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Boosting Super: Low And Middle Income Earners

 

If you’re a low or middle-income earner, you can take advantage of the government super co-contribution scheme to boost your super. The scheme works like this, for eligible individuals, depending on the amount of personal contributions you make to your super account, the government will contribute a maximum of $500 to your super account.

 

For the 2021-22 income year, you are able to get the maximum $500 government co-contribution if you earn less than $41,112 for the financial year and make a personal contribution of $1,000 to your super account (provided you satisfy the other criteria). The $41,112 threshold includes your assessable income, reportable fringe benefits and total reportable super contributions for the year, less any allowable business deductions.

 

Remember, personal contributions do not include the compulsory super contributions that your employer makes on your behalf or contributions made through a salary sacrifice arrangements, and are typically made from your after-tax income.

 

Those individuals that have a total income of more than $41,112 but less than $56,112 for the 2021-22 income year are still able to get a co-contribution, although not at the maximum $500 amount. The entitlement to the co-contribution reduces progressively as income rises with a minimum contribution amount of $20 (if the co-contribution is worked out to be less than $20, the minimum amount of $20 will be paid).

 

In order to be eligible for the scheme, individuals must also satisfy the 10% test, which requires that 10% or more of your income be from either employment-related activities, carrying on a business, or a combination of both. The ATO notes that for this test, your total income is not reduced by allowable business deductions to ensure that self-employed individuals are not disadvantaged if they have low income/profit in any financial year.

 

  1. In addition to the two income tests above, there are also other eligibility criteria including:
  2. being an Australian resident or permanent visa holder (with the exception of New Zealand citizens on a prescribed visa);
  3. being under 71 years of age at the end of the financial year;
  4. have a total super balance less than the general transfer balance cap at the end of 30 June of the previous financial year (($1.6m before 1 July 2021 and $1.7m on or after 1 July 2021);
  5. have not contributed more than the non-concessional contributions cap ($110,000 for 2021-22 income year); and
  6. have not claimed a tax deduction for the personal contribution you have made.

 

Where you meet the eligibility criteria, the government co-contribution is automatically determined by the ATO when you lodge your tax return. In most cases, the amount is paid directly to the super fund to which the personal contributions were made. There are exceptions however, including situations where you’re retired and no longer have a super account, in those instances, the co-contribution will be paid directly to you.

 

If you think you’re eligible for super co-contribution but have not received a payment, you can contact the ATO either via phone or in writing to request and explanation. Where you’re eligible to the co-contribution and it has not been paid within 60 days of receiving all the required information, the ATO will pay interest as a way of compensation.

 

Want to take advantage?

 

If you’re a low or middle income earner and would like to take advantage of the government co-contribution, we can help you work out the optimal amount of personal contribution to boost your super. We can also help if you think you’re eligible and have not received a co-contribution. Contact us today.

  How To Make Most Of Your Salary

With real wages not tipped to grow for a while, there is still a way that you can make the most of your money by salary packaging or through salary sacrifice arrangements if your employer has systems in place that allow for these types of arrangements.

Essentially, a salary sacrifice arrangement (sometimes also referred to as total remuneration packaging) is a formal agreement between an employer and employee whereby the employee agrees to receive a lower amount of pay each payday in return for the employer providing them with benefits of a similar value to the reduction in pay.

You may be thinking why it would be advantageous to receive less pay, the answer lies in the pre-tax and post-tax salary amounts. The amount that ends up in the bank every payday is your post-tax salary, that is the amount that you get after the tax is taken out. When you enter into salary sacrifice arrangements you may be able to pay for certain things from your pre-tax salary, which means your money goes further and you end up paying less tax.

 

Example

 

Ian receives a monthly pay of $1,000 before tax (pre-tax), say he pays 30% tax on the pay, that would mean his post-tax pay (the amount he receives in the bank) is $700 and $300 is withheld in tax. Ian has to pay for a course of study related to his work costing $200 each month, if he uses his after-tax pay to pay for the course he would only have $500 left. However, if his employer allows him to salary package the course of study and pay for it using his pre-tax salary, the scenario would be as follows:

Salary and wages before tax

$1,000
Salary sacrifice amounts

-$200
Salary and wages after salary sacrifice

$800
Tax at 30%

-$240
Post-tax salary (the amount received in the bank)

$560

 

 

 

 

 

 

 

 

 

 

  • Therefore, as can be seen in this simple example, Ian would get $60 more per pay cycle just by taking advantage of a salary sacrifice arrangement.If you think salary sacrifice may benefit you, note there are some requirements for it to be effective including:the arrangement should be entered into before the work is performed (ie salary and wages, entitlements, bonuses etc that accrued before the arrangement was entered into cannot be a part of an effective salary sacrifice arrangement);

 

  • the arrangement should be in writing between you and your employer (but may be verbal in some instances);

 

  • there should be no access to the sacrificed salary (ie the sacrificed salary must be permanently forgone for the period of the arrangement).

 

Once the requirements are satisfied, there are no restrictions on the types of benefits that can be sacrificed, the most important thing is that the benefits form part of your remuneration, replacing what would otherwise be paid as salary. Probably the most common types of salary sacrifice arrangements would relate to superannuation and costs of study. However, depending on the industry and employer there may be many other types of benefits that could be included.

 

Want more money in your pocket?

If you want to get more out of your wages and would like to find out how to structure and negotiate and effective salary sacrifice arrangement based on your unique situation, we have the expertise to help. Contact us today.  

 

New Corporate Residency Test: More Details

In the 2020 Federal Budget, the government announced that it intended to make technical amendments to clarify the corporate residency test. While the government has not provided further details, the Board of Taxation has recently released its review of corporate tax residency, the details of which appear to be consistent with the government’s intentions. This report contains more information on various aspect of the government’s announcement including the concept of sufficient economic connection.

 

Under the current rules, a company will be an Australian tax resident if:

 

  • the company is incorporated in Australia; or
  • the company “carries on business” in Australia and has either it’s central management and control in Australia OR its voting power controlled by shareholders who are residents of Australia.

However, in Bywater Investments Ltd & Ors v FCT; Hua Wang Bank Berhad v FCT [2016] HCA 45, the High Court decided that having boards of directors of various companies located in overseas countries were insufficient to make the companies “foreign residents”. This overturned much of the accepted understanding of corporate residency of a foreign incorporated company and caused confusion and red tape for many in the business community.

 

In its review, the Board indicated that a majority of submissions supported its proposal to modify the “central management and control test” to ensure that a foreign incorporated company will only be an Australian tax resident if it has sufficient economic connection with Australia.

 

According to the report, “sufficient economic connection” could be determined using a two-step process. Firstly, to determine whether core commercial activities of a foreign incorporated company are undertaken in Australia. Only if the answer if affirmative, does it move to step 2 which involves looking at the central management and control of the foreign incorporated company.

 

The Board considers that overarching guidance on the meaning of “core commercial activity” should be provided in either the legislation or an explanatory memorandum and be supplemented by accompanying ATO practical compliance guidance. Further, it notes that additional ATO administrative guidance may be required on the meaning of the term “central management and control in Australia” in the context of modern corporate board practices.

 

Factors considered by the Board to be relevant when assessing whether the core commercial activities of a foreign incorporate company include:

 

the nature of the business carried on by the company;

 

the  location of staff and assets  employed in the conduct of  the core business activity of the company in both Australia and abroad;

 

  • the size of the company;
  • the sophistication of the company’s corporate governance practices;
  • any separation between strategic management and operational control of the business;
  • the  composition of the company’s board and any additional roles held by directors; and
  • the distinction between activities that are core to the conduct of the business and those that are preliminary or ancillary, such as general support functions.

 

In the Budget, the government announced the measure will have effect from the first income year after the date of the enabling legislation receives assent, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew Ruling TR 2004/15: residence of companies not incorporated in Australia — carrying on a business in Australia and central management and control).

 

How will it affect your business? If you have a foreign incorporated business and are not sure how this change will affect the conduct of operations in Australia, speak to us today. If you have other questions about the interaction of the potential new sufficient economic connection test, and central management and control, we can also help.

Illegal Phoenixing: ATO Retaining Refunds

 

 

 

 

A new administrative approach has been released by the ATO in relation to the exercise of the Commissioner’s discretion to retain tax refunds where a taxpayer has an outstanding notification. Previously, the ATO was able to retain refunds where a taxpayer has an outstanding notification in relation to BASs or PRRT (petroleum resource rent tax), but this power has been extended to encompass all outstanding notifications in an effort by the government to combat illegal phoenixing.

 

“[The ATO] recognises that the Commissioner’s exercise of this extended discretion will not be taken lightly. In particular, the exercise of the discretion will be considered in circumstances where taxpayers are identified as engaged in high-risk behaviour (including those engaging in illegal phoenix activity).”

 

According to the ATO, in deciding whether a refund should be retained, consideration of seriousness of the taxpayer’s behaviour ought to be weighed against potentially adverse consequences for the taxpayer. It notes some of the indicators of high-risk behaviour by taxpayers include the following:

 

  • poor past and current compliance with tax and super obligations (ie registration, lodgment, accuracy of reporting, record keeping, and making on-time payments);
  • poor behaviours and governance in managing tax and super risks;
  • the number of and the circumstances surrounding any bankruptcies or insolvencies;
  • tax-related penalties and sanctions imposed (ie director penalty notices or having committed an offence in failing to give security);
  • connection with advisers who are subject to disciplinary actions or sanctions relating to taxation of super laws (ie promotion of schemes);
  • past information which reasonably indicates fraud or evasion, intentional disregard of a tax law, or recklessness as to the operation of a tax law; or
  • the likelihood of participation in or promotion of aggressive tax planning arrangements, schemes, fraud or evasion and criminal activity.
  • Other circumstances where the Commissioner may consider retaining a refund include instances where phoenix behaviour has been displayed by the taxpayer, its associates or controllers. The ATO outlines features of phoenixing as involving cyclically establishing, abandoning or deregistering companies to avoid legal and financial obligations, insolvencies, stripping assets from a company and transfer of assets at an undervaluation.

 

If the ATO suspects phoenixing or where a taxpayer has been identified as high risk, the Commissioner has the power to retain the refund until the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever happens first. The ATO notes that while it is not required by law, it will send written communication explaining that the refund has been retained, the amount retained, and the outstanding notifications required to be lodged.

 

The ATO notes the communication will also explain to the taxpayer why retaining the refund was considered necessary and the reasons why the decision has been made. Additionally, the actions that the taxpayer can take to prevent their refunds from being retained in the future will be outlined. If you’re affected by the Commissioner retaining your refund, remember the decision is externally reviewable, and where the Commissioner makes an assessment of the underlying amount, you are able to object to the assessment.

 

Individuals that can demonstrate that the retention of the refund will cause serious financial hardship (ie being unable to afford the basic necessities of life), may be refunded the retained amount. Non-individuals may also apply for the retained amount to be refunded if they can show that the inability to give the outstanding notification by the original due date was directly caused by circumstances beyond their control.

 

Make sure it doesn’t happen to you!

 

The easiest way to ensure that your refund isn’t retained under these new broader powers is to make sure all your outstanding notifications are lodged and you’re compliant with your tax and super obligations. If you need a helping hand with bringing lodgments up to date, contact us today.

Rental Property Deductions: What Can I Claim?

 

 

Rental property deductions have many rules, and the ATO is on the lookout for incorrect claims. Some expenses can be deducted immediately, while others will need to be claimed over time. Stay on top of the rules and avoid ATO headaches this tax time.

Did you know that a random audit by the ATO last year revealed nine out of ten rental property owners made a mistake with their rental deductions? In this first of a two-part series, we share some tips on what you can and can’t claim.

 

This series assumes you own a 100% rental property (with no private use) that is rented out, or genuinely available to rent, at commercial rates. You’ll generally only be able to claim a portion of your expenses if:

-you have a dual-use holiday home;

-you sometimes rent out your home on Airbnb;

-your property is leased at “mates’ rates” to friends and family; or

-your property is sometimes not available for rent.

 

Purchase expenses

Buying an investment property carries a host of upfront expenses, but not all of these are deductible straight away.

 

Stamp duty is not deductible, and neither are conveyancing or legal fees for the purchase.

 

Instead, these expenses will be included in the asset’s “cost base” for capital gains tax (CGT) purposes when you later sell the property, which effectively reduces the size of your capital gain.

 

On the other hand, ongoing land tax (and other charges like council and water rates) are deductible. Legal fees you incur later may also be deductible if they relate to things like evicting a tenant or suing for loss of rental income.

 

Another trap that can arise is initial repairs. If you need to remedy damage that already existed when you bought the property, the repair costs are not immediately deductible in the year you incur them. Instead, these can be claimed gradually over time as capital works deductions (or sometimes as depreciating assets).

 

You also can’t deduct costs associated with selling the property, like advertising and conveyancing expenses (which instead form part of the asset’s CGT cost base). You can, however, claim advertising costs for finding tenants while you own the property.

 

Repairs or improvements?

While initial repairs aren’t immediately deductible, ongoing repairs and maintenance costs for damage and wear that arises while the property is leased (or available for lease) are deductible in the year you incur them. This includes costs not only to remedy direct damage or deterioration, but also for preventative maintenance to keep the property tenantable, such as oiling a deck. Gardening, lawn-mowing, cleaning and pest control are also deductible.

 

It’s vital to distinguish between a repair and an improvement. This is because unlike ongoing repairs, improvement costs are not immediately deductible. The ATO says that if the work doesn’t relate directly to wear and tear (or other damage) from leasing the property, it’s not a repair. Examples of work that isn’t a “repair” but more likely an improvement include:

 

  • Replacing an entire structure when only part of it is damaged.
  • Replacing a damaged item with something that’s better and changes its character (eg replacing a broken plaster wall with a brick feature wall).
  • Renovations or additions to make the property more desirable or valuable.

Some improvement costs are claimed over time as capital works deductions (where they are structural improvements) and in other cases as capital allowances (where they involve a depreciating asset such as carpets, timber flooring and curtains). Note that new rules from 2017 restrict deductions for depreciating assets already used in second-hand residential investment properties at the time of purchase. Your tax adviser can help you navigate these and other complex rules about capital deductions.

 

Get help from the experts

With the ATO promising to double the number of audits of rental property claims this year, it’s important to get good advice. Contact us for expert assistance to ensure you maximise your deductions while staying within the rules.

Drawing On Super To Buy Your First Home

Saving for your first home? In a market where owning your home is increasingly out of reach for many, the First Home Super Saver (FHSS) scheme offers some practical hope. Here we look at how it works.

 

Where super was once locked away until retirement, you can now actively use its tax concessions to save up to $30,000 towards your first home, and then access your savings when you’re ready to buy. But this scheme is not for the faint-hearted, with lots of steps to climb before you get to your new front door.

 

Eligibility

The FHSS scheme is clearly for first home buyers – those who are buying or constructing their first home in Australia. But those buyers must:

-be 18 years or older;
-have never owned a property in Australia (being a freehold interest in real property, a long-term lease or a company title); and
-only apply for the scheme once.

However, there is provision for owners who have previously lost their property through financial hardship to be considered eligible for the scheme.

 

The good news is that there is no limit on the number of those eligible to share in the purchase of the same home under the scheme. So, couples, siblings and friends – as long as they meet the FHSS requirements – can pool their FHSS contributions towards the one purchase.

 

A further caveat is that you either live in the home you’re buying or you intend to do so for at least six months within the first year of ownership.

 

The scheme

The FHSS scheme refers only to contributions made since 1 July 2017. The scheme allows you to release up to $15,000 of voluntary contributions you’ve made to your super in any one financial year, and up to $30,000 in contributions in total, plus all the associated earnings, subject to contribution caps.

 

To be eligible, these contributions:

-are those made by you as the member or by your employer (but do not include compulsory super guarantee contributions – there are other specific exclusions so it is important to check with your adviser); and
-can be made up of concessional and non-concessional contributions, but only 85% of eligible concessional contributions can be released.

 

Get the sequence right

While you’re house hunting, it’s important to be clear on the FHSS process ahead. Once you’ve saved the final amount and, before signing a contract to purchase your home or applying for the release of your FHSS funds, you must apply to the ATO, and obtain, an FHSS determination. This determination will set out the maximum amount that you can release under the scheme.

 

Once you receive the determination you can then make a valid request to the ATO to issue an authority to your super fund for the release of an amount up to the maximum in the determination.

 

Your fund will then pay the released amount to the ATO but this may take about 25 days, so timing can be critical particularly if the funds are needed for the deposit.

 

If eligible, you can enter into a contract to purchase or construct your home either:

-as soon as you make the request to release the funds (rather than when the funds are released); or
-up to 14 days before the date you make this request.

You have up to 12 months after you’ve requested the release (unless more time is allowed by the ATO) to sign a contract to buy it.

 

Once you finally do sign your contract, you must notify the ATO within 28 days that you have done so.

 

All in order

It’s important to note that there’s an ordering rule for release of your super savings.Contributions are counted in the order in which they are made to your fund, from earliest to latest and also non-concessional contributions are counted before concessional contributions.

 

If you decide not to go ahead with the purchase you must notify the ATO within 12 months of making the release request, and either take advantage of a further 12-month extension or recontribute an eligible amount back into super as a non-concessional contribution. Alternatively, if you fail to comply or decide to hang onto your FHSS released amounts they may be subject to 20% FHSS tax.

 

Guidance at an important time

If drawing on your super to buy your first home is right for you, take care not to mess with the rules, or you’ll miss out. We know the traps and can provide expert advice to guide you safely to your front door.

GST On Imports: Are You Optimising Your Cashflow?

Looking for opportunities to improve cashflow? If you import goods as part of your business, you don’t have to pay GST upfront if you’re registered for the ATO’s deferred GST scheme. Instead, you can defer and offset GST amounts in your next activity statement. However, there are some eligibility requirements – including a condition that your business lodge activity statements monthly (rather than quarterly). Find out how you can take advantage of the scheme.

 

If you import goods into Australia as part of your business, your cashflow position is probably top of mind. So, if you’re not already taking advantage of the ATO’s scheme to defer GST payments on imports, it’s time to talk to your adviser. The scheme can benefit not only wholesalers, distributors and retailers, but also any business that imports goods for use in carrying on its business.Usually, GST is payable on most imports into Australia and goods will not be released until the GST is paid to customs. This can have significant cashflow implications for importers. While you’re generally able to claim a credit later for the GST paid, you still need to have the funds to pay the GST at the time of importation.

 

The ATO’s deferred GST scheme allows participants to defer payment of the GST amount until their next business activity statement (BAS) is due.

 

This means you can start selling or using the imports in your business right away without having to come up with the GST amount when the goods arrive in the country.

 

Eligibility for the scheme

Businesses who wish to take advantage of this scheme must apply first and be approved by the ATO. To be eligible, you must have an ABN and be registered for GST. You must also lodge and pay your BAS online. This can be done yourself or through your registered tax or BAS agent.

 

Another key requirement is that you must also lodge your BAS monthly, which means that if you’re currently lodging quarterly you’ll need to elect to lodge monthly. (When you make this election, the change won’t take effect until the start of the next quarter, so you won’t be able to defer GST on imports until the start of that quarter.) If this applies to you, you’ll need to weigh up whether the deferred GST scheme is worth giving up quarterly BAS lodgement.

 

Once you’re approved for the deferred GST scheme, it’s important that you lodge and pay your monthly BAS on time. The ATO may remove you from the scheme if you fall behind, and in this case you’d need to reapply for the scheme.

 

Timing of the deferral and credits

Once you’re approved, your GST amounts on taxable imports will be deferred until the first BAS you lodge after the goods are imported (which for monthly lodgers is due 21 days after the end of the month). The deferred amount is reported electronically by customs to the ATO, who will use this data to pre-fill the “deferred GST” in your BAS.

 

The deferred GST liability is then effectively offset by a GST credit you can claim for the deferred amount. As with all GST amounts you pay on purchases you make for your business, you can claim a credit for the deferred GST liability on your imports to the extent that you use the goods in carrying on your business (and you can’t claim a credit for private use or to make input-taxed supplies). Therefore, the overall effect of participating in the deferred GST scheme is that your GST on imports is deferred and offset, and you aren’t required to have funds available to pay the GST when the goods are initially imported.

 

Could your cashflow be improved?

Contact our office to discuss how the deferred GST scheme could benefit your business or to explore other strategies for improving your cashflow position.

The ATO’s Top Four Mistakes To Avoid This Tax Time

Getting around to your taxes soon? The ATO has revealed the most common mistakes taxpayers tend to make at tax time, with thousands of lodgers caught out every year. Don’t be one of them! Stay ahead of the ATO by knowing the traps and seeking expert help when you’re in doubt.

 

It’s tax time, and as with every year the ATO is warning individuals to take care with their returns. But did you know that the ATO is using increasingly sophisticated data analytics to detect problem claims? It’s more important than ever to get it right. Here are the top four mistakes the ATO says you should be avoiding:

 

1. Lodging before you have all of your income data

Have you confirmed your income from all sources? The ATO says taxpayers who lodge early are more likely to submit incomplete data that requires correction later – and a tax bill – when the ATO eventually uncovers this.

 

The ATO matches data with a wide range of third parties including banks, sharing economy platforms, rental property managers, cryptocurrency exchanges and share registries. This may take place several months after you’ve lodged your return.

 

If you do realise you’ve made a mistake or omitted income, you should tell the ATO promptly. In cases where penalties might apply, it will generally work in your favour if you voluntarily came forward about the undisclosed income. The ATO recommends waiting for your original return to be processed and your notice of assessment to be issued before lodging your amendment. This can be lodged by you or your tax agent.

 

2. Getting work-related deductions wrong

Work-related expenses are some of the most popular deductions claimed, but the rules can be tricky. While there are some general principles that apply – such as only claiming for the work-related portion of an expense and not for any portion relating to personal use – the ATO has specific guidelines in place for all the different categories of expenses.

Clothing, self-education, home office expenses and travel all have detailed rules about what you can claim, how to calculate your claim and what records you must keep. For this reason, the ATO cautions against relying on advice from friends and colleagues as to what you can claim. Getting help from a professional tax adviser is the best way to ensure you not only get your work-related claims right and avoid trouble with the ATO, but also obtain the maximum deductions you’re entitled to.

 

3. Not keeping receipts

Generally, you must keep adequate records to support your claims, including receipts. In some cases, you’re exempted from having to keep receipts (eg for clothing claims under $150). However, the ATO can still ask you to explain how you calculated your claim.

The ATO’s “myDeductions” app helps taxpayers to track their expenses, record their work-related car trips and store photos of receipts. When it’s time to lodge your return, you can export and email the data (to your tax agent or to yourself) and you can also upload the data to prefill your tax return, which your tax agent can also access through their online portal.

 

4. Claiming expenses you never incurred

In order to claim a deduction, you must have spent the money. Even though the ATO has some relaxed rules where you aren’t required to keep receipts up to a certain threshold, the ATO can still ask questions to verify whether you actually incurred the expense. As the ATO stresses, there’s no such thing as an “automatic” deduction.

You also can’t claim expenses that your employer has reimbursed you for. If you receive a specific allowance (eg for clothing) you must generally declare that allowance in your tax return, and you can then deduct the expenses you actually incurred.

 

Need help?

Don’t risk headaches with the ATO – get the tax professionals on side. Talk to us today for expert assistance and keep your tax time as stress-free as possible.

Easy Money: Is This The End For Cash-Only Business?

The prediction of Australia becoming a cashless society by 2020 looks closer to becoming a reality with two developments: the government’s crackdown on cash-only businesses and the imminent launch of instant bank transfers. Let’s take a look at what these mean for you.

 

Ahead of the Black Economy Taskforce delivering its final recommendations, the Government continues to scrutinise businesses who deal largely in cash-only transactions.

 

The crackdown on cash is part of the Government’s campaign to create a fairer playing field for businesses in Australia – large and small – to protect workers by ensuring that employers pay superannuation and other benefits, and to recoup $5 billion lost in unpaid tax due to illegal business practices.

 

You can expect a visit from the ATO if your business meets any of the following criteria:

operate and advertise as a “cash only” business;
ATO data matching suggests you don’t take electronic payments;
are part of an industry where cash payments are common;
indicate unrealistic income relative to the assets and lifestyle of the business and owner;
fail to register for GST or failing to lodge activity statements or tax returns;
under-report transactions and income according to third-party data;
fail to meet super or employer obligations;
operate outside the normal small business benchmarks for your industry; and
you are reported to the ATO by the community for potential tax evasion.

Contact us if you would like to know more and to discuss how your business can transition out of a cash-only model.

 

Industries under the spotlight

The ATO has identified the building and construction, hair and beauty and restaurant industries as high risk, meaning they see that is easier for these businesses to hide cash-only transactions.

 

Examples

Here are some examples provided by the ATO based on their previous round of visits to businesses:

 

Failing to lodge and not reporting cash income
A licensed carpenter failed to lodge tax returns for a number of years. The ATO demanded lodgment and when the tax returns were lodged, it was clear that income from cash jobs was not included. An audit for the 2006 to 2013 financial years revealed that the taxpayer had over-claimed GST input tax credits in addition to not declaring cash income. The ATO said the taxpayer’s record keeping was very poor and they couldn’t explain how some materials and vehicles were funded. The audit resulted in the taxpayer owing additional tax and penalties of over $190,000.

 

Business owner’s lifestyle did not match their reported income
A nail salon business with a number of outlets was selected when data matching indicated anomalies. The ATO’s initial investigation confirmed that the owner kept incomplete records and declared income that did not support their lifestyle and assets. The ATO said it uncovered more than $2 million of undeclared income. After imposing penalties for reckless behaviour of over $241,000, the total amount of GST, income tax and penalties payable by the owner was more than $728,000.

 

Poor tracking of cash payments
During an ATO visit to a restaurant, the ATO said it became apparent that the owner needed to improve their record keeping practices as cash was kept in a cardboard shoe box. The ATO’s profiling work showed five merchant IDs, which the taxpayer said belonged to five different restaurants operating under the one entity. All had the same poor record keeping processes in place. The ATO’s analysis identified several bank accounts, and third-party information identified deposits in excess of $300,000 for 2014 and 2015. It identified $1.3 million of understated income for 2014 and $1.5 million for 2015. The ATO calculated cash not deposited by developing a “cash deposit timeline” for each restaurant. It turned out that no cash had been reported to the ATO, and only EFTPOS income had been included in tax returns and activity statements.

 

Benefits of a non-cash business model

We understand that changing a business model requires planning, but there are many benefits to changing to a non-cash model that can help your business to grow, such as:

-tax incentives you might have missed out on, by not accurately declaring your full income;
-happier customers – people expect to be able to pay by card;
-electronic payment and record keeping facilities give greater visibility over the health of your business;
-avoiding law suits and penalties for non-payment of employee entitlements, or allegations of underpayment.

 

You will undoubtedly be able to access more customers if you consider putting your business online.

 

How can I transform my business?

The best place to start the transition is with your record keeping methods. This means recording every sale and purchase accurately in your accounting software. By providing receipts when you make a sale and requesting an invoice every time you make a purchase, you will have a clear audit trail from which to declare all income and expenses. And if you need assistance – we are here to help you plan and provide advice on what you’ll need to do to ensure the best outcomes for your business.

 

One of the most attractive features of cash is its immediacy in terms of making transactions. But there are compelling changes ahead in the non-cash world.

 

Cashless business model incentivesThanks to a billion-dollar infrastructure upgrade of Australia’s payments systems, from January 2018 customers of the “Big Four” banks and 50 smaller institutions will be able to benefit from the arrival of real-time funds transfers between accounts. This means that even when transfers occur between account holders from different institutions, or on weekends, public holidays, or anytime of the day or night, the funds should appear in real time. As a result suppliers and vendors can be paid swiftly and your own customers will be able to extend the same courtesy, meaning that delays to payment will be a thing of the past.

 

Plan your transition

Whatever your circumstances, we can help you plan, provide advice and assist your business to transition to a non-cash model.

Super “Opt Out” Choice For High Earners

If you’re a high income-earner with multiple employers, you may be aware of potential traps with compulsory super contributions that can lead to some hefty and unfair penalty taxes – and until now there’s been little anyone can do to avoid the problem. Fortunately, proposed new laws will give high income-earners the opportunity to take proactive steps to overcome any penalties.

 

Are you a medical professional or company director hired by multiple organisations who make compulsory super guarantee (SG) contributions on your behalf? Or perhaps you’re simply a high-income professional with an extra employment arrangement on the side, like a university teaching gig or consulting arrangement? If you have more than one “employer” for super purposes, you may benefit from changes to how the SG is administered for high income-earners.

 

What’s the issue?

A person’s concessional contributions (CCs) are capped at $25,000 per annum and include:

compulsory SG contributions
any additional salary-sacrifice amounts
any personal contributions made by the member for which they claim a deduction.

 

Unfortunately, a problem arises when an individual has multiple employers and inadvertently breaches their $25,000 CC cap because they receive compulsory contributions from each of these employers.

 

While an employer is only required to make compulsory contributions of 9.5% on the worker’s earnings up to $55,270 per quarter (or $221,080 per financial year), this applies on a per employerbasis. An employer must make contributions up to these thresholds regardless of how many other compulsory contributions the employee receives from other employers.

 

Example: Susan, a doctor, earns $215,000 p.a. from employer A, and $85,000 p.a. from employer B. Both employers must make contributions of 9.5% on all of Susan’s earnings because both salaries are below the $221,080 p.a. ceiling. This means Susan has total CCs of $28,500 ($20,425 + $8,075), and has breached her $25,000 CC cap.

 

If you contribute above the $25,000 cap, you will personally incur penalty tax on the excess amount at your marginal tax rate less a 15% offset, plus interest charges.

 

New opportunity to “opt out”

Fortunately, under proposed new laws before Parliament, affected employees will be able to “opt out” of receiving compulsory contributions from a particular employer by obtaining a certificate from the Commissioner of Taxation. The certificate will name a particular employer and a particular quarter of the financial year, and will exempt that employer from having to make SG contributions.

 

This is welcome news for high income-earners who may be at risk of breaching their CC cap. Here are some key requirements to know:

-You’ll need to apply for a certificate at least 60 days before the beginning of the relevant quarter.
-The Commissioner will only be able to issue you a certificate if you’re likely to have excess CCs if the certificate is not issued. To make this assessment, the Commissioner can rely on evidence such as past tax return data, employer payroll data and information provided in your application.
-You’ll be able to apply for certificates for multiple employers. However, you must always have at least one employer who’s required to make SG contributions for you.
-Once issued, a certificate cannot be varied or revoked.

 

If you choose to take advantage of this opt-out, you’ll be able to negotiate with the exempted employer to receive additional remuneration in lieu of super contributions (and you won’t need to show evidence of this to the Commissioner). The employer will still be allowed to make SG contributions (eg if negotiations for additional salary fail), but having the certificate in place means the employer will not be penalised if they don’t make contributions.

 

Start planning now

The legislation to enable the opt-out is likely to pass this year, creating some opportunities for 2020 planning. If you’re receiving SG contributions from multiple sources, contact us to begin your remuneration planning and to explore whether the opt-out may benefit you.

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