What is PAYGW?

For those of us who are not so savvy with ATO acronyms, PAYGW stands for Pay As You Go Withholding.

This is a system of taxation that requires employers to withhold a portion of employees’ wages and then pay it to the ATO to offset expected year-end tax liabilities.

The system is usually more convenient for taxpayers, avoiding the accrual of large unexpected tax liabilities and also allows a more even flow of tax revenue for the Government.

What are the risks for failing to withhold?

There can be risks for business owners who are unaware of the PAYGW regime and who may pay cash to employees or pay wages through the Single Touch Payroll system, but who do not withhold the correct amount of PAYGW.

The consequence for failing to withhold tax on an employee’s wages is that an amount equal to the amount of tax not withheld must be paid to the ATO as a penalty.

Where an employer fails to withhold tax from their employee’s wages over a period of years, the penalties in the case of an ATO audit can be substantial and potentially crippling to a small business.

Additional risks for businesses who pay contractors

There can be additional risks for businesses who pay contractors. In some circumstances, despite having a contracting arrangement with an individual, the ATO would regard this person as an employee. Some factors that may indicate that a contractor should really be classified as an employee are:

1. The employer pays the contractor on an hourly basis for their labour rather than on a ‘results’ basis
2. The employer supplies any tools/equipment required for the work
3. The employer is responsible for any warranty or faulty work
4. The employer holds the workers compensation insurance
5. The contractor does not have the right to delegate the work to someone else
6. The business has the right to direct the way in which the worker does the work.

Businesses who use contractors should assess each one to check if they should actually be employed as employees and therefore have PAYGW deducted from their wages.

In the event that the ATO audits the business and classifies any contractors as employees, the ATO could apply the failure to withhold penalties along with interest on amounts from earlier periods. These amounts can be substantial in some cases.

Furthermore, employees who have been wrongly classified as contractors, may have rights to leave and super entitlements from the Employer, adding further costs to the employer’s business.

What do I need to do?

If you are an employer, have a look at the ATO page ‘PAYG withholding’  and register for PAYG withholding if required.

If you are a business that employs contractors, have a go at the ATO’s ‘Employee or contractor decision tool’ for each contractor.

If you need more help, speak to your Accountant or Bookkeeper or contact FAJ on (08) 9335 5211.

Other related blogs:

Employee or contractor – the risks of getting it wrong

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

 

 

 

 

 

 

In Western Australia if you die without leaving a valid will your estate will be distributed according to legislation, this being the Administration Act 1903. This means that the law decides who your beneficiaries are and how your estate is divided with minimal flexibility.

Intestacy is the term given when a person dies without leaving a valid will.

Any person over the age of 18 who is entitled to a share of the estate can apply to be the administrator of the estate. The administrator of the estate is in charge of paying individual debts and allocating the deceased estates assets to beneficiaries.

The estate first pays off any debts owed by the deceased individual before death, this occurs regardless if a will is in place or not. After the debts are paid, the assets are divided between the spouse and children as per below:

• If the deceased estate assets are valued at less than $50,000 the spouse receives it all.
• If the deceased estate assets are valued at more than $50,000, the spouse receives the first $50,000 and 1/3^rd of the remaining. The remaining 2/3^rd is split between all children.

If the deceased has no children at the time of death the distribution of assets changes:

• Spouse receives all household chattels, the first $75,000 of assets and 1/2 of the remaining assets. The other 1/2 is split as follows:
• Parents receive the next $6,000 of assets and 1/2 of the remaining balance.
• Siblings receive the remaining balance.

The asset allocation splitting as seen above does not give much flexibility to the administrator of the estate. Especially in the case where an individual with family disputes and multiple families might want to look after specific beneficiaries and not want particular family members receiving any assets. Therefore, it is very important for individuals to make sure they have a valid will to ensure they are happy with their estate asset allocation.

Individuals should not only have a will but also update their will when family circumstances change, like a divorce or having children.

Other related blogs:

Due you need a binding death benefit nomination?
What is an enduring power of attorney?

Author: Rhys Frewin
Email: rhys@faj.com.au

In April 2020 the ATO first announced a new method for claiming home office expenses due to the coronavirus pandemic. The new “shortcut method” allows you to claim a deduction of 80 cents for each hour you worked from home for the periods between 1 March 2020 to 30 June 2020, and from 1 July 2020 to 30 June 2021.

The shortcut method rate covers all running expenses, including:

• Electricity for lighting, heating & cooling and running electronic items
• Phone and internet costs
• Computer consumables e.g. printer ink and stationery
• The decline in value of home office furnishings and electronic equipment
• Cleaning expenses

The benefit of the shortcut method is that you do not need to have a dedicated working area in your home, which is a requirement for using the fixed rate method. It is especially useful for people who are working from shared spaces in their home, and multiple people living in the same home can all make claims using the 80c rate.

Additionally the method is very simple to claim, as all you need is a record of the hours you have worked from home. The record can be in the form of a timesheet, roster or diary.

The shortcut method covers all running expenses, so you are unable to claim any other expenses for working from home for that period. If you have large phone or internet expenses, or have purchased a computer for working from home, this likely means that you would be eligible for a larger deduction using another method.

Home office claims can still be made under the existing methods, and you can choose to use the method that allows you the best deduction.

The fixed rate method involves claiming a deduction of 52 cents per hour worked from home, and this rate covers electricity, decline in value and repairs of furnishings. You will separately calculate your work-related use for your phone and internet expenses, computer consumables and depreciation of electronic equipment.

See here for more information from the ATO website on the available methods and record keeping requirements for your home office claim.

Other related blogs:

Home office vs place of business
Wages during lockdown

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

As you may have seen in the media, the Federal and State governments have been stimulating the building industry as a result of the downturn in the economy from COVID.

These are temporary incentives to encourage residential and investors into the market and applicants have a limited amount of time to be eligible.   The increased demand for new houses could lead to longer wait times for houses to be built due to shortage of labour which could lead to land being vacant for longer than anticipated.  If you are an investor in this situation, it is important to note that from 1 July 2019 deductions available for vacant land have changed.

What is vacant land?

Vacant land is broadly defined as “land with no substantial and permanent structure on it that is in use or available for use”.

Prior to 1 July 2019 (Old Rules)

Prior 1 July 2019 the ATO were accommodating in recognising the time and common delays that were associated with building a new property.  If the owner was taking active and genuine steps in building a property that would be used to produce income once compete (seeking finance, engaging a builder, architect, real estate agent and council development plans) the ATO allowed a tax deduction for the associated holding costs up front. Holding costs include expenses such as:

• Loan interest
• Council rates
• Land tax
• Insurance

It is important to note that these expenses are still deductible if you incurred them before 1 July 2019.

From 1 July 2019 (Current Rules)

From 1 July 2019 the holding costs associated with vacant land are no longer deductible. While this is unfortunate, not all is lost. Instead these costs will be added to the cost base of the property and may reduce any capital gains tax payable when you sell the property.

So if you are hoping to take advantage of record low interest rates and build a new investment property it is important to document all of your expenses as you will need these when you come to sell.

As always it is best if you seek advice from an accountant prior to entering into any contract as everyone’s circumstances are different.

Other related blogs

Holding costs and the impact on Capital Gains Tax
Four year construction rule when you buy vacant land or renovate

Accountant: Louise Leafe
Email:louise@faj.com.au

 

 

 

 

 

In March 2020 the WA government introduced a code of conduct to support tenants of commercial properties with COVID rent relief.

This code of conduct was created to ensure businesses survived the economic downturn by assisting commercial tenants and landlords to negotiate a rent relief agreement. The code applied to small businesses with an annual turnover of up to $50 million and that were also eligible for the JobKeeper scheme.

The code allowed tenants who were affected by the pandemic to request rent relief from landlords, who were required to:

• offer relief at least proportionate to the reduction in turnover that the business had suffered; and
• waive at least half of that rent, with the balance either being deferred or waived.

Further, rent could not be increased and tenants could not be evicted for not meeting their rent obligations.

These COVID rent relief rules were initially intended to end on 30^th September 2020, but as a result of the continued economic effects of the pandemic, the rules were extended until 28^th March 2021. Not every tenant qualified for the extension – if, after 30^th September 2020, a tenant’s business improved to a point where they were no longer eligible for the JobKeeper scheme, the code no longer applied and no further rent relief was available.

Now that 28^th March 2021 is fast approaching, the rent relief provided to the remaining eligible tenants will no longer apply. What will this mean?

1. Rent obligations that were previously deferred will need to be paid back. Deferred rent will need to be paid over a 24 month period or the balance of the lease term (whichever is greater).
2. Landlords can take legal action if deferred rent is not paid by the tenants as per the agreement.
3. Landlords are permitted to take action to terminate or evict tenants if rent is unpaid..
4. Landlords can start applying rent increases.

If you are experiencing difficulties with your landlord or tenant, the Department of Commerce recommends you contact the Small Business Development Corporation for advice.

For further information, please visit https://www.commerce.wa.gov.au/consumer-protection/commercial-tenancies-covid-19-response

Related blogs:

Wages during lockdown
Why a small business should be using monthly budgeting

Email: tessa@faj.com.au