Archive for 'Tax'
If your business earns a part of its income in cold, hard cash, be prepared to have the Australian Taxation Office’s eyes on you this tax time.
To protect honest, compliant Australian businesses, the Australian Taxation Office (ATO) has placed a strong emphasis on targeting the cash and hidden economy (known to be a part of the shadow economy).
For example, they may be keeping a close eye on a sole trader electrician, whose reported earnings over the financial year versus their actual spending isn’t adding up. Or perhaps you have a side hustle (such as freelancing or selling plants at the market), and earn some cash-in-hand alongside your full-time job’s income.
The ATO will be watching these businesses and individual traders that deal predominantly in cash, with a focus on those that:
- Fail to meet super or employer obligations, and fail to register for GST or lodge activity statements.
- Operate outside regular small business benchmarks specific to their industry.
- Show discrepancies between what they have reported and ATO collected data relating to electronic payments.
- Operate and advertise as cash-only.
- Income does not correlate with the lifestyle of the business owner, i.e., assets and spending habits exceed what is expected of someone with their reported income.
- Pay their employees cash-in-hand.
- Estimate their sales and income.
- Use the ‘no sale’ and ‘void’ buttons on cash registers when taking cash payments.
- Do not reconcile at the end of the day and do not keep cash register tapes.
- Are reported to the ATO by members of the community or any third party regarding potential tax evasion.
- Are part of an industry that is known for dealing primarily in cash-only.
When out visiting cash-only businesses, the ATO will be working in unison with local authorities and industry associations to ask questions and discuss:
- Why the business operates primarily or only in cash.
- The need to lodge tax returns and activity statements.
- How to be compliant in relation to tax and super obligations.
- Different claims and tax deductions businesses can make.
- The general community’s preference for having EFTPOS or electronic payment options available to them.
- Benefits of electronic payment and record-keeping facilities.
- Relaying tools and services businesses can use if they are struggling to ensure they are compliant with Australian tax laws.
If the ATO comes across a business that is doing the wrong thing or failing to meet its obligations, they have a duty to take action. This may result in the business facing an audit and possible prosecution.
Its imperative that you are fulfilling your obligations and know where you stand, particularly with;
- Bookkeeping and record-keeping requirements
- Reconciliations between till takings (z-totals) and banking
- Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
- Consistency of business income between prior and current years, and with reference to lifestyle
If you do make a mistake upon completing your tax return but make a voluntary disclosure detailing your errors, the ATO will work with you to rectify this and create a solution.
Registering for an ABN and applying for GST refunds when you don’t own a business or are not eligible is fraud.
The Australian Taxation Office (ATO) has identified a significant number of GST refund fraud attempts, totalling an estimated $850 million to around 40,000 individuals. This fraud involves predominantly participants inventing fake businesses to claim false refunds.
Sophisticated risk models deployed by the ATO, coupled with intelligence received from banks including through the AUSTRAC-led Fintel Alliance and the Reserve Bank of Australia, identified a recent spike in suspicious refunds. Currently, the ATO has stopped $770 million in payments from being issued.
The fraud involves offenders inventing fake businesses and Australian Business Number (ABN) applications, many in their own names, then submitting fictitious Business Activity Statements in an attempt to gain a false GST refund.
Currently, this fraudulent activity has been circulating as online advertising and content, particularly on social media and their platforms.
Reminders For The Community
- The ATO does not offer loans. If you see someone advertising a way to get a loan from the ATO, it’s not legitimate.
- The ATO does not administer COVID disaster payments.
- If you are not operating a business, you do not need an ABN, and you don’t need to lodge a GST return.
- Backdating your business registration so you can apply for a refund will flag you as high risk in our systems.
- False declarations may impact eligibility for other government payments.
- The ATO possess the data matching ability to detect these patterns and stop fraud.
- If something seems too good to be true, seek independent advice from an adviser who has no connection to the arrangement before taking any action, or phone the ATO.
What This Means For Businesses:
- Legitimate businesses may face extra steps to receive their refunds as extra controls are put in place.
- To prevent people from lodging fraudulent claims, the ATO has engaged tighter controls around ABN and GST registration.
Were You Involved?
The ATO is urging anyone already involved to come forward now on a voluntary basis rather than face tougher consequences later. They will be recouping the funds, and there will likely be a better outcome for you if you approach them first.
People who have participated in this fraud may have unwittingly followed advice they have read online, claiming to help access a loan from the ATO, or receive other financial government support such as a disaster payment.
However, for others where there was nothing accidental or unintentional about setting up a fake business in their own name and seeking an unearned refund, harsher penalties could be faced.
If you become involved in this arrangement, you need to speak with the ATO now. They will be able to support you with a range of self-help options. You may be able to correct it yourself, the ATO may be able to assist you, or you may be referred to a trusted advisor like a tax agent (such as us) to help you.
The end of the financial year is coming up next month (30 June), and you may be looking for ways in which you could make tax savings in this year’s tax return. This could be through tax deductions, expenses that you could make now for your work purposes or even with tax offsets introduced by the government. Whatever your tax situation, we’re equipped and ready to help you navigate the tricks and traps of income tax returns.
Upon completing a tax return, individuals are entitled to claim deductions for expenses that are directly related to their income. These can come in a variety of forms, but must usually be work-related to be claimable.
There are three requirements individuals must meet to be able to claim a work-related deduction:
- the individual must have spent their money and not be reimbursed for it
- the expense must be related to their job and;
- there must be a record, like a receipt, to be able to prove it.
If an expense was for work and private purposes, individuals can claim a deduction for the work-related portion.
Here are some common types of deductible expenses taxpayers like employees and rental property owners can claim this financial year:
Home Office Expenses
The past year may have seen you working more from home or remotely than ever before, and setting up a home office may have incurred a number of additional expenses. Some of the expenses that you may be able to claim as tax deductions include
- Phone and internet expenses
- Computer consumables (such as printer paper and ink) and stationery
- Home office equipment (such as computers, phones, printers, furniture, etc).
With home office equipment, you may be able to claim either:
- the full cost of the items (if less than $300 in value) or
- The decline in value (also known as depreciation) for items over $300.
Unless you meet very specific requirements, you probably will not be able to claim for home expenses, such as mortgage interest, rent and rates, or the cost of general household items.
If you plan to use the temporary ATO approved ‘shortcut method’ (80 cents per hour for all additional running expenses) to claim your deductions, you cannot claim any other expenses for working from home for that period. If you purchased a desk to use when working from home for example, you cannot claim a deduction for that separately as it is covered by the 80 cents per hour work rate. The deadline for this method of calculation is 30 June 2022 (unless it is extended).
Individuals can make a claim for work-related clothing expenses including compulsory, non-compulsory and registered uniforms, occupation-specific and protective clothing, and expenses associated with work-related clothing, such as dry cleaning, laundry and repair expenses.
Individuals can prepay self-education items before the end of the income year, including:
– course fees (not HECS-HELP fees), student union fees and tutorial fees
– stationery and textbook purchases
Other Work-related Expenses
Individuals can prepay the following expenses before 1 July 2022:
– union fees
– seminars and conferences
– subscriptions to trade, professional or business associations
– subscriptions to magazines and newspapers
If you are looking for assistance in working out potential expenses that you could incur prior to the end of the financial year, have queries about your claims or just want to prepare for 30 June 2022, start a conversation with us now. We are tax planning professionals ready and willing to help.
It’s getting closer to the time that FBT returns need to be lodged, so it’s important to understand that there may be a change to the FBT liability of your business when it comes to one employee benefit.
Car parking as an FBT benefit is provided on a particular day when, between 7.00am and 7.00pm:
- a car is parked at a work car park for the minimum parking period;
- an employee uses the car in connection with travel between their place of residence and primary place of employment at least once on that day;
- the work car park is located at or in the vicinity of the primary place of employment, on that day;
- a commercial parking station is located within a one-kilometre radius of the work car park used by the employee;
- the lowest representative fee charged by any commercial parking station for all-day parking within a one-kilometre radius of the work car park exceeds the car parking threshold;
- the parking is provided to the employee in respect of their employment, and
- the parking is not excluded by the regulations.
However, a car parking benefit provided in respect of an employee is exempt where:
- the car is not parked at a commercial parking station;
- the employer is not a public company or a subsidiary of a public company;
- the employer is not a government body; and
- for the income year ending before the start of the FBT year, the employer’s assessable income is less than $10 million or alternatively, it is a ‘small business entity’ (SBE)
Redefining a ‘commercial parking station’ to revisit a prior concept associated with the application of fringe benefits tax may make the perks of coming into the office a little more appealing to employees.
FBT applies to parking provided by employers to their employees where there is alternative parking available commercially available.
Prior to the recent ruling, there was a previous understanding that car parks that effectively charge penalty rates for all-day parking (to encourage shorter stays) would not represent genuine alternative parking arrangements for commuters, and should not trigger FBT liabilities as a result. However, the recent ruling has overturned this, which means that any alternative paid parking would trigger the liability.
This ruling came into effect on 1 April 2022.
This recent ruling on how car parking is treated as an FBT liability should assist in reducing the potential FBT burden on some employers (which should assist them in turn in incentivising employees back into the workplace with benefits).
Other FBT benefits that employers may be able to claim back on in their FBT return could include COVID-19 related benefits (such as office equipment, technology, etc), company cars, meals, entertainment, living away from home allowances, and more. As a result of the impact
If you need assistance with preparing your FBT return for lodgement, consult with a professional as soon as possible so that we can assist you with preparing your return.
People across different industries may have different items for work that they can claim a deduction on their tax returns for, but this season may see a few common occurrences across individual tax returns for 2022.
On your individual tax return this year, you may notice a few expenses pertaining to COVID-19-related purchases, such as masks, hand sanitisers and RATs tests that you may be able to claim (depending on your circumstances). These deductions may have specific conditions and requirements that must be met, and failure to comply may result in the Australian Taxation Office disallowing these claims.
Masks and hand sanitiser are claimable deductions for those who have required them to work in their industry (e.g. retail, hospitality, education). This is because they can be claimed as PPE (Personal Protective Equipment), but they must be directly connected to how you earn your income (for example, many State governments mandated at various points last year that hospitality workers were required to wear masks while working). If your place of employment did not provide this PPE to you, and you had to purchase it yourself, it may be claimable.
Rapid Antigen Tests (RATs) however, must be purchased for a work-related purpose. There have been plans to specifically allow deductions for Covid-19 tests such as RATs by the Government to be claimed on individual tax returns.
This legislation is scheduled to be introduced on 1st July to specifically address this, but a COVID-19 RAT test can still be claimable if it is for a work-related purpose. This is the critical point to understand. It is a claimable deduction in this instance because it has been purchased for a work-related reason, or to be able to attend your place of work.
When claiming a deduction, it is important that you keep accurate records (such as receipts) to provide evidence of your purchase, and that these purchases weren’t reimbursed by your employer. If they were reimbursed, you will not be able to claim it back.
If you were working from home during 2021, you may be able to claim back some of the expenses related to this. One of the ways that you may be able to do so is through the ‘shortcut method’. This method allows you to claim 80 cents per hour for each hour worked from home (from 01 March 2020 to 30 June 2022). Importantly though, this includes everything – you don’t need to make other claims for work from home items such as phone, internet, stationery or furniture/equipment depreciation separately.
Depending on your circumstances, choosing the wrong method means you could cheat yourself out of big dollars on your tax return. Discuss your situation with your trusted tax agent so that you can understand what exactly is required from you in the lead up to tax return time.
GST is an area that commonly has mistakes made in it – mistakes that can be costly and require additional measures to correct it if they aren’t caught in time.
Many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.
A vast majority of these errors are easily avoidable and often relate to the over-claiming of GST credits. Here are the top ten common GST mistakes that can be made (and what you might be encountering yourself).
- Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.
- Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and can be claimed.
- Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.
- Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.
- The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.
- Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.
- GST-free purchases: Incorrectly claiming GST credits on purchases without GST, such as basic food items, exports and certain health services is a common mistake. Remember not all suppliers are registered for GST, so check the tax invoice before claiming a credit.
- Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. Only 50 per cent of the GST credits can be claimed.
- Wages and superannuation payments: Both wages and super do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.
- Sole traders and partnerships: When claiming expenses that are used for both private and business use, you must apportion the expenditure to exclude private usage.
If you find that a mistake was made on a previous activity statement, the ATO says you are able to:
- correct the error on a later activity statement if the mistake fits the definition of a “GST error” and certain conditions are met;
- lodge an amendment – the time limit for amending GST credits is 4 years starting from the day after the taxpayer was required to lodge the activity statement for the relevant period, or
- contact the ATO for advice.
If you find this process is too time-consuming or too difficult to complete yourself, the best way to ensure that you remain compliant and avoid making these mistakes is to contact a registered BAS agent for assistance.
As a part of your employees’ employment contracts, do they receive benefits such as a car space, gym membership or even a car to drive?
These are what’s known as fringe benefits, which is a ‘payment’ to an employee that takes a different form to salary or wages. This incurs a specific kind of tax separate from income tax known as fringe benefits tax, which is based on the taxable value of the fringe benefits provided. FBT applies even if the benefit is provided by a third party under an arrangement with the employer.
Knowing what is and what isn’t deemed as a fringe benefit will assist you in working out what you might provide to your employees as a benefit for working with you.
Examples Of Items That Are Fringe Benefits
- Allowing an employee to use a work car for private purposes
- Giving an employee a discounted loan
- Paying an employee’s gym membership
- Providing entertainment by way of free tickets to concerts
- Reimbursing an expense incurred by an employee, such as school fees
- Giving benefits under a salary sacrifice arrangement with an employee.
Examples Of Items That Are Not Fringe Benefits
The following are not fringe benefits:
- Salary and wages
- Shares purchased under approved employee share acquisition schemes
- Employer contributions to complying super funds
- Employment termination payments (including, for example, the gift or sale at a discount of a company car to an employee on termination)
- Payment of amounts deemed to be dividends under Division 7A
- Benefits provided to volunteers and contractors
- Exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.
Employees don’t have to worry about paying the tax on these items, but it is an area of concern that employers need to be careful of. Employers must self-assess their FBT liability for the FBT year (which ends 31 March) and lodge an FBT return.
Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. However, there are ways in which you may be able to reduce your liability when it comes to FBT.
These methods include:
- providing benefits that are income tax-deductible
- If your employee is given a benefit that they could otherwise have claimed themselves.
- using employee contributions
- If your employees contribute to the cost of the FBT themselves through cash payment to the provider of the benefit, the taxable value of the fringe benefit can be reduced by that amount
- by providing a cash bonus
- If you provide your employee with a cash bonus instead of a benefit you won’t have to pay FBT, and the employee will pay income tax on the amount.
- providing benefits that are exempt from FBT.
FBT exemptions can sometimes be changed by the Australian Taxation Office (ATO), which can affect your FBT liability.
One such change was the FBT Retraining & Reskilling Exemption. Under this change, if you are an employer who is providing to their employees who are redundant (or soon to be made redundant) a benefit that encompasses training or education.
The exemption can be applied to retraining and reskilling benefits provided on or after 2 October 2020. This exemption is not to be included in your 2022 FBT return or in your employee’s reportable fringe benefits amount. If you have already lodged your 2021 FBT return though and paid any FBT owing, you can amend your 2021 FTB return to reduce the FBT paid for retraining and reskilling that is exempt.
It’s advisable to consult with a tax agent (such as us) if you need to amend an FBT return (as we are equipped with the tools and skills to negotiate what can be a tricky area filled with complexities and traps). Now’s the best time to speak with us about your FBT liability, what you might need to include in your return and more. Start a conversation with us today.
Been hearing a lot about business activity statements, and feeling more than a little pressure?
Kicking off the new year for your business shouldn’t be shrouded in the darkness that can be a looming BAS. But how can you be certain that your business is prepared?
To start with, demystifying the BAS might alleviate some of that anxiety and pressure your business may have been facing. Essentially, a business activity statement (BAS) is a government form that all businesses must lodge to the Australian Tax Office (ATO). All businesses registered for GST need to lodge a business activity statement (BAS). This can be done with the assistance of a registered tax agent or BAS agent.
A BAS is a summary of all the business taxes you have paid or will pay to the government during a specific period of time. You may lodge your BAS monthly, quarterly or annually (depending on the size of your business you may not have the annual or quarterly option) or may do so through your tax/BAS agent.
When lodging your BAS, you need to include these payments within it:
- Goods and services tax (GST)
- Pay as you go (PAYG) income tax instalment
- Pay as you go (PAYG) tax withheld
- Fringe benefits tax (FBT) instalment
- Luxury car tax (LCT)
- Wine equalisation tax (WET)
- Fuel tax credits
A BAS is issued by the ATO either monthly or quarterly. A form needs to be lodged with the ATO and payment made to the ATO by the due dates as follows:
- For monthly BAS: within 21 days of the end of the month on the form
- For quarterly BAS:
- Quarter July – September: Due 28 October
- Quarter October – December: Due 28 February
- Quarter January – March: Due 28 April
- Quarter April – June: Due 28 July
(as registered tax agents we are given an extension to most of these deadlines)
You may instead be eligible to submit an Instalment Activity Statement (IAS). In the IAS, the ATO tells you every quarter what your GST instalment amount is and where applicable your PAYG instalment amount is. Essentially, the IAS is a form that is similar to the BAS, but simpler in that you do not have to be concerned about GST and some other nominated taxes.
Businesses that are not registered for GST and individuals who are required to pay PAYG instalments or PAYG withholding (such as self-funded retirees) use this form to pay PAYG.
IAS provides a little more flexibility in the arrangement as the instalments are advised by the ATO on what you need to pay to cover your liabilities.
You may be able to vary those amounts if you feel that the advised instalments are too much or not enough to cover your liabilities. You may also be able to pay the amount in one lump sum at the end of the year. Before changing the amount due, or the timing of the payment, it’s best to consult with us (or your registered BAS agent) for additional advice to suit your circumstances.
Preparing For Your BAS
Your IAS and BAS can be used to assist in monitoring your business finances. Though you only need to lodge these every quarter, waiting until the due date to get all of the information you require for the statements may cause you to miss out on critical observations (such as how much you may actually owe the ATO).
Daily tracking of your income and expenses can assist in calculating your GST and other liabilities on your BAS, and allows you to ensure that there won’t be any nasty surprises waiting for you.
Here are some tips on how you can prepare for your BAS or IAS this quarter
- Get everything up to date (such as your accounting software), and ensure that all of your bank feeds are imported, allocated and reconciled.
- If you are completing the BAS yourself, ensure that the reports from your accounting software are printed off every week – this should give you an estimate of what you would have to pay if your BAS was due right away.
- Check that your bank account for your business has enough money in it to cover your BAS payment.
- Create a profit and loss statement after printing your BAS reports to show you how much money has been made in the week (or month) to date
While your business may not necessarily be planning an extravagant bash after the events of this year, a Christmas party may be on the menu for your hard-working employees.
Planning out your Christmas party in a COVID-safe manner with a little knowledge of the tax deductions you might be able to claim back can make the giving a little sweeter this year.
You can take advantage of the $300 (including GST) minor benefit and exemption rule to hold a Christmas function for your current employees and their spouses. To do so, the party would need to be held on the premises of the business, and during a business day. If your costs are below $300 per person, FBT will not be incurred but you will not be able to claim tax deductions or GST credits.
However, if you provide benefits to your employees over $300, it will incur fringe benefits tax (FBT). This means if the Christmas party that you hold is priced at over $300 per person (for the cost of food and drink consumed by employees and spouses) at your in-house party, you will incur and need to pay FBT on the expenses of your employee’s spouse or family members only.
If the party is being held at a restaurant or venue, you will not need to pay FBT if the costs remain under $300 as it is considered a minor benefit. If the costs rise to over $300, you will need to pay FBT for your employees, their spouses and their family.
You may also choose to provide your employees with transportation to the Christmas party. Taxis provided to an employee will attract FBT unless the travel is to or from the employee’s place of work. If the party is held off-premises and you pay for your employee to travel by taxi to the venue and to their home after the event, only the first trip is FBT exempt.
The second trip may be exempt under the minor benefits exemption if you adopt its meal entertainment on an actual basis.
You can also provide other types of transportation to the venue, such as buses. These costs will form a part of the total meal entertainment expenditure and will be subject to FBT. If the threshold is not breached, then it may fall under the minor benefits exemption.
What About Meal Entertainment?
If your Christmas party does not include recreation, you may choose the value of food, drink, associated accommodation or travel as ‘meal entertainment’. This allows staff to pay less tax by claiming meals and drinks consumed in a restaurant/cafe or provided at a social gathering.
The taxable value of the meal entertainment can be made using a 50:50 method, 12-week method or actual method.
- 50:50 method – a 50:50 split where the taxable value is 50% of your total expenditure when providing entertainment to your employees, associates or clients during an FBT year.
- 12-week method – involves tracking the taxable value of each individual fringe benefit, and is based on the percentage of meals and entertainment provided to employees as registered in a log for a 12-week representative period.
- Actual method – best used when the exact number of attendees at the majority of meals and entertainment provided or the total value of all meals and entertainment during the FBT year based on actual expenditure.
Want to know more about how you can make this merry time of the year more tax-friendly to your business? Consult with us about how we can make your Christmas parties and employee benefits work for your tax.
Are you in the process of getting a second job to supplement your income? Or have you already received one, and are now simply confused about what you are being taxed on?
Gaining employment in a second position or job means that you may have a higher amount of tax withheld from your pay. Though this might sound daunting, it is simply because you are already claiming the tax-free threshold from another paying job.
The tax-free threshold in Australia is $18,200. If you are claiming your tax-free threshold, you are not paying tax on the first $18,200 earned in each income year. The tax-free threshold is equivalent to earning:
- $350 a week
- $700 a fortnight
- $1,517 a month
Withholding tax at a higher rate means that you are less likely to have a tax debt at the end of the income year
You may be receiving pay from two or more payers at the same time if you:
- have two or more jobs
- have a regular part-time job and receive a taxable pension or government allowance.
In these instances, your new employer will give you a Tax file number declaration to complete. Centrelink is also a payer who will give you this form if you apply for their payments.
When you fill in this form, you can choose whether to claim the tax-free threshold from your employer. However, if you are:
- Still earning income from your first employer, you should not claim the tax-free threshold for your second job
- No longer earning any income (including from paid leave), then you are entitled to claim the tax-free threshold from your second job and have a lower rate of tax withheld
- Starting to receive income from both employers, you can request that one employer withholds at a higher rate to avoid a tax debt at the end of the year.
If you are in the position of having two jobs, it is recommended to claim the tax-free threshold from the payer who usually pays the highest salary or wage. Your other payers then withhold tax from your income at a higher rate, which is known as the no tax-free threshold rate. This is likely to reduce incurring a tax debt at the end of the financial year.
Sometimes the total tax withheld from all sources may be more or less than the amount you need to meet your end of year tax liability. These tax withheld amounts are credited to you when you lodge your income tax return. If too much tax is withheld, it may result in a tax refund. However, if not enough tax was withheld, the difference may need to be paid to the Australian Taxation Office (ATO) so that you have paid enough tax for your income.
Confused, concerned or a little perplexed about what having a second job could mean for your tax obligations? Want to know more about what happens if the tax withheld isn’t enough? You can speak with a registered tax agent like us about your tax liability in the event of a second job.