Education Personal Strategy Tax

Top Tips For Tax Time

Let’s face it; no one likes tax time. Whether you are doing your personal or business tax, submitting the paperwork is something many procrastinate doing.

When it comes to Tax time, it pays to be organised! Most taxpayers will be expecting a refund, so getting your paperwork in order means you don’t miss or forget any expenses from the year, and everything you need is on hand to take the hassle out of your tax time.

Find All Your Documents

Saving everything to one place means it is there when you need it. You likely already have an accounts file for business expenses if you run a business. We don’t always consider doing this for our personal account keeping, but it does make tax time easier.

You might have receipts for tools and clothing in either physical or electronic form; saving them all to a file on your computer can make things easier, especially if you have a few email accounts!

Without accurate records, you may miss expenses which you can claim. When it comes to claiming deductions on your income, a good rule to follow is if you are going to claim it, you need to prove it.

Some other documents you may have an area:

  • Previous years’ tax return
  • Records of sale or purchase of any shares, business or property
  • Private Health Insurance Details
  • Spouse details
  • Income statement from work, rental properties, interest, dividends, cryptocurrencies and foreign income
  • Expense records such as receipts for work-related expenses, donations, applicable self-education, and any costs incurred for managing your tax affairs – such as an accountant preparing your tax
Create a List of Work-Related Expenses

Every profession has tools of the trade; some are physical tools, and others might be software subscriptions. Eligible work-related expenses may include car expenses, uniforms, mobile phone bills, and union fees. If something you require to do your job or that helps you do a better job is not reimbursed by your employer, you may be eligible to claim it as a work expense.

Once you have your list, make sure you have documents to support your claim.

Working At Home Expenses

With lock-downs and hybrid working arrangements on the rise, what you can claim as a work from home expense can be pretty confusing. Everyone’s circumstances are different, and a good accountant can walk you through the expenses you are eligible to claim.

In general, you can claim a deduction for the additional expenses you acquire due to working from home. These are called running expenses and relate to the use of facilities within your home and include:

  • Electricity expenses for heating or cooling and lighting
  • Decline in value of office furniture and furnishings as well other items used for work – for example, a laptop
  • Internet expenses
  • Phone expenses

As an employee working from home, generally:

  • you can’t claim occupancy expenses
  • there will be no capital gains tax (CGT) implications for your home.

In certain circumstances, you may also be entitled to claim occupancy expenses. The ATO refers to expenses you pay to own, rent or use your home as occupancy expenses. They include:

  • Mortgage interest
  • Rent
  • Council and water rates
  • Land taxes
  • House insurance premiums

If you are entitled to claim occupancy expenses, you may be taxed on any Capital Gains should you sell the property.

What To Send Your Accountant

If you are using an accountant to assist with your tax lodgement, they will need your list of documents and to supply:

  • Identification
    • Such as your driver’s license or passport
  • Bank account details
    • For your refund
  • Medicare card or number
  • Private health insurance information
  • Spouse details
    • Including details of their income

Understanding what you are eligible to claim can be confusing, primarily if you work remotely or have multiple income streams. If you are a business owner, sometimes it’s not clear what is a business expense and what is a personal expense.

We are here to help. Talk to our team about taking the stress out of tax time!

Advice Business Strategy Tax

What is PAYG?

PAYG refers to the ‘Pay As You Go’ tax system and describes two different processes overseen by the Australian Tax Office (ATO). The two processes are PAYG instalments and PAYG withholding.

If you have employees you pay through the PAYG system, you will likely be required to withhold their income tax to pay to the ATO. It is important to note that PAYG differs from Payroll tax, which you may also be obligated to pay.

If you are a Sole Trader and do not pay yourself through the PAYG system, you may consider setting aside funds throughout the year, so you are not surprised by a large tax bill at the End of Financial Year (EOFY).

The PAYG tax system allows employers to vary the amount of tax that is withheld from employees on each payment. The amount is withheld in anticipation of the employees’ end of year tax liability and is paid to the ATO in instalments.

Rather than requiring employees to pay a large tax bill at EOFY, the PAYG system is designed to facilitate partial payments over the year, making it easier for those who are paid through PAYG to meet taxation obligations. When an employee does their tax return at the end of the year, they will get a tax bill or refund.

Let’s take a moment to take a deeper look at Withholding and Instalments:

PAYG Withholding

PAYG withholding is a system of withholding income tax from an employee or contractor’s salary or wages. The employer pays the tax directly to the ATO on behalf of the employee or contractor.

These payments are made based on your expected income level for the year (calculated by the corresponding tax bracket) and will be considered when assessing your tax at EOFY.

PAYG Instalments

Generally, PAYG instalments will apply to individuals, organisations or trusts who earn a certain amount of individual, gross business or investment outcome.

PAYG Instalments is a system for the business to make payments as quarterly instalments. These quarterly payments go towards the expected income tax obligation from your business (or investments) for the current financial year.

Special rules and exceptions apply to PAYG instalments for different business and company structures, trusts, primary producers, and consolidated groups. It is best to be prepared and chat with us to make sure you are across the obligations that apply to your circumstances.

Who does PAYG Withholding apply to?

You are obligated to withhold tax if your business:

    • Has employees
    • Has contractors or other workers who have voluntarily agreed that you will withhold amounts from your payments to them

If an employee or contractor earns under the tax-free threshold, they can claim a tax refund through their individual tax return which is processed at the end of the financial year. As an employer, you must follow the guidelines for paying the appropriate level of tax.

If you are making payments to businesses that does not quote their Australian Business Number (ABN), you will be obligated to withhold tax.

PAYG Tax Variations

Your employee may request a tax variation to vary the rate of withholding so that they can:

  • Lower the amount of tax withheld
  • Increase the amount of tax withheld
    • To avoid receiving a large tax bill at the end of the year

In the instance of a downward variation, the employee will need to submit a PAYG Withholding variation application.

Register for PAYG Withholding

If you are making payments under the PAYG system, you must be registered. This simple process can be done through the Australian Business Register on the ATO website. If you already have an ABN, you can use the ATO’s Business Portal to register.

You will need to be registered before you withhold your first payment.

Exceptions to PAYG Withholding Obligations

You may be exempt from withholding income if your business is a sole trader or partnership structure and you ‘draw’ amounts from the business. Meaning you are not paid through the PAYG system.

Owners’ drawings are not considered a wage, so these drawings are not subject to PAYG withholding.

It is essential to make sure you understand your tax obligations and that you are withholding the correct amount and paying your instalments on time. Failure to meet these obligations can result in fines and other easily avoided repercussions by the ATO.

I am here to help if you want to talk through your obligations and any compliance concerns. A correctly set-up bookkeeping system can minimise errors and streamline calculating withholding amounts and employee payments. I can review or set up your system to help minimise the administrative burden of meeting your business tax obligations. Book a chat with me to see how I can help.

Advice Business Strategy Tax

ATO Change To Common Trust Distribution Rules

The ATO has released four tax rulings that will stop commonly used trust distributions to family members. It’s one of the most significant developments for the taxation of trusts in over two decades.

If you currently distribute funds from a trust to family or intend to, it is crucial to understand how these changes will affect you in this 2022 tax year and your future tax obligation changes.

As a result of these ATO rulings:

  • Your options to spread your trust income across your family members may be vastly limited; and
  • Your family group’s overall tax payable will probably increase.

For many years, it has been common practice by all business owners and investors who use Family (Discretionary) Trusts to look to spread trust income across family member beneficiaries.

Trust distributions are often made to adult children for asset protection and estate planning purposes.

 

Sometimes, the adult children in a family may have lower tax rates than their parents, so the overall tax rate % for the family group is lower due to the spread of these trust distributions.

What does this mean for you?

You must take steps now to plan for the extra tax payments that you may need to make.

On 23 February 2022, the ATO issued Taxpayer Alert TA 2022/1″ Parents benefitting from the trust entitlements of their children over 18 years of age”.

This means that the ATO believes parents who make trust distributions to their adult children and then arrange for their children to give the distribution back to them are only doing this to reduce tax. The ATO plans to invalidate the trust distribution and tax the trustee of the trust at 47% on the distribution amount.

The ATO has stated that they can go back as far as the 2015 tax year to review trust distributions.

Tax Planning Review

If you could be affected by these changes, it is vital to have a strategy in place to minimise your tax obligations before the end of the financial year.

We can walk you through how these ATO tax law changes affect you and discuss new strategies that you might be able to use.

Book a chat with me to see how I can help.

Budgeting Business Strategy Tax

Fringe Benefit Tax & Your Small Business

As a small business owner, offering extra benefits to your staff can be a great way to incentivise your recruitment and retention programs when you don’t have the same budget as a larger business.

If you choose to provide your workers with additional benefits on top of their regular pay, you need to consider if any of these benefits could be taxable.

Fringe benefits are a payment type, but different from salary or wages. As such, FBT is separate from Income Tax, and is calculated on the taxable value of the benefits you provide.

Generally speaking, a Fringe Benefit Tax (FBT) is tax employers pay on benefits paid to an employee (or their family members). It is a tax imposed on the employer, and therefore it does not affect the employee’s individual income tax liability. However, it may affect certain income thresholds depending on the employee’s personal circumstances.

What is the classification of a cash bonus?

A cash bonus is not liable for FBT. If you pay a cash bonus the employee will pay income tax on the amount.

FBT Assessment

As an employer, you must self-assess any FBT liability for the FBT year. The FBT year is different to the financial year. Your FBT year is between the 1st of April to the 31st of March.

Employers can generally claim an income tax deduction for the cost of providing fringe benefits, and for any FBT they pay. You may also be able to claim GST credits for items provided as fringe benefits.

Common examples of fringe benefits include:

  • Using a work car for private purposes
  • Giving an employee a discounted loan
  • Paying an employee’s gym membership
  • Entertainment such as free tickets to concerts or your Christmas Party

Benefits that are legally required are not fringe benefits; these include:

  • Salary and wages
  • Contributions to Super Funds
  • Employment termination payments

Registering for FBT

If you provide fringe benefits (including those mentioned in the above list) to your employees, the Australian Taxation Office (ATO) recommends registering for FBT.

Employers must be registered for fringe benefits tax (FBT) and are obligated to lodge an FBT return if they’re liable to pay FBT. Generally, you will need to submit your return the same FBT year you are liable to pay FBT.

Which fringe benefits are exempt?

Some benefits are exempt, or have concessions from FBT. Benefits that are exempt from FBT include providing tools or electronic devices (laptops, phones, etc.) that are mainly used for work purposes. Also, living-away-from-home allowances may be an exempt benefit.

‘Minor benefits’ are also FBT-free. A minor benefit is one with a value of less than $300. If you host an event such as a dinner for staff, it will likely be a minor benefit if it is under $300 per head.

Certain not-for-profit organisations like charities, public hospitals and religious institutions may have exemptions or concessions available to them.

FBT and COVID-19

If your employees working from home has resulted in you paying for benefits or items you usually do not provide (computer, internet access, etc.), you may be eligible for FBT concessions and exemptions.

Conclusion

It is important to understand the difference between legally required benefits and how to identify which additional benefits are taxable.

Incorporating fringe benefits into a hiring and retention program can be an excellent way for employers to source and retain top talent. However, to use fringe benefits effectively, employers should know about the types of fringe benefits, their tax obligations, and how to value them appropriately.

If you are unsure if you need to register for FBT or would like some assistance with your FBT return book in a chat with Amanda.

Business Strategy

Do You Need A Director ID?

Essentially, if you are a Director of a company, a registered Australian body, a registered foreign company or an Aboriginal and Torres Strait Islander corporation you will need a Director ID.

A Director ID is a unique identifier you will keep forever. It’s part of a plan to help to prevent the use of false or fraudulent director identities. It is a new requirement (applications for Director IDs opened in November 2021), and the new Australian Business Registry Services (ABRS) is responsible for administering the Director ID initiative.

If you are currently a Sole Trader, there is no requirement. However, in the future, if you restructure to a company and become a Director, you will need to apply for a Director ID.

Who Does This Apply To?

You’ll need a director ID if you’re a director, or an eligible officer, of:

  • A company
  • A registered foreign company
  • A registered Australian body, or
  • An Aboriginal and Torres Strait Islander corporation

An ‘eligible officer’ is a person who is appointed as:

  • A Director
  • An Alternate Director who is acting in that capacity

For instance, perhaps you are the appointed Director in a business you run with a partner. If you have a serious accident or medical complication, your partner may need to step up and act as Director until you are back to work. When they are appointed to act as an alternative director, they may need a Director ID.

When Do I Need To Apply?

Applications are open as of November 2021. We recommend you plan ahead and organise your application now, to alleviate any last-minute stress as you will need to coordinate supporting documentation to be submitted with your application.

The deadline or cut-off date for applying without repercussions is:

  • Directors appointed from 1 November 2021 must apply within 28 days
    • This affects you if you are a newly appointed Director to an existing company or if you are setting up a new company
  • Directors appointed on or before 31 October 2021 have until 30 November 2022 to apply
    • Essentially, if you are an existing Director
  • From 5 April 2022, intending directors must apply before being appointed
    • Before you can start acting as Director, you must submit your application for a Director ID

 

How Do I Apply?

It is important to note that you must apply for your Director ID yourself. At ASAP Solutions, we can assist you with your application, but we can’t lodge on your behalf.

Directors apply for their Director ID via the ABRS website.

To make an application, a Director will need to have:

  • A myGovID (Note: myGovID is different to MyGov)
  • Your Tax File Number
  • Your Address as recorded by the ATO
  • Documents to verify your identity

Offences & Penalties

After the application cut-off date, there are penalties for failing to hold a Director ID and for additional breaches, which you may be liable for if you don’t comply. Additional breaches include:

  • Failure to have a Director ID when required to do so
  • Failure to apply for a Director ID when directed by the Registrar
  • Applying for multiple Director IDs
  • Misrepresenting having a Director ID

Why Do We Need The Extra Paperwork?

The intention is that Director IDs will make it easier for regulators to associate directors with companies.

It is a move designed to create transparency so that key stakeholders such as shareholders, employees, creditors, and regulators know the details of the directors of a company.

This is important because it will help to:

  • Prevent the use of false or fraudulent director identities
  • Make it easier for external administrators and regulators to trace directors’ relationships with companies over time
  • Identify and eliminate director involvement in unlawful activity, such as illegal ‘phoenix’ activity

Although a fun sounding name, illegal phoenix activity is quite a serious matter. Basically, it is when a company ‘goes under’ (for example, it is liquidated to avoid paying its debts), and a new company is then started with a ‘clean slate’ to continue the same business activities without the debt.

When this happens, the ramifications tend to hit the employees and small suppliers the hardest:

  • Employees may miss out on wages, superannuation and entitlements they are due
  • Suppliers or sub-contractors are left unpaid (quite often, this is small businesses with ‘smaller’ debt ledgers and limited means to collect funds)

 

If you have any questions about Director ID’s or the application process, please reach out. At ASAP Solutions offers a range of Tax & Bookkeeping Services. Talk to us about how we can help.

Budgeting Business Personal Tax

Key Dates For The Financial Year

Most businesses have to submit monthly and quarterly activity statements all year round, as well as their end of financial year reports.

We’ve put together a schedule for the next tax year to help you be prepared for key dates throughout the financial year. Being prepared will help tax the stress out of meeting your reporting obligations.

End Of Financial Year Tax Returns

If you’re doing your own tax return, you need to lodge by:

  • 31 October if you run your business as a sole trader, partnership or trust
  • 28 February 2022, in most cases, if you run your business as a company

If you are using a tax agent, you need to be registered with us before 31st October. As registered Tax Agents, we have a lodgement program and can submit your returns after 31st October without late lodgement penalty fees.

It’s important to lodge your returns on time as it shows us that you’re aware of your obligations, and are doing your best to meet them. It will also give you certainty of your tax position.

When lodging your return, you will need to include assessable government payments such as JobKeeper, and other income such as cryptocurrencies, cash, online sales, dividends, interest and capital gains.

BAS Lodgements

If you would like to know more about BAS, read through our article on BAS Tips For The Time Poor.

As a registered Tax Agent, we can submit your BAS reports on your behalf. We not only make sure that your reports are correct, but also have additional time to submit them on your behalf.

Quarterly Reporting
Self-Lodged Due Date
Tax Agent Lodgement Extension
July to September 28 October + 28 Days
October to December 28 February No Extension
January to March 28 April + 28 Days
April to June 28 July + 28 Days

 

Monthly Reporting
Self-Lodged Due Date
Tax Agent Lodgement Extension
All Months, except December 21st day of month after No Extension
December 21 January 21 February

 

PAYG Instalment Notices

PAYG stands for Pay As You Go. PAYG instalments are based on your Business or Investment Income. They are different to PAYG Withholding, which is when employers collect tax from the payments they make to employees and contractors.

Quarterly PAYG Instalment Notice
Payment Due Date
July to September 28 October
October to December 28 February
January to March 28 April
April to June 28 July

 

Employee Superannuation Guarantee

It is important to note that it can take a few days for superannuation payments to process. Best practice is to submit super early to ensure adequate time to process as the ATO can impose penalties on late payment of super.

Quarterly Superannuation Guarantee
Due Date (Super Fund Receipt)
July to September 28 October
October to December 28 February
January to March 28 April
April to June 28 July

 

ASAP Solutions offers a range of Tax & Bookkeeping Services. Talk to us about how we can help take the stress out of Tax.

 

Advice Budgeting Business Strategy Tax

BAS Tips For The Time Poor

If you are a new business, doing your Business Activity Statement (BAS) can seem overwhelming.

And if you are an established business, it can seem never-ending!

In this article, we will look at a few ways that you make BAS submissions easier.

DO I NEED TO SUBMIT A BAS?

You will need to submit a BAS when you charge GST.

Generally, you don’t legally need to register for GST until your revenue is forecast to be over $75,000 per annum. You can register for GST at any point.

But it is not compulsory until it is clear you will reach $75,000 for the financial year.

If you are not registered to pay GST, you cannot charge GST. If you are charging but not paying it to the government, you have to reimburse your clients. Which can get complicated and be a little embarrassing.

It is confusing whether or not you should charge GST when you are starting out, especially if you are not sure of what your revenue will be. But it pays to get it right.

If you are not sure if you should be charging or paying GST, book in a chat with me and we can discuss what your tax obligations are and make sure you are set up correctly.

WHAT HAPPENS WHEN I NEED TO REGISTER FOR GST?

If you are a business that transitions from not paying GST to paying GST, the best practice is to notify your clients – so it is not a surprise, and add GST to the rates moving forward.

It can be uncomfortable to charge an additional fee to your clients, especially those that supported you from the start. We recommended that you communicate clearly with your clients that it is now a legal requirement for you to charge the additional 10% GST.

You can ‘absorb’ GST out of your rates. But this comes out of your pocket. Let’s look at an example:

Jenny is a VA and charges $50 per hour. She has reached the threshold and now has to pay GST.

Jenny works 30-hours / week:

  • Rate: $50 x 30 hours
  • Total: $1,500 per week

If she is to charge the additional 10%:

  • Rate: $1,500
  • 10% GST: $150

Invoice Total: $1,650

Jenny must pay $150 in GST each week, but the revenue to Jenny remains the same. However, if Jenny absorbs the GST into her rate of $50/hour, her accounts for the week will look a bit different:

  • Hourly Rate incl GST: $50
  • 10% GST: $ 4.55
  • Hourly Rate excl GST: $45.45
  • Rate: $45.45 x 30 hours: $1,363.65
  • 10% GST: $136.35

Total: $1,500

By not passing on the GST, Jenny has to pay GST of $136.35 out of her own pocket each week, which adds up.

Over the course of a year, Jenny would reduce her income by $6,500 by simply not on-billing GST.

WHEN IS MY BAS DUE?

Essentially, your BAS is a summary of all the business taxes you pay to the government during a specific period. Most Australian businesses will lodge their BAS monthly, quarterly or annually depending on the business’s cash flow.

Don’t forget that we can help you apply for GST and understand your BAS schedule if you need assistance.

WHAT DO I INCLUDE?

A BAS will include the taxes your business pays, such as:

  • Goods and services tax (GST)
  • Pay as you go (PAYG) income tax instalments
  • Pay as you go (PAYG) tax withheld

THAT SEEMS LIKE A LOT OF WORK?

It can be, but if you use an accounting platform and keeping good records as you go, it will help you stay on top of it and make your reporting a lot faster.

Your accounting program should be set up to keep records of all sales, fees, expenses, wages and other business costs – including tax credits.

Most platforms will make it easy to track GST credits and code each item’s correct GST accounting method.

You may have a bookkeeper who does most of this for you, but it is still vital to understand your obligations.

If you are processing your own BAS, you need to make sure that you understand how GST Credits work.

WHAT ARE GST CREDITS?

GST Credits are defined as the GST you have incurred as a business. They are called Input Tax Credits.

If you engaged Jenny from our example above, her invoice includes $150 GST.

The ATO will allow you to claim back the GST you have paid as credits.

As part of your BAS, you need to add up the GST you have paid or are liable to pay on your business expenses, which you will offset against the GST you have collected.

QUICK GUIDE TO CLAIMING GST CREDIT:

  • Only claim GST Credits on the business portion of purchases
  • Don’t claim GST on private expenses, such as food or entertainment
  • Claim GST credits upfront for purchases under hire purchase – if you account for GST on a cash basis
  • Claim GST credits on the Australian dollar value when claiming invoices in a foreign currency

AVOIDING ERRORS

We all want to get our BAS reports out of the way quickly, but an error from rushing can lead to bigger headaches in the future. A few things that you can do regularly to ensure accuracy in your reports include:

  • Checking GST is included on invoices you issue for sales
  • Make sure invoices are only counted/entered into your system once and not accidentally duplicated
  • Check you are using the correct formulas to work out GST
  • Have a separate column for GST in your cash book

Finally, you will need to keep all your tax invoices and other GST records for five years. Having a bookkeeping system that you save all your receipts and invoices in can make this easy to store and access if you ever need to.

HOW DO I LODGE MY BAS?

You can lodge your BAS online through the MyGov portal, or a registered tax agent like us can submit them on your behalf. Don’t forget; we can also help you set up or run through refresher training in your accounting platform to help you streamline your processes.