Category: General

Low and Middle Income Tax Offset Now Law

The Federal Government’s Personal Income Tax Plan is now officially law. For 2018/2019 (the financial year just gone) the centrepiece of this plan was an increase to the low and middle income tax offset (LMITO) from a maximum $530 to $1,060. 

Taxpayers with a taxable income:  

  *   of $37,000 or below can now receive a LMITO of up to $255  

  *   above $37,000 and below $48,000 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080  

  *   above $48,000 and below $90,000 are now eligible for the maximum LMITO of $1,080  

  *   above $90,000 but is no more than $126,000 are now eligible for a LMITO of $1,080, less an amount equal to three per cent of the excess.  

With Tax Time 2019 just over a week old, 810,000 individual tax returns have now been lodged, an 88% increase from the same time last year – an increase largely attributable to anticipated refund as a result of the increased LMITO. 

Despite the increase, ATO commissioner Chris Jordan has sought to reassure taxpayers that returns will begin flowing through from the end of this week. 

“We were able to work over the weekend to make changes to our systems once the legislation was passed last week,” Mr Jordan said on Tuesday. 

“All safety nets have been lifted from our processing, so our processing is now working absolutely full bore, 100%.” 

“People do not need to do anything special; they just put their return in, and we will calculate their offsets and money will be hitting people’s bank accounts by Friday this week.” 

Now the law has been passed, you may wish to get your 2018/2019 records to your Tax Agent and instruct them to lodge early rather than in the first part of next year (which is the normal lodgement time if lodging with a Tax Agent). By doing so, all other things being equal, you will bring forward your LMITO entitlement with a potential additional refund of up to $1,080 (subject to the above income limits, and subject to not otherwise having underpaid tax during the year). 

If you lodge your own tax return, then remember you do not need to claim the LMITO separately – rather the ATO will process your claim automatically upon lodgement. 

Single Touch Payroll for Micro Employers

If as an employer you are not ready for Single Touch Payroll (STP) don’t panic!   Although 1 July has rolled around, smaller employers (those with less than 19 employees) have three months from this date (until 1 October 2019) to be STP-compliant. Furthermore, no penalties will be imposed during the initial 12 months of STP, therefore there is no need to be worried. 

While for many employers, their STP solution will be to adopt STP-compliant software or outsource their payroll to their registered Accountant or Bookkeeper, many very small employers may be eligible for the micro-employer concessions including: 

  • Reporting quarterly through their registered accountant or bookkeeper for two-years until 30 June 2021 (instead of reporting each time you pay your employees) 
  •  Adopting a free or low-cost, simplified STP solution (as opposed to payroll software). 

Micro employers are those with less than five employees at the time of application. Virtually all employees are counted (including casuals, those on leave, and employees working overseas), however closely-held payees are excluded – namely, family members of a family business, directors or shareholders of a company, and beneficiaries of a trust. 

In the event that a business is currently a micro employer but later no longer qualifies as it puts on extra staff, the ATO adopts a different approach in respect continued eligibility for the above concessions. While eligibility for quarterly reporting will be unaffected by an increase in staff above four, the ATO expects employers to cease using the simplified, low cost STP reporting solutions if they later cease to qualify as a micro employer. This would then generally mean adopting STP-compliant software, or lodging via your registered accountant or bookkeeper. 

In respect of the low-cost, simplified STP solutions, an updated list of products now available and currently in development is maintained on the ATO website.  <//www.ato.gov.au/business/single-touch-payroll/in-detail/low-cost-single-touch-payroll-solutions/> There are a wide range of products available including free solutions such as apps to install on your phone that allow employers to simply key in employee payroll information (gross amounts per pay, and tax withheld etc.) and send it to the ATO (and thereby maintain your manual payroll systems if you so choose). 

Of course, micro employers can opt to disregard these free or low-cost solutions and instead adopt STP-compliant software and, in doing so, enjoy the advantages of computerizing your payroll processes. 

 

 

 

SINGLE TOUCH PAYROLL

1 July Employers with less than 20 employees should start transition to Single Touch Payroll (STP)

Single Touch Payroll (STP) is a new way of reporting tax and super information to the ATO.

If you are using a solution that offers STP reporting, such as payroll or accounting software, you will send your employees’ tax and super information to the ATO each time you run your payroll and pay your employees.

The information is sent to the ATO either directly from your software, or through a third party – such as a sending service provider.

If you have a software provider, they can tell you more about the type of STP solution they offer. For a list of available STP solutions visit the //api.gov.au/productregister/

There will also be a number of options available for employers who do not use payroll software, such as //No-cost and low-cost Single Touch Payroll solutions.

Options will depend on your number of employees:

  • Large employers with 20 or more employees should now be reporting through STP, or have applied to the ATO for a later start date.
  • Small employers with 19 or less employees will need to report through STP from 1 July 2019. This is a gradual transition, and the ATO is providing flexible options.
    • If you’re an employer with four or less employees you will have additional options.

Super Guarantee Amnesty Update

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

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.<//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. 

PAYGW TAX VARIATION

We have all heard about businesses varying their PAYG instalments on their Activity Statement if their business and investment income for the current year is expected to be less than anticitpated. However, the opportunity also exists for salary and wage earners to vary downwards the amount of PAYG tax deducted by their employer each pay cycle. The main purpose of varying the rate or amount of PAYG withholding is to ensure that the amounts withheld during the income year better align with your year-end tax liability if you are a taxpayer who has significant deductible expenses throughout the year which may be the case for:  

  • Property owners who are hightly negatively geared; and
  • Taxpayers, such as salespeople, who have large travel expenses and other costs. 
By having less PAYG deducted, you are improving your cash flow. Rather than having to wait until year end to receive a sizeable tax refund, the refund is effectively flowing through to you in each pay cycle. You then have control over this money earlier than you otherwise would and can use it to invest or discharge your everyday expenses etc. If you think you may fall into this category of having large deductible expenses, then you should complete a PAYG withholding variation form which is availbale on the ATO website. //www.ato.gove.au or consult your tax advisor. 

WARNING 
Before employing this strategy, be aware if the deductions you anticiapated having during the year do not materialise, or indeed, your untaxed income (such as rent, interest, dividends etc.) is higher than you anticipated for the year, you may end up with a tax bill when you lodge your return. 

Key Dates for Business Mar-Apr 2018

March 2018

21 March
February monthly Activity Statements – due for lodgement and payment.

April 2018

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.

Key Dates for Business Jan-Feb 2018

January 2018

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.

February 2018

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.