Is your business STP ready?

Single Touch Payroll (STP) for small businesses starts on 1 July 2019 and is now just a matter of weeks away, although the ATO has given an extension until 30 September to be STP ready.

STP is an electronic reporting system for payroll. It means that every time a business pays an employee, information like earnings, tax and super must be reported direct to the ATO in real time. There’ll be no more PAYG summaries at year end, and your activity statements will now come pre-populated with your payroll information.

All of the major software suppliers are STP ready with their cloud based products. If you’re already using this software, you’ll just need to change a few settings, and there’s plenty of help articles available.

If you are using desktop software, or no software, you have two choices. You can upgrade to cloud based accounting software, or you can use a stand-alone STP service. The major suppliers have payroll only software for employers with 1 to 4 employees for around $10 per month or there are other payroll service providers out there who’ll look after your entire payroll process for a more substantial fee.

Full cloud based accounting software will cost your business around $50 to $100 per month for your subscription. Besides looking after your STP, the software will provide you with many other benefits that should outweigh the additional cost.

With your new software you can set up bank data feeds, which means your transactions are fed daily into your software. No more data entry, no more bank reconciliations, and no errors.

Next you can automate your coding using in-built artificial intelligence. You should be able to accurately allocate 80 to 90% of your transactions to the right account without touching the software.

You can store your receipts electronically, invoice from a device and automate debtor follow ups. And importantly, your accountant can log in at any time and use live information to give you better advice.

Other related blogs:

DoI need to pay payroll tax?
Record keeping for small business

Author: Jasmina Nesic
Email: jasmina@faj.com.au

Why use a Family Trust?

Discretionary trusts are a type of structure commonly used as an effective way to share business or investment profits among family members, to minimise tax liabilities and to protect a family’s assets.

A discretionary trust can be further classified as a “family trust” for tax purposes. This occurs when the trust makes a Family Trust Election on it’s tax return. So why use a family trust?

There are three main circumstances where a trust could benefit by making a family trust election:

  1. The trust receives franked dividends

The election bypasses restrictions in distributing franking credits, which can usually only be passed to beneficiaries if the individual receives less than $5,000 in franking credits.

  1. The trust has losses

Ordinarily trusts are subject to complex measures before being allowed to deduct prior year losses from current year taxable income. However where an election has been made, the trust only needs to pass one test – known as the income injection test rather than face the four regular complex tests to recoup the loss.

  1. The trust owns shares in a company that has losses.

The election allows for a more concessional treatment of the company loss recoupment rules, and may permit the offset of company losses in circumstances where a non-family trust would not.

The election must specify one person – the test individual, who forms the point of reference for defining the family group. The family group sets the maximum range of beneficiaries to whom the trustee can distribute income or capital of the trust to.

The family group includes:

  • The test individual and their spouse
  • Any parent, grandparent, brother or sister of the test individual or of their spouse
  • Any nephew, niece, or child of the test individual or of their spouse and any lineal descendant of these individuals
  • The spouse of anyone mentioned above

To make a valid election the trust must pass the Family Control Test, which ensures that only a trust controlled by that family can make a valid election.

Control mainly looks at who can control the application of income or capital of the trust. To pass the test the trust needs to be controlled by a group consisting of the test individual, their family, or their legal/financial advisors.

An Interposed Entity Election is used to make an entity, such as another family trust, a member of the family group. This election must specify the same test individual as in the family trust election.

Pro tips:

  • Distributing income among beneficiaries who are on lower marginal tax rates can reduce the effective tax rate on a trust.
  • As a consequence of making the family trust election you are restricting the people to which income can be distributed, and distributions to anyone outside the family group trigger tax at the highest rate (currently 47%).
  • It is important to understand when the election may be required, as the absence of the above scenarios may mean there is no benefit in doing so.

Other related blogs:

Making a family trust election

Author: Danielle Pomersbach
Email: danielle@faj.com.au

 

 

How Does WA Land Tax Work?

Land Tax is a State imposed tax paid annually by many land owners in Australia. In WA Land Tax is calculated on the aggregated unimproved value of all land held by an owner as at midnight 30th June each year.  For example, if you solely own two properties with unimproved values of $330,000 and $270,000, you have an aggregated value of $600,000.

In WA, total land holdings (excluding exempt land) with an unimproved value of $300,000 or more will receive a land tax assessment.  The land tax payable increases incrementally on a sliding scale from rates of 0.25% to 2.67%.  The current rates of land tax payable in Western Australian can be found on the Department of Finance WA website.

Other states have similar rules, but exemptions and rates differ, so you should inquire with the relevant State taxing authority to find further information for land held outside of WA.

Land tax is assessed on the unimproved value of land only. These valuations are undertaken by the Valuer-General in Western Australia and notices are issued based on land ownership and use as at midnight 30th June each year.  No land tax is payable on your primary residence.

For properties located within the metropolitan region an additional tax is levied called the Metropolitan Region Improvement Tax (MRIT).  This additional tax is calculated at 0.14 cents for each dollar that your aggregated unimproved land value exceeds $300,000.  For example, if your total aggregated unimproved land value (excluding exempt land) is $500,000, the MRIT payable will be $280.

There are various exemptions and concessions available to reduce or negate land tax, the most common being:

  • Land owned by yourself as an individual and used as your primary residence
  • Private residence under construction or refurbishment at 30th June
  • Moving from one residence to another
  • Land used for a primary production business
  • Land held by a recognised charitable organisation

If you disagree with your Land Tax assessment you are able to lodge an objection. The above website has additional information on how this can be lodged.

Pro tips:

  • If your private residence is held in or owned by a company or trust, you generally won’t get the primary residence exemption
  • Land holdings held in a trust are assessed separately (i.e. not aggregated) to land held in your own name
  • Land tax on commercial property is usually recoverable through outgoings, so there is no cost to the owner
  • You can object against a land tax assessment within 60 days of the issue date of the assessment, including an objection as to the value placed on the land

Fun fact:

  • Land held in the Northern Territory is exempt from land tax. It is the only state in Australia that does not charge land tax, although they will levy vacant or derelict CBD land and buildings from 1 July 2019.

Other related blogs:

New tax rules for property sales above $2m from 1 July 2016
Benefits of obtaining pre-approval on purchasing a property
Buying a property – tenants in common v joint tenants

Author: Joe Siragusa
Email: joe@faj.com.au

Pros and Cons of Negative Gearing

In the lead up to the recent federal election the hot button topic of negative gearing was a key election point. So what is it, and what are the pros and cons of negative gearing?

Negative gearing, while commonly used in the context of real estate assets, can apply to any income producing asset including listed shares. It is essentially where the tax deductible expenditure related to the asset (including interest payments) exceeds the income the asset generates (i.e. you are spending more than you are receiving) and the amount of loss incurred is allowed to reduce your taxable income from other forms of income like wages.  This lowers overall tax payable and often results in a year end tax refund. A tax incentive to buy property should in theory stimulate economic growth and keep the housing market active.

A lot of investors who buy assets do so with the intention of making a profit on the long term growth of the asset, so while they may have negatively geared the asset during the period they held it, the intention is for the capital growth of the asset upon sale to exceed the losses they incurred while holding the property after factoring in selling costs and potential capital gains tax liabilities.

The Pros?
Every dollar of negative gearing loss can potentially get back your marginal tax rate as a tax credit (up to 47c for every dollar spent depending on your earnings)

Borrowing against an asset may allow you to purchase in higher growth that may have been out of reach with lesser borrowings.

The Cons?
The tax break you receive will for the most part never be greater than the loss, which can make cash flow an issue when it comes time to pay mortgage repayments and ongoing property expenses.

First home buyers and owner occupiers find it more difficult to secure property when the market is shared heavily with investors looking to secure a property for their portfolio.

The purpose of an investment is to make money – if you negatively gear it and then sell the property for the same or less than what you purchased it for you would be worse off financially than before you purchased the property.

Pro-tip

Already negative gearing? Don’t wait until you lodge your tax return to get the tax benefit of negative gearing. The ATO allows you to vary the amount of tax your employer withholds so you can effectively get your negative gearing benefit throughout the year.

Other related blogs:

Changes to depreciation for rental properties
Changes to rental property deductions
Less known rental property deductions

Author: Nick Vincent
Email: nick@faj.com.au

Claiming travel expenses using the substantiation exception

Work related travel expense claims have become an audit target in recent times. Especially for those claiming travel expenses who use the substantiation exception and claim deductions within the ATO’s published “reasonable” amounts. These claims can be quite significant and can result in large refunds which is why the ATO have set their sights on catching out the illegitimate claims.Claiming travel expenses

When an employee receives a travel allowance for work related travel they are not required to provide receipts for travel expenses incurred (e.g. meals, accommodation and incidentals) provided that the following three conditions are satisfied:

  1. The travel allowance received is a bona fide (genuine) travel allowance. A travel allowance is considered bona fide if it is an amount that can be reasonably expected to cover accommodation, meals or other incidental expenses associated with the travel. The ATO does not have a minimum set amount per day to be considered bona fide, rather, it is determined on a case by case basis focusing on whether the allowance would be expected to cover the travel costs.
  2. The travel allowance must have been paid to cover a specific overnight trip. It cannot be an amount paid at an hourly rate for certain hours worked; this does not constitute a specific trip.
  3. The travel expense claims must not exceed the relevant reasonable travel amounts prescribed by the ATO, which provide specific daily rates for accommodation, meals and incidentals depending on salary and location of travel. For the substantiation exception to apply, the travel claim must not exceed these daily rates.

If the above conditions are met then you do not need to provide receipts under the substantiation exception when claiming travel expenses. However, the ATO still require that you provide evidence on how you calculated the travel claim and that the amount claimed was actually incurred. This can often be through bank and/or credit card statements.

Pro Tips:

There is a common misconception that if you receive a travel allowance you are entitled to claim up to the ATO’s reasonable amounts. This is not the case; you can only claim expenditure for amounts which you can show were incurred.

Regardless of the substantiation exemption, keeping receipts for all travel expenses will avoid any uncertainty about what travel expenses you can claim.

Related blogs:

Employee travel expenses
Home to work travel – is it deductible?
What can I claim in my tax return without receipts?

Author: Allan Edmunds
Email: allan@faj.com.au

 

Do I need a Binding Death Benefit Nomination?

Did you know that your Will does not control who your superannuation benefits go to upon death?

On death, a members super benefit becomes payable as either a lump sum or a pension. The trustee of the super fund, in accordance with the fund’s trust deed, makes a decision as to who these benefits are paid to.

However, as a member you are able to make a written direction, known as a Death Benefit Nomination, to your super fund specifying who receives your death benefit. This notice can be binding (known as a Binding Death Benefit Nomination or non-binding (known as a Non-Binding Death Benefit Nomination).

If you make a valid Binding Death Benefit Nomination, the trustee must pay your death benefit in accordance with your nomination. If you make a Non-Binding Death Benefit Nomination, the trustee can have regard to your nomination, but does not have to follow it.

Additionally, your nomination can be lapsing or non-lapsing. A lapsing nomination must be renewed after it lapses (usually every three years) and a non-lapsing nomination stays in place until it is revoked or replaced.

However you can’t nominate anyone you like to receive your superannuation death benefit. Under super law you can only nominate either the executor of your Will or a superannuation dependant (e.g. spouse and children). If it is paid to the executor of your Will, the benefit then forms part of your personal estate and must be paid out in accordance with the terms of your Will.

The importance of Binding Death Benefit Nominations was highlighted in the 2013 case of Wooster v Morris. Mr Morris (the deceased) had two adult daughters from a previous marriage, and a second wife (Mrs Morris). Mr & Mrs Morris were joint trustees of their self-managed super fund and Mr Morris had made a Binding Death Benefit Nomination in favour of his two daughters.

Mr Morris subsequently died, and Mrs Morris appointed herself as sole trustee of the SMSF. She argued that the Binding Death Benefit Nomination that Mr Morris made was not binding, and paid herself the entire death benefit of $924,000.

The daughters challenged this in court and the court found that the nomination was binding and held in favour of the plaintiffs. Without the Binding Death Benefit Nomination, the daughters would have had no claim to the death benefit. This was a good result and shows the importance of having a properly drafted and executed Binding Death Benefit Nomination that has regard to the contents of your Will, your SMSF trust deed, and your estate plan.

Pro tips:

Make sure you ask your lawyer or other professional advisers about Death Benefit Nominations when doing any of your estate planning

Appointing an Enduring Power of Attorney is another important aspect of estate planning, which enables another person to make a decision on behalf of someone that becomes incapacitated

If you have a lapsing Death Benefit Nomination, make sure you diarise to have this extended immediately on the expiry date.

 

Author: Heather Cox
Email: heather@faj.com.au

 

New audit rules for Clubs and Associations

From 1 July 2016, the audit rules for clubs and associations in WA have changed.

Do you need help understanding the rules?

From 1 July 2016, smaller incorporated associations – that is, clubs and associations with less than $250,000 revenue per annum – will have no requirement to undertake a review or audit of their current accounts.

Not for profits with a turnover between $250,000 to $1,000,000 will need their financial statements either reviewed or audited by a Chartered Accountant or a Certified Practising Accountant.

Associations with a turnover of more than $1,000,000 cannot select a review and must have an audit, and their financials must be audited by a Chartered Accountant or Certified Practising Accountant with a public practice certificate, or a Registered Company Auditor.

It may seem like additional time, effort and expense to have an annual audit, but there are a number of reasons and benefits for having an audit conducted –

  • an audit of the financial records of the association ensures greater accountability to the members
  • the audit gives assurance that all funds received by the organisation have been correctly collected, documented and banked. It shows that all monies spent by the organisation were for the purpose of the association, approved by the management committee, and documented. Apart from anything else, this helps to protect management committee members against unfounded allegations of misconduct;
  • the audit provides an account of the assets of the association and verifies that records and registers are properly maintained;
  • the audit functions as a check and balance. It requires that the financial statements of the association be kept to a standard in order for the audit to occur and will indicate areas that may require improvement;

The FAJ Auditing team can complete your club’s audit quickly, professionally and at competitive cost.

For additional information about the new audit rules for clubs and associations, please refer to the Department of Mines, Industry Regulation and Safety website which contains questions and answers in relation to the new association law.

 

Author: Daniel Papaphotis
Email: daniel@faj.com.au

 

 

Super Guarantee Amnesty ends 24 May 2019

Over recent years we have noticed the ATO applying more and more resources in the area of Super Guarantee. Super Guarantee is the compulsory 9.5% super that employers must pay to an employee’s super fund.

We are seeing many more audits based on complaints from employees who’s super has not being paid, along with the usual random checks that the ATO performs. The ATO’s data matching capabilities have improved over time which allows the ATO to more easily pick up employers underpaying super.

More recently we have seen the introduction of compulsory electronic reporting of super for employees which further assists the ATO’s data collection efforts.

There are currently very harsh penalties for employers not paying super for employees, or even just paying it late. The Super Guarantee Charge is a penalty equal to the amount of super not paid. In the case of an ATO audit, the ATO would require this to be paid in addition to the amount of unpaid super – that’s a 100% penalty! Further, if the super is paid late, the ATO can disallow a tax deduction for the super payments.

In an attempt to encourage employers who are aware of unpaid super payments to catch up, the government has introduced legislation into parliament to offer an amnesty period to get all unpaid super up to date.

The super guarantee amnesty applies to any super calculated from 01 July 1992 to 31 March 2018 and must be used by 24th of May 2019. If the amounts of unpaid super are declared to the ATO in the correct form and paid by the due date the Super Guarantee Charge penalty will not apply and the payment will be tax deductible. There will be some interest on the late payments though.

Bizarrely, at the time of writing this blog, the legislation to enact the super guarantee amnesty has still not yet passed parliament, so we can’t be sure whether amounts declared and paid under the amnesty will receive the penalty free and deductible treatment. And there’s not many sitting days left in parliament for the legislation to pass before the next election.

The ATO website states: If you’ve missed a payment or haven’t paid an employee’s super on time, you should lodge an SG charge statement and pay the amount owing to us. We will apply the current law to this statement however, if legislation is enacted, we will apply the benefits of the proposed amnesty retrospectively.

Further they state: Employers who do not disclose their SG shortfalls during the amnesty period may face harsher penalties if they are audited in the future.

So businesses with outstanding super are in a quandary – should they take advantage of an amnesty that might not even apply, before the amnesty date passes?

If you would like to speak to one of our accountants about unpaid super, call us on (08) 93355211 to make an appointment.

Other related blogs:

Making sense of SuperStream for Employers
When do I need to pay super for contractors?

 

Author: Heather Cox
Email: heather@faj.com.au

 

Can I move overseas and keep my self managed super fund?

Change of plans? A move overseas may be around the corner! But what does that mean for your Self-Managed Super Fund (SMSF)?

You must ensure your SMSF retains its status of an Australian Super Fund to avoid substantial penalties. To do this, there are three residency conditions to meet:

  1. The fund was established in Australia or at least one of its assets is located in Australia.
  2. The central management and control of the fund is ordinarily in Australia.
    • This requires the decision making, high level duties and activities to be performed in Australia, for example making investments and reviewing performance.
    • Generally, your fund will meet this requirement if the absence is intended to be temporary (defined as not more than two year) even if the central management of the fund is temporarily outside of Australia.
  3. The fund must either have no active members (i.e. no one making contributions or rollovers into the fund), or alternatively at least 50% of the assets must be owned by active members that reside in Australia.

Failure to meet these conditions may result in being classified as a non-complying fund, which can consequently result in the whole of the SMSF assets being taxed at 45%.

Pro tips:

  • Plan ahead if you are moving overseas to avoid significant penalties. Options include move your SMSF investments to an industry super fund, appointing further trustees such as adult children or advisors.
  • Consider suspending contributions to your fund while you are overseas. Contributions can be made into an alternate fund during this period an then rolled into the SMSF upon your return.

Follow this link for a checklist.

https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up/Check-your-fund-is-an-Australian-super-fund/

Other related blogs:

TBAR – what it means for an SMSF trustee
You need to act soon with collectables in your super fund
Access super before retirement

Author: Lachlan Hunn
Email: lachlan@faj.com.au

 

 

 

 

Choosing the Right Accounting Software

As an accountant who works predominantly with small to medium businesses, I am often asked to recommend an accounting software program to my clients.

Choosing the right accounting software to best suit your business is surprisingly difficult. Advances in technology over recent years have created both huge advancements in efficiency, but also a complexity that can be overwhelming if you are not technologically minded or financially adept.

The first step is to identify the important factors that will affect your choice, because the recommendation will depend on the characteristics of your business. Please note that my knowledge of the available programs is limited to my experience, and despite working with many programs for over 10 years now, I still do not claim to know them all inside and out. But here’s my tips:

  1. Do you have a good internet connection? If not you should choose accounting software that can be used on your desktop. Cloud software like MYOB Essentials, Xero, SAASU, Wave Financial etc. will not work well if your internet drops out, or if your connection is slow. If you can’t rely on your internet connection, my recommendation would be MYOB AccountRight. This product can be used on the local computer with no internet, and can also be uploaded to the cloud when needed so you can work with your accountant or in other areas where internet is available.
  2. Are you technologically and financially savy? I have found that business owners who already have experience with using accounting software and who have the knowledge to use a program to its greatest extent tend to prefer MYOB as there are more reports available and in a superior format (in the MYOB AccountRight products, but not in MYOB Essentials). On the other hand, if you are just starting out and learning how to use a product, most people seem to find Xero the most user friendly. I also like SAASU which is a bit cheaper and provides a much larger number of transactions on the basic package.
  3. Is cost important? Prices vary between different products and within product ranges. The cost of a subscription is dependent on how many transactions, number of employees, cloud or desktop, other features required like inventory, stock on hand, multicurrency etc. If you have a very simple business and just want the cheapest option have a look at Wave Financial. This is a cloud based software from Canada, but available in Australia. They do not charge a subscription fee, but rather charge a commission on sales that are paid for through the software. If you prefer a flat subscription fee the best value software I have seen is Intuit QuickBooks online. For $15 per month you get unlimited transactions and invoicing and payroll for up to 10 employees. SAASU is also good, but you only get payroll for 1 person on the $15 package and limited to $1,000 transactions.

If you are just starting a new business or looking to improve your record keeping you can book an appointment at FAJ for advice on accounting software by calling us on (08) 9335 5211. Our bookkeeping team has experience with all of the software products mentioned above and are also able to manage changeovers from old products, new business set-ups and training for business owners.

Other related blogs:

What are bank feeds?

 

Author: Heather Cox
Email: heather@faj.com.au