Do I need to pay payroll tax?

Payroll tax is one of those taxes that can slip under the radar of small businesses. Employers don’t need to pay this tax until their wages reaches a threshold, and then the onus is on the business to register and pay the tax.

Payroll tax is a state and territory tax based on the taxable wages you pay as an employer. Types of payments defined as ‘taxable wages’ include salaries and wages, allowances, fringe benefits and super contributions.  A common misconception is that contractor payments are not included in taxable wages. However, if there is an employee/employer relationship that exists between a contractor and their client then the contractor payments may be included. Generally, if the contractor is providing predominantly labour only and is being paid an hourly rate, it is likely that these payments will be considered taxable wages and will be assessed for payroll tax.

Not all businesses with employees are required to pay payroll tax. There will only be a payroll tax liability where taxable wages exceed the relevant thresholds in the state or territory you are employing from (or in some cases where your employees perform the work). The current Western Australian threshold is $850,000 per year at which point a tax rate of 5.5% applies. Other states’ thresholds can be lower; for example South Australia’s threshold is $600,000 annually, so it is important to be aware of the different state and territories’ thresholds each year.

Payroll tax is self-assessed which means employers have the responsibility of assessing if they are liable to pay the tax. Employers should check with the revenue office in the state or territory they employ from and assess the threshold that applies. If you are over the threshold you will need to register for payroll tax in the state or territory and lodge a payroll tax return. Payroll tax is generally lodged and paid monthly and then reconciled and adjusted annually based on the full years wages.

Even though it is a self-assessed tax, the state and territory revenue departments conduct regular audits to assess if the correct payroll tax has been paid. They also receive information from other sources which can prompt them to audit a taxpayer such as a large salary and wages or contractors amount reported in an employer’s tax return.

Pro tip:

Most types of wages payments are assessable as taxable wages but look out for exemptions for workers compensation receipts, disability wages, certain apprentices and trainees and parental leave.

For more information visit www.payrolltax.gov.au or call us on 93355211 for assistance with any payroll tax queries.

Related blogs:

What is single touch payroll?
Do I need to pay super for contractors?
Making sense of superstream for employers

 

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

How do I register a business name?

Registering a business name is one of the fundamental steps in starting a new business. Before you register a business name, you will need to obtain an ABN through the Australian Business Register. Australian Securities and Investment Commission (ASIC) also recommends you apply for an AUSkey, as it allows you direct access to ASIC and the Tax Office however, it is not essential to enable you to register a business name.

In order to register the business name, you need to know if your desired name is available. You can find out on the ASIC Connect website by searching the Business Names Register. If your name is already registered, then you will need to come up with a different name that is available. Once you have found a name that is available with ASIC, you should check with IP Australia to ensure that the name is not a trademark.

Registering a business name can take between 15 to 20 minutes. Before you commence ensure you have your ABN and the address of your proposed business. To commence the registration log in or sign up to ASIC Connect.

Once you have logged in, go to the Licences & Registrations tab at the top of the page and select apply for Business Name Registration. You will then need your ABN or ABN reference number to link your business name to the business number. On completion of this step, you will be required to confirm that your business name is available.

ASIC then requires you to provide the addresses for the services of documents, principle place of business address and an email address. It is also mandatory to declare that you are eligible under the Corporations Act 2001 to manage a corporation and eligible under the Business Names Registration Act 2011 to register a business name. You are able to secure your business name in the final step by paying for the registration.

Once your business name appears on the ASIC Business Name Register you will now be ready for trading.

Pro Tips:

  • You can register your business name for either one or three years, please note different fees apply
  • If you choose to trade under your own name as a sole trader e.g. Brianna Barrett, you are not required to register a business name.

Author: Brianna Barrett
Email: brianna@faj.com.au

Contributing to super – options for employees

If you are an employee, salary sacrificing to super is an attractive option to boost your super balance, as well as getting a tax saving. Though did you know that if you salary sacrifice to super, you could be missing out on part of your super guarantee?

The super guarantee is a compulsory system of superannuation that employers pay on behalf of their qualifying employees. Employers are obligated to contribute 9.5% of their employee’s salary or wage into super. As well receiving the super guarantee, some employees choose to make super contributions through a salary sacrifice agreement. However, an issue that some employees face is that their employers do not pay the super guarantee on their entire salary – they only pay the super guarantee on their reduced salary (their salary less the salary-sacrificed amount). This is where some employees miss out on part of their super guarantee.

Luckily, there is another option for employees. As of 1 July 2017, employees are able claim a deduction for personal super contributions they make to their superfund. If employees choose to do this rather than salary sacrifice, they will still reduce their taxable income, but they also will receive the super guarantee on their total salary (which may not be the case if you salary sacrifice to super).

It is important to note that your employer may not be obligated to pay the super guarantee on your entire salary if it does not state that they must do so in your salary sacrifice agreement. If you want to know whether you are receiving the super guarantee on your entire salary, check with your employer or your payroll department.

Pro Tip:
Be careful of how much you contribute to super – the contributions that you claim as a deduction will count towards your concessional contributions cap, and so does the 9.5% super guarantee. If your combined super contributions exceed the $25,000 cap, you will be liable to pay extra tax.

Author: Tessa Jachmann
Email: tessa@faj.com.au

Record keeping for small business

It’s never too late to start a good record keeping system for your business. It’s an important part of being a small business owner and will help you to ensure you’re meeting your tax obligations.

Benefits of record keeping

While it can be tedious, there are many benefits to keeping good records.

It can help you to:
• keep track of your business’ health, so you’re able to make sound business decisions
• prepare your tax return more easily
• manage your cash flow
• demonstrate your financial position to banks or other lenders.

The legal requirements for keeping business records

Under Australian tax law you must keep business records:
• for a minimum of five years or longer after the record is created, updated or the transaction is completed (whichever is most recent)
• in English or in a form the Australian Taxation Office (ATO) can understand.

Note that records relating to the purchase of capital gains tax (CGT) assets must be held for at least five years after the sale of that asset.

Companies may be required to keep records for seven years in accordance with the Corporations Act.

Storing records electronically

You’re able to store your records electronically, but you must make sure they are:
• a true and clear copy of the original
• kept for the minimum required periods
• able to be reviewed by the ATO at any time.

The records must also be on a computer or device that:
• you have access to (including all passwords)
• is backed up in case of computer failure
• allows you to control the information that is processed, entered and sent.

The tax records you have to keep

You will need to keep records to help you prepare your business activity statement (BAS), and annual income tax return. Depending on your tax obligations you may need to keep other records as well.

Here’s a list of some of the tax records that small business owners may have to keep:
• income tax and GST

  • sales records
  • purchase/expense records
  • year-end income tax records

• banking records
• payments to employees and contractors
• PAYG withholding for business payments
• fuel tax credits.

What to do:

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

Franking credits – what are they?

If you have ever invested in the stock market, it is likely you have come across franking credits. Whether it be an amount on a dividend statement you notice doesn’t hit your bank account, or a refundable tax offset you see on your tax return. What does it actually mean and how does it affect you?

Why does the dividend imputation system exist?
A dividend imputation system is where some or all of the tax liability for a company is transferred to its shareholders in the form of a franking credit. The franking credit accompanies a dividend, which represents earnings by the company. The purpose of franking credits is to stop company profits from being taxed twice, so that whoever eventually receives the profits will be taxed at their own marginal tax rate.

How does it work?
Most companies pay tax on their profits at 30%. The company can choose to either reinvest their after tax profits back into the business or to pay some or all of these profits out to its shareholders as a dividend. The shareholder will initially receive the after tax amount (maximum of 70%), as 30% would have being paid by the company as tax. For the shareholder, the tax treatment is that the dividend is grossed up (imputed back to 100%) and then included as in the shareholder’s tax return and treated as ordinary income. The shareholder is assessed at their marginal tax rate and receives a credit for the franking credit. So if the shareholder’s marginal tax rate is less than 30% the shareholder is better off (from a tax perspective).

Why did I not get my franking credits refunded?
If you are in a higher tax bracket than the company, you will have to pay the additional tax on the dividend that the company hasn’t paid. For example, if you receive a dividend fully franked at 30% (that is the company has paid 30% tax on the earnings already), and you are a higher income earner in perhaps the 45% tax bracket, you will have to pay an extra 15% tax on the dividend.

Why do some dividends not have a franking credit?
If you receive an unfranked dividend, this means the company has not paid tax on the money you are receiving. You are more likely to receive an unfranked dividend when you invest in companies that do not necessarily pay much tax, as they have more deductions available to them. Companies can only distribute franked dividends if they have paid enough tax previously. There is also the possibility of receiving a partially franked dividend, which occurs when the company hasn’t paid enough tax to be able to pay a fully franked dividend.

I don’t need to lodge a tax return, am I entitled to a refund for franking credits?
If you are wanting to do this yourself, the easiest way is to go through your myGov account online. Alternatively, you can obtain an “Application for refund of franking credits for individuals” through the ATO website, before lodging this either by phone or post to the ATO. There is also an automated refund process that is being piloted by the ATO where a selection of taxpayers who applied for a refund in the previous year will be automatically issued a refund based on information reported to the ATO and the relevant share registries.

 

Author: Jake Solomon
Email: jake@faj.com.au

What is the PAYG instalments system?

The Pay As You Go (PAYG) instalments system is a program where regular payments are made to prepay tax on expected annual income tax liability on business or investment income. It only applies if you earn income over a certain amount.

PAYG instalments are based on tax payable as per your previous year’s tax return lodged. Individuals (residents) and trusts will need to pay instalments if they reported $4,000 or more of gross business and investment income in their previous tax return with some exceptions:

• The tax payable on your latest notice of assessment is less than $1,000
• Your notional tax is less than $500
• You are entitled to the seniors and pensioners tax offset
Non-residents must pay instalments if they reported $1 or more of gross business and/or investment income.

There are two options to calculate the amount to pay: the first option is to calculate by instalment amount, where the amount payable is calculated by the ATO. The second option allows you to calculate the amount yourself using the instalment rate provided by the ATO and your instalment income.

If you believe your instalment rate or amount does not represent your current circumstances, you can make it higher or lower by varying it.

For assistance with lodging or varying PAYG Instalment notices, contact us at FAJ on (08) 93355211.

Author: Elena Grishna
Email: elena@faj.com.au

What are bank feeds?

Bank feeds are automatically created lists of the transactions (spent and received) in your bank account which are electronically ‘fed’ through a third party provider to your accounting software. Bank feeds have been around for a while as part of desktop accounting software and have been integrated into online accounting software only in the past couple of years.

The great thing about bank feeds is that they heavily reduce the amount of data entry for business owners or their bookkeepers. The method of collecting these feeds differ between software providers and banks.

How does it work?
Bank feeds work by linking the data in your business’s bank, credit card and PayPal accounts to your accounting software.

Once the transaction has arrived in your software it needs to be coded to a general ledger account. This is where the magic begins – once a transaction has been coded the first time the software uses rules and artificial intelligence to learn how to automatically code future transactions. You can further assist by setting up  rules within your accounting software to auto-match all transactions and in this way minimize data entry.

For example, once you have allocated an account and tax code to a bank charge transaction all future bank charges with the same description will automatically be coded the same way. Of course if necessary the auto coding can be overridden.

Bank fed lines can also automatically match to any sales invoice or purchase invoice created in the software. If multiple invoices are paid at one time then matching to outstanding invoices can be completed with ease from the bank reconciliation screen.

The setup.
Generally setup requires signed bank forms which can be downloaded from within the accounting software. Sometimes direct links through online banking can be activated on the spot depending on the bank and type of account. This involves either:

  • Accessing the bank account through online banking and activating to link with the accounting software selected (e.g. Xero, MYOB or Quickbooks) and the bank account created in the software

Or

  • Accessing and printing bank forms from your accounting software, filling out the bank form information and getting the relevant people to sign forms (i.e. the signatories of the bank account). Then submit the forms to the relevant accounting software used. (Submission is usually via email to the accounting software provider)

Why are Bank Feeds So Important?
A large part of SME bookkeeping is coding bank statements into revenue and expense categories so a business can track its sales and costs. A user can set up rules to automatically match transactions from certain suppliers (e.g. a credit card transaction from an airline would be categorised as Travel). This coding occurs from within the bank reconciliation screen which is more efficient than older methods, and cuts out hours of manual data entry required to reconcile accounts.

Online accounting software collects bank feeds in two ways.

1. The Direct Feed
Larger software companies pay the biggest banks to receive bank feeds for shared customers’ accounts. The bank’s IT department prepares its systems to export a daily feed of transactions from its banking system to the software company’s databases that run the online accounting program (eg. Xero, MYOB).

Direct feeds are commonly used for everyday business and personal bank accounts, some loan accounts but not term deposits. It does depend on the banks setup of the banking accounts whether they can be fed or not.

2. The Indirect Feed
An online accounting program can also use a data aggregation service which collects bank feeds from thousands of banks.

The data aggregator used by most software companies is a US headquartered company called Yodlee. Yodlee sidesteps the cost of paying for fees by copying the list of transactions on the screen of users’ online banking portals.

Yodlee cleans up the list, removes duplicates and sends it to the user’s online accounting software as a bank feed.

This process is called “screen scraping” and initially created some controversy for two reasons.

  1. The technology is not perfect and the occasional transaction is duplicated or omitted. Online accounting programs that use Yodlee recommend checking reconciled accounts against the balances in your online banking portal.
  2. Yodlee is most commonly used for credit card feeds, although recently the ANZ Business One credit card has commenced feeding through using the direct method feed.

Pro Tips:

  • Credit cards can be particularly helpful when using bank feeds as they contain more descriptive information than regular bank transactions. This description improves the effectiveness of rules and artificial intelligence.
  • Contact FAJ Bookkeeping if you’d like advice or assistance with integrating your bank feeds into your accounting software.

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

TBAR – what it means for an SMSF trustee

Self managed super funds have new reporting requirements also known as TBAR (transfer balance account reporting). This helps the ATO to track members’ balances in relation to the $1.6m transfer balance cap and their total super balance.

From 1 July 2018 SMSFs must report includes certain transactions or events relating to pensions in retirement phase.

These events includes:

  • existing retirement pensions a member was receiving on 30 June 2017 that continue to be paid to them on or after 1 July 2017
  • new pensions commenced
  • pensions commuted (taken as a lump sum or converted to an accumulation interest)
  • some limited recourse borrowing arrangement payments
  • compliance with a commutation authority issued by the Commissioner
  • personal injury (structured settlement) contributions

From 1st of July 2018, TBAR applies to SMSFs on a compulsory basis, and at that time SMSF trustees will need to make a one-off disclose of the value of their 30 June 2017 pension balances.

SMSFs will have different reporting timelines for depending on individual member balances within each fund as per the below:

  • where all members of the SMSF have a total superannuation balance of less than $1 million, the SMSF can report this information at the same time as when its annual return is due (often 15 May of the following year)
  • SMSFs that have any members with a total superannuation balance of $1 million or more must report events affecting members’ transfer balances within 28 days after the end of the quarter in which the event occurs
  • The initial transfer balance account events that occur during 2017–2018 should be reported at the same time as the SMSF’s first TBAR.
  • Note that the reporting of existing pensions (regardless of size) at 30 June 2017 must be done on or before 1 July 2018.

In the instance where a SMSF member has exceeded their transfer balance cap, they are required to report earlier.

An excess transfer balance cap can result in additional tax and any late lodgement may also incur penalties.

Pro-tip

  • Pension payments do not need to be reported under TBAR, even if minimum pension amounts are exceeded, but lump sum withdrawals must be reported.
  • Reporting requirements (quarterly or annual) are based on members total super balances at 30 June in the previous year.

Author: Brigette Liddelow
Email: brigette@faj.com.au

How much tax do I pay?

How much tax you pay depends on how much income you earn net of deductible expenses. Simply speaking, tax is paid to the Australian Taxation Office (ATO) based on your taxable income. When we prepare your tax return, our focus is to report the correct taxable income.

The basic formula for calculating your taxable income is: total income minus total deductions. Income can come from a range of sources, such as: wages, business earnings, interest earned, dividends received, Centrelink payments etc. We will work out all your allowable deductions, whether they relate to your work, your business or your investments. We do this to reduce your taxable income, hence reduce the amount of tax the ATO will ask from you.

Once your taxable income has been established, the ATO have set rates on how much tax is due on that particular amount of taxable income. This figure can also depend on your personal circumstances. A few examples include; the types of income earned, whether you are single or member of a family, whether you have a HELP debt or your age at year end. We then compare the tax figure calculated by the ATO at year end to any tax that you have already paid during the year.

The most common form of prepaid tax comes from an employer withholding tax from their employees. If you are a wage earner, each time you get paid, your employer is withholding some tax and paying it to the ATO on your behalf. If you have sources of income that are generally untaxed during the year (for example business profits, interest earned or investment earnings etc.), the ATO can also ask you to prepay some tax during the year. These are known as PAYG instalments and are usually due on a quarterly basis.

Once we complete your tax return (to include all income, deductions and tax paid) we can then let you know if you have paid too much, or not enough. If your prepaid tax is greater than what the ATO are asking for, you will receive a tax refund. If your prepaid tax is less than what the ATO are asking for, you will have to pay further tax.

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

What is a sophisticated investor certificate?

Normally investors must be given a disclosure document such as a prospectus before being offered shares or securities for purchase. However investors holding a sophisticated investor certificate are exempt from these rules and can purchase these shares without having received a prospectus.

So how do you get a sophisticated investor certificate?

Under chapters 6D and 7 of the Corporations Act 2001, a qualified accountant may issue a sophisticated investors certificate to an investor.

A qualified accountant is defined in section 88B of the Act as a person belonging to:

  • Chartered Accountants Australia and New Zealand;
  • CPA Australia:
  • Institute of Public Accountants (IPA); or
  • Certain other eligible foreign professional bodies

Before issuing a certificate an accountant must consider whether the investor satisfies the criteria to qualify as a sophisticated investor. This criteria is set out in the Corporations Regulations as:

  • Net asset of at least $2.5 million; or
  • A gross income for each of the last 2 financial years of at least $250,000.

The accountant uses their professional judgement to in measuring income and assets for the purposes of these tests, and can take into account the income and assets of controlled companies and unit trusts (usually 50% ownership), but not discretionary trusts.

Certificates are valid for up to two years.

Pro tip:
There is potentially a greater level of risk when considering investments as a sophisticated investor as you may not received important information including  a statement of advice, product disclosure statements or prospectus.

Author: Jesper Lim
Email: jesper@faj.com.au