The Super Guarantee timing trap for employers


How employers are being caught out by the timing of superannuation guarantee payments

Employers can generally only claim a deduction for superannuation contributions in the income year in which the contribution is made. Super contributions are made when the payments are received by the trustee of a complying superannuation fund.

It’s not uncommon for employers to be caught out by timing problems, many in the belief that the contribution has been made at the point the payment is made rather than when it is credited to the superannuation fund provider’s account. Many forms of electronic transfer however are not guaranteed to be automatic or next day. BPay for example may take up to 2 days, a delay that is often not factored in.

A new practice statement from the ATO highlights the problem created by the use of clearing houses.

There is a specific element of the law that enables payments made to the Government’s Small Business Superannuation Clearing House (SBSCH) to be accepted as contributions when the clearing house receives them, rather than when the trustee of the superannuation fund has received the contribution. The SBSCH is only available to small businesses with 19 or fewer employees, or with an annual aggregated turnover of less than $10 million.

Private clearing houses are treated differently and as such, employers need to allow sufficient time for their superannuation contributions to be received, processed and paid by the clearing house to the superannuation fund, before their SG obligation is discharged.

Bushfire relief from ATO obligations

The ATO has provided relief from lodgement compliance and payment obligations for those impacted by the bushfires. An automatic two month deferral for activity statements lodgements and payments due has been provided to those in affected postcodes.

Taxpayers can also call the ATO directly to request further assistance, such as requesting extra time to manage tax debt or lodgements, help finding lost documentation such as Tax File Numbers, reconstructing tax documentation, fast tracking refunds, interest free periods, and remittance of penalties or interest charged during the crisis.

Vacant land deduction changes hit ‘Mum & Dad’ property developments

Legislation that recently passed through Parliament prevents taxpayers from claiming a deduction for expenses incurred for holding vacant land. The amendments are not only retrospective but go beyond purely vacant land.

Previously, if you bought vacant land with the intent to build a rental property on it, you may have been able to claim tax deductions for expenses incurred in holding the land such as loan interest, council rates and other ongoing holding costs.

The new laws, aimed predominantly at Mum & Dads (individuals, closely held trusts and SMSFs), prevent these deductions from being claimed. Since the new laws apply retrospectively to losses or outgoings incurred on or after 1 July 2019 regardless of whether the land was first held prior to this date, and with no grandfathering in place, the amendments will not only impact those intending to develop vacant land but those who have already acquired land to develop. This is the same target as previous tax changes that denied travel claims to visit residential rental properties and depreciation claims on plant and equipment in some residential rental properties.

The changes however, go beyond purely vacant land for residential purposes. Deductions could also be denied for land with a building on it, if that building is not ‘substantial’. The only problem is, the legislation does not clearly define what ‘substantial’ means.

If the new measures prevent holding costs from being claimed as a deduction, then they will generally be added to the cost base of the asset for capital gains tax (CGT) purposes. This means that they can potentially reduce any capital gain made when you dispose of the property in the future. However, holding costs for CGT assets acquired before 21 August 1991 cannot be added to the cost base and these costs cannot increase or create a capital loss on sale of a property.

On the positive side, vacant land leased to third parties under an arm’s-length arrangement may continue to be eligible for deductions for holding costs after 1 July 2019 if the land is used in a business activity. Also, land used in a primary production business will generally be excluded from the new rules. However, deductions could still potentially be lost (at least to some extent) if there are residential premises on the land or that are being constructed on the land.

There are also carve outs for land which has become vacant or which cannot be used to produce income for a period of time due to structures being impacted by natural disasters or other events beyond the owner’s control.

The amendments do not apply if you (or certain related parties) carry on a business on the land or where the land is owned by companies, superannuation funds (other than SMSFs), managed investment trusts or certain public trusts.

Single Touch Payroll

Do you pay employees?

Regardless of the number of employees, or how often you pay them, you need to read this.

The ATO has implemented a new reporting system called Single Touch Payroll (STP). Single Touch Payroll requires that every time a pay run is processed, you need to report the pay and superannuation details to the ATO.

It started on 1st July 2018, with all businesses that had 20 employees or more being required to report their payroll and superannuation details to the ATO when a pay run was recorded.

Legislation was recently passed to mandate that from 1st July 2019 any business with 19 employees or less need to report the details of their payroll to the ATO as soon as the pay run is completed as well.

To be compliant with Single Touch Payroll, you must use an electronic reporting system. You cannot report STP details on your BAS.

The ATO has made differentiations based on the number of employees you have.

If you have 20 employees or more (as at 1st April 2018) you are considered a large employer. If you have 19 employees or under you are considered a small employer. Further differentiation is made for those with 4 or fewer employees, and they are classed as micro-employers and have more reporting options for STP.

In summary:

Large Employer

  • 20 employees or more
  • Reporting from 1/7/2018
  • STP compliance and reporting via payroll software only
  • Report every pay period
  • Must report electronically
  • Printed payment summaries no longer required at financial year end
  • Reported wage details will prefill W1 and W2 on your BAS from 2020
  • Employers will be able to offer online commencement forms to new employees, including Tax file number declaration, Superannuation (super) standard choice, Withholding declaration and Medicare levy variation declaration forms that can be sent to the ATO from myGov

Small Employer

  • 19 employees or less
  • Reporting from 1/7/2019 (extended to 30/9/2019)
  • STP compliance and reporting via payroll software only
  • Report every pay period
  • Must report electronically
  • Printed payment summaries no longer required at financial year end
  • Reported wage details will prefill W1 and W2 on your BAS from 2020
  • Employers will be able to offer online commencement forms to new employees, including Tax file number declaration, Superannuation (super) standard choice, Withholding declaration and Medicare levy variation declaration forms that can be sent to the ATO from myGov

Micro Employer

  • 4 employees or less
  • Reporting from 1/7/2019 (extended to 30/9/2019)
  • Report every pay period
  • Must report electronically
  • Reporting can be done directly via software, online solution, or by authorising a registered agent like a bookkeeper or tax agent.
  • Government has mandated that software solutions costing $10 or less per month be available for micro business. These can be payroll software, online reporting portals or mobile app solutions.
  • Printed payment summaries no longer required at financial year end
  • Definition of 4 employees may vary between software suppliers. Most will be based on employees paid per pay cycle per month. Over 4 per pay cycle would mean moving to a larger software subscription.
  • Reported wage details will prefill W1 and W2 on your BAS from 2020
  • Employers will be able to offer online commencement forms to new employees, including Tax file number declaration, Superannuation (super) standard choice, Withholding declaration and Medicare levy variation declaration forms that can be sent to the ATO from myGov

All businesses who are currently using software solutions for payroll need to determine if their software is to be made compliant, and upgrade to that version. If it is not being made compliant, then you will need to change to software that will be complaint.

 

What does this mean for your employees?

Employees

  • Employees will still receive payslips, but not payment summaries (group certificates)
  • Employees must get a myGov account to see wage and superannuation details reported for them.
  • Employee wage and tax details will be available for pre-filling into tax return.
  • Employee can complete onboarding paperwork online through their myGov account. Employee will be provided with ABN of employer when they commence employment and can then complete necessary forms in their myGov account which will automatically populate the employers software as required.

 

Closely Held Employees

Reporting for closely held employees doesn’t start until 1/7/2020

A closely held payee is one who is not at arm’s length. This means they are directly related to the entity from which they receive payments for example:

  • family members of a family business
  • directors or shareholders of a company
  • beneficiaries of a trust

You will need to make reasonable estimates each quarter of the amounts paid to closely held payees. You can calculate these amounts using one of the following methods:

  • withdrawals taken by the payee (but do not include payments of dividends or payments which reduce liabilities owed by the business to the closely held payee)
  • calculating 25% of the total salary or Director fees from the previous year
  • vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary or Directors fees for the current financial year.

These methods are similar to the way you would calculate pay as you go (PAYG) instalments.

From 1 July 2020 you will have the option to report closely held payees’ information quarterly through STP. This report will be due at the same time as your quarterly activity statement.

Software solutions

There are a range of software solutions available that will allow you comply with STP.

All the main software providers (MYOB, Xero, Phoenix, etc) will be offering an STP compliant payroll solution. There will also be other new providers who will enter the market to provide payroll solutions or systems for reporting STP. 

For employers with 5 or more employees, we recommend the MYOB Essentials or MYOB AccountRight Live range of products. If you are currently using just the accounting version of these packages, you can upgrade your software subscription to include a payroll module.

If you are already using MYOB AccountRight, you need to be on the latest version of the AccountRight Live to stay compliant. The older AccountRight Version 19 and prior will not be made compliant and it will no longer be supported by MYOB after September 2019

If you have 4 or fewer employees, there are a range of payroll only solutions available for $10 or less per month.

Contact us to discuss the best solution to make you STP compliant.

Clients with employees who have their bookkeeping completed by Christies will be contacted soon to discuss the likely changes that will be necessary to become STP compliant.

 

 

 

 

Is ‘property flipping’ taxable?

The tax law does not allow you to ‘flip’ a property tax-free even if you are living in it. Most people think that they can move in to a property, renovate it, and then sell it without paying tax. The main residence exemption – the exemption that protects your family home from tax – does not apply if your primary purpose is to ‘flip’ the property for a profit. The fact that you are living in the property does not mean it’s exempt from tax.

Some people reading this are probably thinking, but who is going to know? How can the Australian Taxation Office (ATO) really know what my intention is when I buy a property to live in? Generally, the ATO is looking for a pattern of behaviour or a declaration of intention. For example:

  • You are not employed and earn your income moving in, renovating then selling
  • You have a pattern of renovating and selling properties
  • Your loan documents on your mortgage suggest the property is for flipping and not for the long term
  • You go on national television stating that you are looking to move in, renovate and flip the property (hello The Block contestants).

The ATO’s guide on property is clear: “If you’re carrying out a profit-making activity of property renovations also known as ‘property flipping’, you report in your income tax return your net profit or loss from the renovation (proceeds from the sale of the property less the purchase and other costs associated with buying, holding, renovating and selling it).”

People often make the assumption that any gain made from property flipping will be exempt from tax as long as the property is their main residence for the entire ownership period. However, this is only the case where the property is held on capital account. A property would generally be held on capital account if it is bought with the genuine intention of using it as a private residence or rental property for the foreseeable future and there is evidence to back this up.

The ATO indicates that someone who is renovating a property with the intention of selling the property again at a profit could be taxed on revenue account in which case the main residence exemption does not apply.

The guide identifies three main scenarios and the general tax implications:

  • Personal property investor – this is someone who purchases a property with the primary intention of using it as a long-term rental property or private residence. If this person undertakes renovations and then sells the property earlier than originally planned, then they should still generally be able to argue that the sale is dealt with on capital account, which means that the main residence exemption and/or Capital Gains Tax (CGT) discount could apply.
  • Isolated profit making undertaking – this is someone who buys a property with the primary intention of carrying out renovations and then selling the property when the work is completed. Someone in this category is likely to be taxed on revenue account with no access to the main residence exemption or CGT discount.
  • Business of renovating properties – this is someone who undertakes property-flipping activities on a regular or repetitive basis and where the activities are organised in a business-like manner. As with the category above, there is generally no access to the main residence exemption or CGT discount.

Just because you live in the property for all or part of the ownership period does not automatically mean that the profits from sale are exempt from tax. The main residence exemption can only reduce capital gains; it cannot reduce amounts that are taxed on revenue account.

Beware of the latest scams!

ATO scams

The Australian Taxation Office (ATO) has warned about the emergence of a scam where scammers are using an ATO number to send fraudulent SMS messages to taxpayers asking them to click on a link and hand over their personal details in order to obtain a refund.

The refund scam follows a more sinister four phase scam stating there is a warrant out for your arrest for unpaid taxes in prior years. The scam starts with a text message purportedly from the Australian Federal Police (AFP). Within minutes, your mobile rings and the caller identifies themselves as being from the AFP and working with the ATO. They then ask for your accountant’s details. You then receive a call purportedly from your ‘accounting firm’ asking you to verify the AFP/ATO claims. Finally, you are provided with a way, if you act quickly, to make the AFP go away by paying a fee before your ‘imminent arrest’.

The ATO states that it will not:

  • send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment;
  • use aggressive or rude behaviour, or threaten you with arrest, jail or deportation;
  • request payment of a debt via iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account; or
  • request a fee in order to release a refund owed to you.

Medicare Scam

A new phishing scam sent text messages purportedly from Medicare advising the recipient that they are owed a $200 rebate from Medicare. Once the person clicks on the reclaim link, they are asked to provide their personal details including bank account details for the ‘rebate.’

Single touch payroll extended to all employers

From 1 July 2019, single touch payroll – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – will apply to all employers. What employers need to report will also be extended to include certain salary sacrificed amounts.

Employers with 20 or more employees have been required to use single touch payroll since 1 July 2018. The new rules push all businesses with employees into the single touch payroll system. This includes the situation where payments are made to the owners of the business in the form of salary, wages or directors fees.

The ATO has asked software providers to provide new low cost payroll options for micro employers (1-4 employees).  MYOB and Xero have announced new $10 per month offerings (limited to 4 employees) with other software houses following suit.

The ATO also states that to assist micro employers there will be, “a number of alternate options that are not available to employers with 20 or more employees – such as initially allowing your registered tax or BAS agent to report quarterly, rather than each time you run your payroll.”

While the start date for small employers will technically start on 1 July 2019, the Commissioner of Taxation released a statement indicating that small employers can actually start reporting through single touch payroll any time from 1 July 2019 until 30 September 2019. No penalties will be applied to mistakes, missed or late reports for the first year.

Plus, if your business is in an area with no viable internet connection, such as some rural and remote regions, then exemptions may apply.

Under 20 employees? What you need to do.

1 July 2019 is not that far away. If your business does not already use STP compliant software, you may need to upgrade your systems or implement new ones.

STP requires PAYG withholding and superannuation contribution details to be reported to the ATO as payments are made to employees or superannuation funds.

When it comes to PAYG withholding, employers will report details of salary and wages paid to employees as well as the PAYG withholding amount at the time the payment is made to the employee. Employers have the option of paying the PAYG withholding liability at the same time, although this is not compulsory.

What needs to be reported:

  • Salary & wages
  • Director remuneration
  • Return to work payments to individuals
  • Employment termination payments (ETPs) – not compulsory if the employee has died
  • Unused leave payments
  • Parental leave pay
  • Payments to office holders
  • Payments to religious practitioners
  • Superannuation contributions (at the time the payment is made to the fund)
  • Salary sacrificed amounts (from 1 July 2019).

Employers with poor super guarantee payment history outed

Underpayment or non-payment of superannuation guarantee (SG) is a big issue. New laws will enable the ATO to advise employees (or former employees) of their employer’s poor SG payment and reporting history.

If an employee makes a complaint to the ATO, then a taxation officer is able to make a record or advise the employee about a failure or suspected failure by their employer or former employer to comply with their SG obligations. They can also share the Tax Commissioner’s response to the complaint. So, if the Commissioner finds there is a problem with SG payments, they can disclose this information to the complainant.

Are you in the road freight, IT or security, investigation or surveillance business?

The Taxable Payments Reporting system was introduced to stem the flow of cash payments to contractors and rampant under reporting of income. Since the building and construction industry was first targeted in 2012, the reporting system has expanded to include cleaning and courier services. Now, a broader set of industries have been targeted.

If you have an ABN, and are in road freight, IT or security, investigation or surveillance, then any payments you make to contractors will need to be reported to the Australian Tax Office (ATO).

Be careful here as the definition of these industries is very broad. For  example, ‘investigation or surveillance’ includes locksmiths. The definition covers services that provide “protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like.”

IT services are the provision of “expertise in relation to computer hardware or software to meet the needs of a client.” This includes software installation, web design, computer facilities management, software simulation and testing. It does not include the sale of software or lease of hardware.

Road freight is typically goods transported in bulk using large vehicles. This includes services such as log haulage, road freight forwarding, taxi trucks, furniture removal, and road vehicle towing. The addition of road freight to the taxable payments reporting system completes the coverage of delivery and logistics services as businesses in courier services are already obliged to report payments to contractors to the ATO.

If your business is impacted by these changes, you need to document the ABN, name and address, and gross amount paid to contractors from 1 July 2019. Your first report to the ATO, the Taxable Payments Annual Report (TPAR), is due by 28 August 2020. This might seem like a long way away but it will come around quickly and you need to ensure that your systems are in place to manage the reporting required easily and accurately.

Who needs to report?

The obligation to report contractor payments to the ATO is already quite broad. The addition of road freight, IT or security, or investigation or surveillance services, adds another layer.

Service Reporting of contractor payments
Building and construction services From 1 July 2012
Cleaning services From 1 July 2018
Courier services From 1 July 2018
Road freight, IT or security, or investigation or surveillance services From 1 July 2019

For businesses providing mixed services, if 10% or more of your GST turnover is made up of affected services, then you will need to report the contractor payments to the ATO.

No tax deductions if you don’t meet your tax obligations

New laws passed by parliament last month directly target the behaviour of taxpayers that don’t meet their obligations.

Tax deductions denied

If taxpayers do not meet their PAYG withholding tax obligations, from 1 July 2019 they will not be able to claim a tax deduction for payments:

  • of salary, wages, commissions, bonuses or allowances to an employee;
  • of directors’ fees;
  • to a religious practitioner;
  • under a labour hire arrangement; or
  • made for services where the supplier does not provide their ABN.

The main exception is where you realised there is a mistake and voluntarily corrected it. For example, if you made payments to a contractor but then later realised that they should have been paid as an employee and no PAYG was withheld. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax.

The new rules for gift cards – what you need to know

In Australia, around 34 million gift cards are sold each year with an estimated value of $2.5 billion. On average, an estimated $70 million is lost because of expiry dates.

 Until recently, there was no national regulation for the minimum length of time a gift card should last. In late 2017, New South Wales introduced laws* requiring a minimum three year expiry period for gift cards sold in that state and South Australia was in the process of enacting laws, but no uniform standard applied across Australia.

Applying from 1 November 2019, new laws are in effect that introduce a regime for the regulation of gift cards including:

  • A minimum 3 year expiry period
  • Bolstering disclosure requirements, and
  • Banning post-supply fees.

What business needs to do

From 1 November 2019, businesses should ensure:

  • All gift cards have a minimum three year expiry period. Any existing gift card stock should be run down and production reviewed to ensure that once the new regime comes into effect, only compliant gift cards are issued.
  • Ensure disclosure requirements are met. The expiry date or the date the card was supplied and a statement about the period of validity must be set out prominently on the gift card itself. For example, if the supply date was December 2019, “Supply date: December 2019. This card will expire in 3 years,” or “Valid for 3 years from 12/19”. It is assumed that the card expires on the last day of the month where only the month and year are displayed. If the gift card does not expire, the card will need to clarify this by stating words to the effect of, “never expires”.
  • Post-supply fees are not charged. A post-supply fee is a fee that is charged reducing the value of the gift card such as administration fees for using a gift card. Post-supply fees exclude the fees that are normally charged regardless of how someone pays for a product or service. For example, booking fees, a fee to reissue a lost or damaged card, and payment surcharges.

A number of larger businesses have adopted a 3 year expiry period following the introduction of NSW laws. These include David Jones, Myers, Westfield, Rebel Sport, Coles, and Dymocks. Other retailers have no expiry dates including iTunes, JB Hi-Fi, EB Games, Woolworths and Bunnings. Generous expire periods are a point of difference when consumers are working out which retailers gift card to purchase.

What happens if a business ignores the new rules?

Once the new rules come into effect, if a gift card is supplied with less than a three year expiry period, the disclosure requirements are not met, or post-supply fees are charged, a penalty may be imposed of up to $30,000 for a body corporate and $6,000 for persons other than a body corporate. In addition, the ACCC has the ability to impose infringement notices. Each infringement notice is 55 units (currently $11,500) for a body corporate and 11 units (currently $2,420) for persons other than a body corporate.

What happens if a business becomes insolvent or is sold?

The consumer’s rights do not change if the business becomes insolvent or bankrupt. The consumer becomes an unsecured creditor of the business.

If a business changes owners, the new owner must honour existing gift cards and vouchers if the business was:

  • sold as a ‘going concern’. That is, the assets and liabilities of the business were sold by the previous owner to the new owner.
  • owned by a company rather than an individual, and the new owner purchased the shares in the company.

*Amendments to the NSW Fair Trading Act 1987 require that most gift cards and vouchers sold from 31 March 2018 have a 3 year expiry period. In addition, no post-purchase fees can apply to redeem the voucher (including activation fees, account keeping fees, balance enquiry fees, telephone enquiry fees and fees applied when a card is inactive or not being used). See Fair Trading for more details.