Deductibility of Employee Wages – Big Changes

Deductibility of Employee Wages – BIG CHANGES!

For most businesses, wages are one of the largest expenses.  Ordinarily, the payment of wages would be tax deductible for a business.  However, from 1 July 2019, payments to workers will not be deductible if the employer has not met their PAYG withholding obligations for the wages. 

Where the PAYG withholding rules require an amount to be withheld from wages, an employer must withhold that amount and report the withheld amount to the ATO. 

An employer won’t lose their deduction if they:

  • Withhold an incorrect amount by mistake but correct the mistake by lodging a voluntary disclosure form with the ATO; or

  • Withhold the correct amount but report an incorrect amount, provided the mistake is corrected as soon as possible.

Generally, an employer will only lose their deduction if there is a withholding or reporting obligation and no amounts were withheld or reported to the ATO (unless there is voluntary disclosure to the ATO in the approved form before the ATO reviews their business affairs).

 

These changes will work hand-in-hand with the new Single Touch Payroll (STP) reporting requirements that commence on 1 July 2019 for most businesses.  See our article here on Single Touch Payroll. 

 

What payments does this apply to?

The PAYG withholding system applies to the following payments:

  • of salary, wages, commissions, bonuses, or allowances to an employee

  • of directors fees

  • under a labour hire arrangement

  • for a supply of services where the contractor has not provided you with an ABN.

If you do not comply with the PAYG withholding system for any of these payments, you may lose a deduction for that payment.

 

What does this mean for my business?

If you employ staff, you will need to make sure you have systems in place to withhold the correct amount of tax from your employees’ pay.  The amount withheld must then be reported and paid to the Australian Taxation Office as part of your business activity statement reporting cycle. 

Businesses using accounting software packages should ensure their payroll modules are up-to-date and using the current year tax tables.  You also need to ensure that you have the correct documentation for your employees to support their wages and the PAYG withholding (including tax file number declarations).

 

How can we help?

We are conducting payroll health checks for businesses with employees.  Please contact us today on (07) 56656469 if you would like us to review your payroll systems to ensure they will be compliant at 1 July 2019.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Single Touch Payroll

From 1 July 2019, all employers will need to be reporting to the ATO using Single Touch Payroll. 

 

Employers will need to report, salary, wages, PAYG withholding and superannuation to the ATO at the time you pay your employees.

 

The Single Touch Payroll reporting requirements will work hand-in-hand with the new provisions that will deny a deduction to employers for failing to report and pay PAYG withholding for their employee payments (see our separate article here).

 

What does this mean for my business?

 

If you employ staff, you will need to make sure you have systems in place to enable you to report your payroll information to the ATO every pay period.  Generally, if you are using up-to-date accounting software, it should be able to comply with the STP requirements without too much additional effort.  However, you should check this with your software provider.

 

How can we help?

 

We are conducting payroll health checks for businesses with employees.  Please contact us today on (07) 56656469 if you would like us to review your payroll systems to ensure they will be compliant at 1 July 2019.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Federal election 2019 – Labor’s Franking Credit Policy

In the lead up to the 2019 Federal election, we will seek to provide you with as much information about the fiscal policies of both the Liberal party and the Labor party to ensure you can make a fully informed decision on election day.  We will not provide any judgements or comments in relation to the proposed policies. 

Labor’s Franking Credit Policy

What is the policy?

 Franking credits (or imputation credits) are credits that accompany franked dividends.  They represent the income tax that the company has already paid on the underlying profit supporting the dividend.  Currently, taxpayers receive a credit against their tax bill for the franking credits received from franked dividends.  Taxpayers can receive a cash refund of the franking credits if these credits exceed their tax bill.

The Labor party is seeking to stop the cash refund for the excess franking credits.  The franking credits can be used to reduce an existing tax liability, but cannot be used to generate a cash refund.  Excess and unused franking credits will be lost.

 

Exemptions

Labor’s policy will only apply to individuals and superannuation funds (and therefore will not apply to income tax exempt charities and not-for-profit institutions with deductible gift recipient status).

The policy also will not apply to taxpayers who are receiving an Australian Government pension or allowance.  This includes individuals receiving Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance.

The policy will also not apply to self-managed superannuation funds with at least one recipient of an Australian Government pension or allowance as at 28 March 2018.

 

When will the policy start?

The proposed start date of the policy is 1 July 2019.

 

Who is most affected?

Labor’s proposed Franking Credit Policy will impact on any taxpayers that are currently receiving a tax refund that is based on franking credits received on dividends (so superannuation funds that have an investment in Australian shares). 

Most significantly, superannuation funds will be impacted where at least one of the members is in pension phase (as earnings on pension income is tax-free).  If all members of a superannuation fund are in pension phase, the fund will not be paying any income tax on its earnings.  Consequently, the fund will presently be receiving a full cash refund of any franking credits attached to dividends. 

As noted above, however, the policy will not apply to self-managed superannuation funds where at least one member is in receipt of an Australian Government Pension or Allowance.

Individuals on low taxable incomes will also be affected where they receive a refund from franking credits.  This may, for example, impact on self-funded retirees where they have investments in Australian shares in their individual name.

In a press release on 21 January 2019, Josh Frydenberg MP (current Treasurer and member of the Liberal Party) argued that more than 900,000 individuals, 200,000 self-managed superannuation funds and 2000 super funds will be affected by this policy.

 

More information

You can access Chris Bowen MP’s statement regarding Labor’s franking credit policy here.

 

Important points to note

  1.  Implementation of the above policy would require Labor to win the 2019 election;

  2. Implementation of the above policy would require Labor to have the relevant legislation passed through the upper and lower houses of Parliament;

  3. The final legislation may differ to the above policy after a period of consultation with relevant community stakeholders.

 

What should you do if you’re concerned?

If you are concerned about your current tax or financial strategy as a result of the above proposed policy, we recommend you call us as soon as possible on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

QBCC licenses – big changes in 2019

The Queensland Building and Construction Commission (QBCC) are strengthening the minimum financial reporting requirements for license holders so the QBCC can more clearly monitor the financial position of licensees and take appropriate action where a licensee may be operating a financially unsustainable business.

From 1 January 2019, all licensees will be required to provide financial information annually to the QBCC (this was the position prior to 2014).  For licensees with a turnover between $800,000 and $30 million, the minimum financial requirements report will need to be substantiated by an appropriately qualified accountant.

Also, if a licensee is relying on a Deed of Covenant, they will need to provide detailed financial information about the Covenantor to the QBCC.

If the turnover of a licensee is below $800,000, they will still be required to provide financial information to the QBCC, however, they will not need to have their information certified by an appropriately qualified accountant.

Licensees with a turnover above $30 million will need to have their financial reports audited.

Licensees will also be required to report a significant decrease in Net Tangible Assets (30% for licensees with a turnover below $30 million or 20% for licensees with a turnover above $30 million).  This will require licensees to monitor their net tangible asset position on an on-going basis.

 

What do I do if I currently hold a QBCC license?

If you currently hold a QBCC license, you will need to check the category of your license.  If your turnover is between $800,000 and $30 million, you will require a minimum financial requirements report prepared by an accountant using your results from 30 June 2019.  If this applies to you, we recommend contacting us as soon as possible on (07) 56656469 to discuss your QBCC reporting requirements.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

PPSR charges – is yours about to expire?

he PPSR (Personal Property Securities Register) commenced in January 2012.  Owners of personal property (this is any property other than land, building or fixtures) are able to register a charge over their property for a maximum of 7 year. 

If you registered a 7 year charge on your personal property at the start of the register in January 2012 your charge will expire in January 2019.  There are approximately 120,000 registrations that will require action prior to January 2019 to ensure they remain active.

We recommend that you check the expiry dates of your registered security interests.  The PPSR have a free search tool available for you to check the expiry date of your registered interests:

https://www.ppsr.gov.au/how-get-your-registrations-due-expire-report

It is also important that you review your overall asset protection strategy with your commercial lawyer to ensure that all of your assets are appropriately protected.

We recommend that you speak with your commercial lawyer to seek further advice about your PPSR registrations and the overall protection of your assets.  We work closely with several commercial lawyers.  Please feel free to call us if you would like a referral to one of these lawyers to discuss your PPSR registrations.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

$20,000 instant asset write-off

Currently, small businesses (with a turnover of less than $10 million) that buy an asset that costs less than $20,000 can claim an immediate tax deduction for the purchase.

The recent Federal budget announced that the $20,000 threshold will be extended to 30 June 2019 (at which time the deduction threshold will reduce to the former limit of $1,000).

If you are a small business and you purchase an asset for more than $20,000 you can still depreciate the asset in the small business depreciation pool (which is depreciated at 15% in the first year and 30% in the following years). 

If you run a small business and are thinking about purchasing (or financing) a new asset (eg. a vehicle or a large equipment), we recommend that you do this prior to 30 June to get a tax deduction for it in the current financial year.

If you would like to know more about your business’ eligibility to the $20,000 instant asset write-off please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Personal superannuation contributions

From 1 July 2017 individuals may be able to claim a personal tax deduction for contributions to superannuation.  (Prior to this, individuals could only claim a personal tax deduction if they were substantially self-employed.)

If you want to claim a personal tax deduction, you will need to:

  1. Ensure the contributions are received by your superannuation fund prior to 30 June;

  2. Give your superannuation fund a “Notice of Intention to Claim a Deduction for Personal Super Contributions”;

  3. Receive an acknowledgement letter from your fund prior to lodging your 2018 tax return.

Remember that the maximum concessional (deducted) contribution that individuals can claim for the 2018 year is $25,000.  If you are an employee and you wish to make additional deducted superannuation contributions (on top of the contributions made by your employer), you will need to ensure that the combined contributions do not exceed the $25,000 concessional cap.

If you would like to discuss your eligibility to claim a deduction for a personal superannuation contribution, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Federal Budget 2018-19

Last night Federal Treasurer Scott Morrison handed down his third budget.  While there were no shocks or great surprises in the announcements, there were some welcome tax reform measures.

A shared feeling among most budget commentators is that this was a “victimless” budget – that is, no one particular group suffered from the announcements.

So what did we like in the Budget?  Individual taxpayers will appreciate tax cuts via a low and middle income tax offset and the changes to the tax brackets.  Small businesses will get an advantage from the extension of the $20,000 instant asset write-off (and the proposed reduction to the company tax rate as announced in previous Budgets).  Retirees have not had any significant changes made to superannuation – which is a welcome change for an industry still trying to come to grips with the superannuation changes made from previous budgets.  Scott Morrison also confirmed that the Government will not be making any changes to the current franking credit regime (we await the opposition’s Budget response to see if they will continue with their suggested changes to franking credits).

The tax changes proposed in last night’s Budget will now become part of the upcoming federal election battleground.  We hope that the proposed cuts to the company tax rate and the removal of the 37% individual tax bracket will be high on the Government’s agenda.

We’ve outlined below some of the main tax and other business measures that were announced in the Budget.

As with all budgetary measures, these measures are not final until the relevant legislation has been passed by the Government.  As such, it is important that you use caution in acting on these measures until they have become law.  We will keep you updated on the status of these proposed measures.

 

Businesses

  • Instant Asset Write-off – The $20,000 instant asset write-off for small businesses (who have an aggregated annual turnover less than $10 million) has been extended to 30 June 2019.  Assets acquired for more than $20,000 will be pooled and depreciated at 15% in the first year then 30% each year thereafter.  The balance of this pool can be written off when it is less than $20,000.

  • Taxable Payments Annual Reporting System – From 1 July 2019, the taxable payments annual reporting system to be expanded to the following industries:

    • Security providers

    • Investigation services

    • Road freight transport

    • Computer system design and related services.

 

The taxable payments annual reporting system already applies to the building industry and will extend to the cleaning and courier industries from 1 July 2018.

  • Non-compliant payments – From 1 July 2019, businesses will not be able to claim deductions for payments to their employees, such as wages, where they have not withheld any amount of PAYG from the payments, despite the PAYG withholding requirements applying.

  • Non-compliant payments – From 1 July 2019, businesses will not be able to claim deductions for payments to contractors where the contractor does not provide an ABN and the business does not withhold any amount of PAYG despite the withholding requirements applying. 

  • Director Penalty Notices – Currently, under the Director Penalty Regime, the ATO can make directors personally liable for superannuation and PAYG withholding.  The Director Penalty Regime is set to extend to GST, luxury car tax and wine equalisation tax potentially making directors personally liable for these debts also.

  • Corporate Tax Cuts – The Government is committed to its Ten Year Enterprise Tax Plan of company tax cuts announced in the 2016-17 Federal Budget (which will see the corporate tax rate cut to 25% for all companies by 2026-27).

 

Individuals

  • Medicare Care Levy –

    • The Medicare levy low-income thresholds increased from the 2017-18 income year. 

    • The Medicare levy rate will remain at 2%.  The Medicare levy rate was previously budgeted to increase to 2.5% to pay for the NDIS.  However, the Government has been able to fund the NDIS through the budget without increasing the Medicare levy.

  • Seven year personal income tax plan –

    • Step one – Tax Offset: A low and middle income tax offset will apply from 1 July 2018 to 30 June 2022.  The offset will give taxpayers up to an extra $530 of their tax back if they earn less than $90,000.  The offset then reduces and is completely phased out at $125,333 taxable income.  This offset will exist in addition to the Low Income Tax Offset.

    • Step two – Tax Rates: Individual tax brackets are being changed to prevent more Australians from moving into higher tax brackets. See the table of the new tax rates below.

    • Step three – Simpler System: The personal tax system will be simplified by removing the 37% tax bracket entirely from 1 July 2024.  The highest marginal rate of 45% will apply to taxable income exceeding $200,000.  A summary table of the new tax rates is below:

Superannuation

  • Protecting Your Super – From 1 July 2019, the Government will ban exit fees on all superannuation accounts.  This gives superannuation members greater flexibility to change funds.

  • Protecting Your Super – From 1 July 2019, the Government will introduce a 3% annual cap on passive fees charged by superannuation funds on accounts with balances below $6,000. 

  • Protecting Your Super – From 1 July 2019, all inactive superannuation accounts with a balance less than $6,00 will be transferred to the ATO.  The ATO will use data matching to reunite these funds with the member’s active accounts, where possible.

  • Insurance – From 1 July 2019, insurance will be offered on an “opt-in” basis to superannuation members with balances of less than $6,000, members under 25 years of age or members who have not made a contribution for 13 months and are inactive.

  • Work test exemption – From 1 July 2019, the Government will introduce an exemption from the work test for voluntary contributions to super for people aged between 65-74 with superannuation balances below $300,000 in the first year that they do not meet the work test. 

  • SMSF – The maximum number of members for self-managed superannuation funds will increase from 4 to 6 from 1 July 2019.  This will give SMSFs greater flexibility and allow for better succession planning for larger families.

  • SMSF – A 3 yearly audit cycle will be introduced for SMSFs from 1 July 2019 for funds that have a history of 3 consecutive years of clear audit reports and have lodged the fund’s annual returns in a timely manner.

 

Research and development

  • The R&D tax incentive is to be amended to improve its integrity.  The proposed changes will apply from 1 July 2018.  The R&D tax offset will be 13.5% above the claimant company’s tax rate.  Further, there will be a cap of $4 million per annum for the cash refunds from the R&D tax offset.  

We will keep you up-to-date with the progress of the implementation of these proposed measures.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Renting out your house (or part of it) on Airbnb?

With the Commonwealth Games coming up for the Gold Coast, some locals have chosen to rent out part or all of their house to visitors using Airbnb and other online platforms.  If you are renting out your house (or part of it) even for a short period of time, there are tax and other consequences you need to consider.

 

Tax consequences

If you are renting out your home (or a part of it), any income earned will need to be declared as assessable income in your tax return.  You may also be eligible to claim a proportion of the expenses for the property.

You will need to keep all of your receipts and records showing:

  • Total income earned for the property; and

  • Total expenses for the property (eg. rates, interest, insurance, cleaning, internet, repairs, fees charged by Airbnb or other rental platform).

If you only rented out a part of your house (eg. one room) you can only claim the expenses relating that proportion of the house plus a share of common areas (eg. bathrooms).  These costs are generally apportioned on the basis of floor area – so you will need a floor plan for your property showing the total area and the area of the relevant rooms.

If you are earning income from your property, there may also be capital gains tax implications for your property when you sell it.  You should seek advice regarding the capital gains tax implications before renting out your property.

 

Other consequences

You should check your insurance policy and make sure that the policy covers you if a tenant is injured on your property or your property is damaged or stolen by a tenant.

You should also review your local council regulations to ensure that short term letting is permissible in your local area.  You may also be required to notify your local council that you are renting out your property.

If you are already renting your property, you need to check your lease to see whether a sub-lease is permissible.

If you would like to discuss the tax implications of renting out your property, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

SMSF and cryptocurrencies

The ATO have recently released guidance for self-managed superannuation funds (SMSFs) investing in cryptocurrencies.  To invest in crytocurrencies, the investment must be allowed under the SMSF trust deed and be in accordance with the investment strategy.

When an SMSF acquires and disposes of cryptocurrency, it faces the same taxation and regulatory issues that apply to all other investments.  Please see our earlier article regarding the tax implications of investing in cryptocurrencies.

Below we have highlighted some of the key issues for SMSFs when investing in cryptocurrencies:

 

Investment ownership

Trustees need to ensure that the SMSF has clear ownership of the cryptocurrency (ie.  there must be evidence of a separate cryptocurrency wallet for the SMSF).  The SMSF wallet must be managed separately from the personal and business cryptocurrency investments of the trustees and members.

 

Valuation

The cryptocurrency will need to be reported at market value at 30 June.  The ATO have advised that they will accept the 30 June closing value published on the website of a cryptocurrency exchange that reports on historical cryptocurrency values.

 

Related party transactions

Subject to certain exceptions, an SMSF is prohibited from acquiring assets from related parties (eg. from members).  Cryptocurrencies do not fall within any of the exceptions.  As such, an SMSF cannot acquire cryptocurrencies from trustees or members.

We recommend that you seek independent financial advice when determining whether investing in cryptocurrency is appropriate for your SMSF.

Please do not hesitate to call us on (07) 56656469 if you would like to discuss the tax and regulatory implications of investing in cryptocurrency in your SMSF.

 

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,