Single touch payroll to include everyone
Single Touch Payroll (STP) is changing the way employers report their workers’ tax and super information to the ATO.
Employers are expected to report information on a variety of areas through software that offers STP reporting or third-party service providers. Withholding amounts, superannuation liability information, ordinary times earnings, salaries, wages, allowances and deductions should all be included in reports. Parliament has passed legislation to extend STP to now include businesses of any size. There are separate guidelines and due dates in place for different sized businesses.
Businesses with 20 or more employees:
As STP for businesses with 20 or more employees started on 1 July 2018, relevant businesses should already be reporting through STP or have applied for a deferral. If you are unsure if your current software has STP reporting, the ATO recommends talking to your software provider or tax professional.
Businesses with 5-19 employees:
Reporting can start anytime from 1 July to 30 September 2019. If you already use payroll software which offers STP, you can update your
product and start reporting early. Online forms will be available from April 2019 for those who need to defer reporting or meet exemption criteria.
Business with 1-4 employees:
Micro employers with four or less employees who don’t currently use payroll software can report STP information in other ways. The ATO has listed software developers who offer no-cost and low-cost STP solutions to make the transition smoother. There is also an option for your registered tax or BAS agent to report your STP information quarterly rather than each time you run payroll. This will be available until 30 June 2021.
To help with ease of transition for everyone involved, the ATO offers no penalties for mistakes, missed or late reports for the first year. Exemptions from STP reporting can also be provided for employers experiencing hardship, or in areas with intermittent or no internet connection.
Further extensions for Instant Asset Write-Off
The Instant Asset Write-Off Scheme has been extended to 30 June 2020 for assets purchased under $30,000.
The scheme affects small to medium businesses with a turnover of up to $50 million a year, allowing business owners to immediately deduct assets costing up to $30,000 which can then be claimed in their tax return in that income year.
The new rules will apply from 2 April 2019 and are set to remain in place until 30 June 2020.
This extension was introduced in the 2019-20 Federal Budget, increasing the write-off threshold and eligibility criteria. The threshold applies on a “per asset” basis, meaning that eligible businesses can instantly write off multiple assets. There are certain assets that are excluded from the scheme so it is best to check with your accountant or financial advisor.
While the Instant Asset Write-Off Scheme reduces the tax your business has to pay, it is not a rebate. Your cash flow will still have to be sufficient enough to support any purchases. Ways that assets are purchased, such as lease or borrowing methods, may affect eligibility for the scheme.
This change will not supersede the previously announced threshold increase that allows businesses to immediately deduct purchases of eligible assets costing less than $25,000. The $25,000 increase applies from 29 January 2019 until budget night (2 April 2019) whereas the new $30,000 increase applies from budget night until 30 June 2020.
There is no guarantee that the Federal government will extend this scheme beyond 30 June 2020.
Essential record keeping at year-end
Staying on top of record-keeping all year round can save time, reduce stress for small business owners and help to maximise your tax return.
Although record-keeping can seem like a tedious job, it is an essential part of running a business. Good record-keeping makes it easier to meet your tax obligations, helps to manage your cash flow and make sound business decisions. Putting the hard work in at the end of each financial year can get your business organised and help you work smarter in the year ahead.
Essential business records that must be kept include:
Expense or purchase records:
You must keep records of all business expenses, such as receipts, tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses.
These records include lists of creditors or debtors and worksheets to calculate depreciating assets, stocktake sheets and capital gains tax records.
Income and sales records:
You must keep records of all income and sale transactions such as tax invoices, receipt books, cash register tapes and records of cash sales.
Documents such as bank statements, loan documents and bank deposit books need to be kept in preparation for your tax return.
Fuel tax credits:
To claim fuel tax credits for your business, records must show that you acquired the fuel, used it in your business, and applied the correct rate when calculating how much you are eligible to claim.
Payments to employees and contractors:
Records of your workers need to be kept, including tax file numbers, withholding declaration forms, contributions to their superannuation, wages and any other payments made to them.
By law, business records must be kept for a minimum period of five years after the record is created, updated or the transaction is completed. Records can be kept electronically or on paper, must be in English or in a form that can be easily converted, and thoroughly explain all transactions. Failure to keep the correct tax records can incur penalties from the ATO.
Getting PAYG withholding right
As the end of the financial year approaches, it is important to be aware of changes to compliance obligations for small business owners.
New penalties for business’ pay-as-you-go (PAYG) withholding and reporting obligations will commence 1 July 2019, with businesses now prevented from claiming deductions for payments to employees and certain contractors if they fail to comply.
Payments that are impacted include salaries, wages, commissions, bonuses or allowances to an employee, payment under a labour-hire arrangement, payment to a religious practitioner or payments for a supply of service.
The new laws will prevent an employer from claiming a deduction for payments to employees if they fail to withhold an amount as required under PAYG withholding rules or report a withholding amount to the ATO.
It is also necessary to understand the importance of lodging your business activity statement on-time, as a failure to do so may result in a business permanently losing its tax deduction for wages paid under the new law.
Businesses will also have to ensure they obtain a valid ABN from their suppliers and withhold at the top marginal rate if an ABN is not provided. A business that fails to comply with these rules will be denied a deduction if the payment relates to a contract for the supply of services. Contracts for goods and property are excluded from the operation of these new laws.
Voluntarily disclosing mistakes to the ATO before an audit or other compliance activity in regards to your tax affairs can allow your business to retain their deduction. Taking early action to ensure your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for deductions.
Superannuation strategies for end of the financial year
As the end of the financial year approaches, now is an ideal time to think about ways that you could grow your superannuation.
Here are some strategies you can consider that will enable you to streamline your finances while also seeking some generous tax breaks.
Also known as before-tax contributions, these are the funds that go into your super account from your income before-tax. They include employer contributions, salary sacrifice payments and personal contributions you claim as a tax deduction. The concessional contributions cap is $25,000 for all ages for the 2018-19 financial year.
Individuals must work at least 40 hours in a 30 day period within the financial year to satisfy the “work test” before they can make a contribution. The 2019-20 Federal Budget extended the work test exemption age from age 64 to 66, allowing greater flexibility in contribution rules for members aged 65 and over. From 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions of up to $300,000 in a single year without meeting the work test.
Before-tax contributions are not the only way to top up your super account. Non-concessional contributions are made into your super fund from after-tax income. They include contributions made by you or your employer on your behalf from after-tax income, contributions made by your spouse to your super fund, or personal contributions not claimed as an income tax deduction. The annual non-concessional contribution cap for the 2018-19 financial year is $100,000.
Where your total superannuation balance is $1.6 million or above, your non-concessional cap will be zero for future years. If non-concessional contributions have been made in excess of the $1.6 million balance, you should discuss this with your accountant.
Contributions that are paid by a spouse into the superannuation account of another spouse can be a useful way to grow your partner’s fund and provide tax benefits in some cases.
Under spousal contribution eligibility requirements, an individual can claim an 18% tax offset of contributions up to $3,000 made on behalf of a non-working partner. A further $3,000 can then be contributed with no tax offset. The changes delivered in the 2018-19 Budget now allow spousal contributions to be made until age 74, up from age 65, without having to meet the work test.
In order to receive the maximum tax offset of $540 for the 2018-19 financial year, you must contribute to your partner’s super fund (either de-facto or married) by 30 June and your spouse’s income must be $37,000 or less. The tax offset is then progressively reduced until it reaches zero for those who earn $40,000 or more.
Further delays to Division 7A
Changes to Division 7A will be further delayed, as outlined in the 2019-20 Federal Budget.
This section of the Tax Act requires benefits provided by private companies to related taxpayers be taxed as dividends unless they are structured as complying loans or subject to other exemptions.
Over the years, the provisions of Division 7A have been progressively amended. The Government announced that it will defer the start date of the already proposed changes that were delivered in the 2018-19 Budget to Division 7A by one income year, from 1 July 2019 to 1 July 2020. Delaying the start date will allow additional time to further consult with stakeholders and to refine the Government’s implementation approach.
The proposed amendments include simplifying Division 7A loan rules to make it easier for taxpayers to comply, increasing the benchmark interest rate by more than 3% from housing rate to overdraft rate, and a 10-year complying loan to replace both 7 and 25-year loan terms.
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