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Carving up your GST


Apportioning your GST obligations

For many small businesses, reporting the GST you collect after issuing tax invoices to customers can be a headache. But there is a way to save time and make the bookkeeping process a bit easier - if you meet the ATO's eligibility criteria.

Splitting your expenses for GST

Unfortunately, many common business expenses claimed by small business owners - like your home telephone and internet, computer and other electronic devices, vehicle purchase and running costs, and home power use - often have a private use component.

As only the business use portion of an expense can be claimed in your tax return, small business taxpayers regularly face the fiddly task of splitting their expenditure between business and private use.

The same goes when it comes to filling in the GST section on your BAS, as you can only claim GST credits for expenses used for business.

So each cost needs to be divided into their business and private components and the GST applying to each component calculated.

This can be tedious if there are lots of small monthly expenses to claim in your quarterly BAS.

Making an annual GST election

If these calculations are too time consuming, the ATO allows smaller businesses to make an 'annual private apportionment'.

Although it's a cumbersome name, making an annual private apportionment is an easy process and can help streamline your BAS preparation.

With this option, the ATO permits small businesses to simplify their accounting for business and private expenses by making an annual election. This allows you to claim the full amount of GST on payments you make in your quarterly BAS and adjust it in a future activity statement.

For example, if you pay $220 for your telephone service, $20 of the cost is GST. If your usage of the phone is 30 per cent business and 70 per cent private, you are only entitled to a GST credit of $6 (30 per cent of $20) in your BAS.

If you elect to use an annual private apportionment, however, you can claim a $20 GST credit for the purchase in your next BAS. When you lodge your business's annual income tax return after the end of the financial year, you adjust your GST credit amount. This can either increase the amount of GST you pay or reduce your GST refund for the financial year.

Annual apportionment: Who's eligible?

The ATO recognises that staying on top of bookkeeping tasks can be tricky for many small and micro business taxpayers, so eligibility for annual private apportionment focuses on them.

To be eligible, you need to be a small business with an annual turnover of less than $10 million, or a non-business enterprise with a GST turnover of $2 million or less. You also need to be lodging your GST reports quarterly or monthly.i

Eligible businesses can choose the annual apportionment option at any time and can start at the beginning of the next tax period for which their BAS is due.

The ATO doesn't require notification if you decide to use annual private apportionment, but you do need to keep a record of the date you decided to take advantage of the option and the date you commence.

Adjustment is via your BAS

The rules applying to annual private apportionment are fairly straightforward.

You can use the option on all business expenses that have both a business and private component, unless the business portion of the expense relates solely to making input-taxed supplies.ii

When it comes to making the annual adjustment for your GST credits, this is normally done in the BAS covering the same quarterly time period as your annual income tax return is due.

For example, if you claim a full GST credit in your 1 July to 30 September 2019 quarterly BAS, you make the annual adjustment in the BAS covering the tax period for the December 2020 quarter. This is because the due date for your annual income tax return for the 2019-20 financial year is 31 October 2020.

As you can see, it's complicated. If you would like some help with your GST reporting requirements, call us today.

https://www.ato.gov.au/Business/GST/In-detail/Managing-GST-in-your-business/Reporting,-paying-and-activity-statements/Annual-private-apportionment-of-GST/?page=2#Eligibility

ii https://www.ato.gov.au/Business/GST/When-to-charge-GST-(and-when-not-to)/Input-taxed-sales/

 

The STP reporting clock is ticking: Are you ready?

If you're a small employer with 19 or fewer staff, the countdown to your first single touch payroll (STP) report has already begun.

The STP regime is a key part of the ATO's plan to digitise and streamline tax and super reporting, and it intends to make the reports a normal part of doing business in Australia.

But many small business owners are only now starting to realise just how much this new online reporting regime will affect their business.

This is a worry, as the reform has been called the "biggest compliance change for employers since the introduction of the GST".i

So are you ready for your first reporting deadline?

When do I need to report?

The ATO's final deadline for the first STP report from small employers (with 19 or fewer employees) is 30 September.

As the introduction of STP is a big change for small employers, the ATO has announced it will be taking a flexible approach to employers' first report, so you can start reporting any time from 1 July to 30 September 2019 and still be reporting on time.

Once you start reporting, you will be required to send the ATO information about your employees' salaries and wages, PAYG withholding and super information each pay day (normally weekly, fortnightly or monthly).

Micro businesses (with four or fewer employees) that have a non-computerised payroll may be eligible to report quarterly until 30 June 2021 through their registered tax professional. Quarterly reporting may also be available to businesses providing irregular employment (such as seasonal work).

Employers in a family owned business, company directors and non-business employers (such as carers with a withholding payer number) do not need to start STP reporting until 1 July 2020. This exemption is automatic, but you can start reporting before the deadline.

ATO approach to non-compliance

The ATO has announced it will be taking a 'light-touch' approach to enforcement during the first 12 months, with no penalties for mistakes or late reports imposed during the first year.

The regulator has guaranteed that no penalties will be applied if an employer gets something wrong and corrects it within an appropriate period, particularly as last-minute adjustments often occur with pay loadings and allowances for employees.

Exemptions are available for STP reporting if you are experiencing hardship or operate your business in an area with limited internet capabilities.

The relaxed approach to reporting is unlikely to continue once the STP system is fully up and running. After the first year, all non-exempt employers need to be signed up for STP reporting and, if you are a micro business, you must have applied for quarterly reporting.

Tips for meeting the reporting deadline

With the 30 September deadline fast approaching, here are some tips to ensure your business is prepared for the big day:

  • Start reporting straightaway

If you already pay your employees using a digital solution like MYOB, Xero or QuickBooks, moving to STP reporting will be fairly simple, as most software packages are now STP-enabled. This means you can start reporting straightaway and avoid a last-minute rush in September.

  • Apply for a deferral

If you currently don't use the internet or digital software to do the payroll or accounting for your business, you will need to decide whether now is the time to move to a computerised payroll system.

If you need more time - or some assistance - before you can start using a computerised system to do your STP reporting, you can apply to the ATO for a deadline deferral to a date no later than 30 June 2020. Requests for a deferred starting date are not automatically granted and you must apply prior to 30 September 2019.

  • Talk to us about what you can do

If you are uncertain what to do about STP reporting, contact our office straightway so we can help you plan how to comply with your reporting requirements. This may mean you will need to make changes to your existing business processes, so you have the necessary information available.

You can also talk to us - or a payroll service provider - about completing the necessary reporting on your behalf each pay cycle.

  • Sign up for a low-cost digital solution

If you don't have the necessary payroll or accounting software for reporting an STP pay event to the ATO, the regulator has compiled a list of low-cost (less than $10 per month) STP providers suitable for smaller employers.ii

If you are thinking about moving to a new STP-enabled software package, the ATO maintains a list of commercially available solutions.iii

If you would like more information about your Single Touch Payroll obligations or how to implement an STP solution, call today.

i How to get 'in the zone' and focus on growing your business, Reckon Software, 2019. https://ddvqhbgjmdkmq.cloudfront.net/wp-content/uploads/sites/2/2019/04/29063947/In-The-Zone-Report.pdf

ii https://www.ato.gov.au/business/single-touch-payroll/in-detail/low-cost-single-touch-payroll-solutions/

iii https://api.gov.au/productregister/

Getting on top of tax debt

Although most Aussies pay their tax bill on time, some can't - or just won't pay what they owe.

In the 2017-18 financial year, the ATO collected over $500 billion in liabilities from Australian taxpayers, with 89.5 per cent of us paying on time and 95.9 per cent paying within 90 days of the due date on their tax return.

This left 4.1 per cent of taxpayers with outstanding tax debts totalling $23.7 billion. Of this, $15.1 billion were tax debts owed by small businesses. That's a lot of unpaid tax.i

Getting taxpayers to pay

So what happens if you don't pay your tax debts?

If you can't pay your tax bill on time, it's important not to panic. The ATO is willing to help, but you must continue lodging your tax returns and activity statements on time, even if you can't pay on the due date.

Lodging on time helps avoid a penalty for late lodgment and shows the ATO you are aware of your obligations and are doing your best to meet them.

What action the ATO decides to take if you have an unpaid tax debt depends on your circumstances, past behaviour and lodgment and payment history. If you have a good tax payment history or are in serious hardship, you are likely to be treated differently by the ATO than if you have deliberately set out to avoid paying your tax debts.

In some circumstances, an individual taxpayer may be released from a tax debt. This usually only occurs if you are experiencing serious hardship.ii

Paying by instalments

If you cannot pay your tax bill by the due date, you may be allowed to set up a payment plan. The ATO accepts short-term cash flow problems sometimes prevent taxpayers from paying on time. In 2017-18, it granted 1.1 million payment plans, with 790,000 of these being for small business.

Even if you establish a payment plan, interest still accrues on your unpaid tax debt. The ATO automatically begins charging a daily general interest charge (GIC) on tax debts and the debt continues growing until it is paid. During the July to September 2019 quarter, the GIC annual rate is 8.54 per cent.iii

Small businesses with an activity statement debt may be able to pay off this type of debt interest-free over 12 months if they meet certain eligibility criteria.

What will the ATO do if I don't pay?

Aside from charging interest, if you don't pay, the ATO will begin using your future tax refunds or credits to reduce your tax debt. It will also use these amounts to pay any debts you owe to other government agencies, such as overdue child support.

Routine income tax and activity statement debts are often referred to external debt collection agencies for collection on behalf of the ATO. Tax debts that are being formally disputed are not referred.

Collection agencies are required to notify you in writing before contacting you to negotiate payment of your debt.

Taking stronger action

If you do not reach an agreement with the collection agency, the debt is returned to the ATO. It may then take 'stronger action', such as issuing a garnishee notice or director penalty notice. Or it may start insolvency proceedings.

The ATO uses stronger actions with people who are unwilling to work with it, who repeatedly default on agreed payment plans, or who do not take steps to resolve their situation. If you are audited and deliberate avoidance is found, or non-payment continues, the ATO is also likely to use these harsher powers.

Garnishee notices require an employer, bank or trade debtor to pay your money directly to the ATO to reduce your tax debt. In 2017-18, garnishee notices were issued in 1.2 per cent of debt cases.

The ATO may also file a claim or summons, which may result in you receiving a bankruptcy notice, or a statutory demand and application to wind up your company. This occurred in 0.04 per cent of debt cases in 2017-18.

Don't ignore a tax debt

Communication is essential when it comes to tackling tax debts. It's also important to act immediately and not shove the letter from the ATO into a drawer hoping the problem will go away, as your interest bill increases daily.

The first step in getting on top of the situation is to contact the ATO or make an appointment with us to discuss your financial position and work out possible ways to pay your tax debt.

We can also talk to the ATO on your behalf about your options when it comes to repaying or managing your tax debt with a payment plan.

If you would like help managing your tax obligations, call us today.

* All statistics relate to 2017-18 financial year. Source: ATO

https://www.ato.gov.au/Tax-professionals/TP/ATO-Debt-Process/

ii https://www.ato.gov.au/General/Financial-difficulties-and-serious-hardship/in-detail/release-from-your-tax-debt/

iii https://www.ato.gov.au/Rates/General-interest-charge-%28GIC%29-rates/

 

Symes Accountants hosted local high school student, Alison for a week of work experience in July 2019. Below is her personal overview of her experience with our team.

From the 15th to 19th of July, I completed work experience at Symes Accountants for my Cert III in Business, to help get a better understanding of what it is like owning a business and how it operates behind the scenes. I believe this experience was valuable and an eye-opener for me, as I was able learn from this experience.

During my week, I mainly spent my time in the administration office with Kristy Koen and Kateena Jenkin (Business Support Team). Here I was able to ease into the accounting field as I didn't understand much about accounting. I was also able to learn how they run the business, what they did within the administration office, and the procedures they must follow in their work. Especially during the first and second day, I realised that administration is important in helping the business run successfully. They support the accountants by arranging meetings with their clients, without interrupting other meetings they may have. They help to try and make everyone else's job a lot easier, so they don't have to waste their time. Everyone is nice to each other and were happy to help each other out with any problems they may have. This allowed the Symes team to work efficiently and do things correctly to a high standard.

On the 18th of July, I began the day at Symes with two meetings with both the teams of accountants and admin. These meetings help Symes know what they are doing for the day and what they had left to do. This allowed them to set goals which helps them to feel motivated to complete their tasks. One of these meetings was a mini training, which required all the accountants to complete a module where there were questions that had to be answered. This was interesting and extended my knowledge and understanding about the accounting field. In the afternoon, I had a talk with Peter Caddy (one of the Partners) about Symes' goals and what they wish to achieve in the future, as well as the importance of everyone's role and how they contribute to the success of the business. On the last day of my placement, I had a quick meeting with Hans van Heuven and talked about my career path and how I wanted to run my own business. This was extremely helpful for me and taught me that when running a business - it is important to have the plan or goal in mind as well as have good support for the business to run efficiently and successfully.

Overall, my experience at Symes Accountants was enjoyable and informative. This experience has helped me understand how a business operates, the roles and the work life of Symes.

Smart ways to invest your tax refund

Tax time can often feels like a hassle, but it's all worth it when that tax refund lands in your account. So, what's the best way to spend it?

With last year's average refund being $2,574, it's no small question.i And if you are one of the lucky ones to receive a refund your options are endless. From paying down debt to investing in your future to blowing it on a big holiday, the choice of how you spend your refund will depend on your goals and your circumstances.

Pay down debt

It may not be particularly glamorous, but paying down any debts you have can be a very wise way to spend your tax refund. Especially because you'll probably save even more on the future interest you won't end up paying.

Australians have a whopping $45 billion in credit card debt.ii Consider clearing any overdue balance, and while you're at it why not reduce your limit so you're not as likely to go that far again.

You might also consider putting some of your tax refund towards your home loan. Again, a $2,000 reduction in what you owe now could mean a much bigger saving over the lifetime of your loan.

Invest in your future

Your tax refund could also be a fantastic way to pay for an investment in your future.

A good way to start is by putting a little more towards your super.

Superannuation is still the most tax effective way of saving for the retirement you dream of, and the interest on the additional contributions now could compound to make a big difference to the overall size of your nest egg.

Investing in your future might also mean taking a short course to upskill, or diversify your talents. There are TAFEs and adult education facilities across the country that offer a plethora of short courses from the vocational, to ones that purely play to personal interest. Have a google and see what's going on in your neighbourhood.

If you're feeling generous, you might even consider directing some of your refund towards the future of a loved one. This might include starting a fund to help your kids towards a house deposit, a first car or their future education. Talk to us about what your options are.

Save for a rainy day

It's awful to think about, but you never know what the future holds, so having a little money aside for a rainy day is never a bad idea. It might help with future medical expenses or a loss of income, or even those everyday unexpected expenses such as a broken fridge or car repairs. Getting in the habit of putting a portion of your tax refund towards a rainy-day fund could make a real difference if life takes a turn for the worse.

Have a little fun

You work hard, and there's nothing quite like the feeling of having a few extra thousand in the bank. So, you'll be forgiven if you want to have a little bit of fun. From a weekend away to a retail binge, there are many ways you can blow a tax refund. Our advice to you: be cautious. By all means splurge on some pampering, but make sure you get the right mix by either reducing any unpaid debt or investing in your future.

The right mix

The truth is you can use your tax refund in a number of ways and none of them are right or wrong. Perhaps the wisest thing to do then is mix it up, spending the bulk of it prudently while saving a little bit just to do something that really makes your heart sing.

If you need any help with your tax return, give us a call.

https://www.moneysmart.gov.au/managing-your-money/income-tax/how-australians-spend-their-tax-refunds/

ii https://www.abc.net.au/news/2018-07-04/1-in-6-credit-card-users-struggle-under-mountain-of-debt/9936826

Tax man sizes up clothing claims

Submitting a claim for your work-related clothing expenses is common come tax time, with more than six million Aussies claiming deductions in the past financial year.

But this year it's a deduction that's likely to bring your tax return right under the ATO's spotlight, as the regulator is cracking down on the rapidly growing number of these claims.

Read more…

Cruising through the finish line

The end of financial year can sometimes feel like a race to the finish. To help you cruise through the finish line come June 30, we've prepared a handy list of tips for both businesses and individuals.

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Tax Alert: June 2019

With the end of financial year only weeks away, the ATO has announced that one of its key areas of focus this financial year-end will be rental properties, although returns from taxpayers using cryptocurrency assets are also expected to come in for close attention.

To help you prepare for this year's tax time, here's a roundup of some recent developments in the world of tax.

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After the election: tax changes on the way

With the uncertainty of the federal election now out of the way, we can look forward to some significant reforms to Australia's existing tax system.

The Morrison Government went into the election with a comprehensive suite of tax proposals and these are now likely to pass swiftly through Parliament, as the Opposition has indicated it will support the legislation.

So just what are the changes we are likely to see when it comes to both our personal tax and the taxes that apply to small and medium-sized businesses?

Read more…

Guide to Travel-Related Work Expenses

Travelling for work can be expensive, whether it's visiting clients locally or attending a conference overseas, so it's important to claim everything you are entitled to in your tax return. But be aware that the ATO is paying increasing attention to claims in this area.

The essential thing to consider when claiming any travel expense in your tax return is that it must be work-related and only take you away from home for a relatively short period of time. Any expenses you have paid and already been reimbursed for by your employer can't be claimed. Here are some tips on what you can and can't claim, and the records you need to keep.

Read more…

     
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