3,078 per month over 30 years. At 4.5%, the repayments are $2,533, a difference of $545 a month. If you put that $545 into extra repayments, you can potentially take more than 9 years off the home loan term and save almost $140,000 in interest. 

*         Create an offset account. This is effectively a money source sitting beside your mortgage. Any savings inside this account are effectively offset against your loan, which in turn reduces the amount of interest you pay. 

Of course, low rates will not be around forever. As a borrower it’s important not to become complacent and to make sure that you still have the capacity to meet your repayment obligations in the event that rates increase. 

NON-COPRPORTATE TAX CUTS – SBITO

The Government has passed legislation increasing the rate of the Small Business Income Tax Offset (SBITO). This article details this change and its tax impact.

INCREASED OFFSET
Along with companies, the more than 70% of small businesses that are not incorportated will also enjoy additional income tax relief from 2016/2017. In 2016/2017 income and later income years, a higher rate of SBITO will apply:

  • For 2016/2017 to 2023/2024, the SBITO is 8% of an eligible individual’s basic income tax liability that relates to their total net small business income (up from 5% in 2015/2016).
  • For 2024/2025, the SBITO is 10% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2025/2026, the SBITO is 13% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2026/2027 and later income years, the SBITO is 16% of an eligible individual’s basic income tax liability that relates to their total net small business income.
Furthermore, the aggregated turnover test for access to the SBITO has been increased from 2016/2017 to $5 million (up from $2 million).

BACKGROUND
By way of background, individuals are entitled to the SBITO if they are an SBE (i.e. sole trader) or they have a share of a smaill business’ net income included in their assessable income (for example, distrbutions from a partnership or trust which themselves are SBEs) provided the small business is not a corporate tax entity (i.e. company). An individual can only claim one SBITO for an income year irrespective of the number of sources of small business income that an individual receives. The maximum amount of the SBITO from all sources of SBE income is $1,000 for an income year which will be claimed in your year-end tax return. 

Although capped at $1,000 per individual, serveral individuals within the one structure can enjoy their own SBITO (not just the business owner) provided at the end of income year they are assessed on income from an SBE. The discount is applied to your net small business income’ as follows:

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