Tax Pre-Payment
A pre-payment is a payment made in advance for an expected tax bill. A business can make pre-payments at any time to make it easier to manage its tax. Some tax liabilities qualify for early payment interest when the payment is made more than 14 days before the due date. If you are eligible for interest on early payments, you can calculate how much they should receive using the credit for interest on early payments calculator.

Any payments made towards tax liabilities before they are due will remain on the integrated client account unless you request a refund. If a business has a tax debt, pre-payments may be used to offset against it.

To assist you in making regular pre-payments, we can estimate the amount to pay by using the ATO online tools and calculators. Voluntary payments can be made using any payment method – Bpay, credit card, direct credit, direct debit, cheque or in person at Australia Post outlets.

Early Payment of Tax   

A tax payment made for certain tax debts (as set out below) will qualify for early payment interest if the payment is made more than 14 days before the due date. Early payment interest is payable on the following:

• Income tax (including Medicare levy and Medicare levy surcharge)
• Compulsory Higher Education Loan Program (HELP) repayment amounts
• Student Financial Supplement Scheme assessment debts
• Interest on distributions from non-resident trust estates
• Income tax penalties for late lodgement of returns in the 1999–2000 and earlier income years
• A general interest charge relating to a late tax return for the 1999–2000 and earlier income years
• A general interest charge on increase in tax payable resulting from an amended assessment for the 1999–2000 and earlier income years
• A shortfall interest charge

The following payments do not attract early payment interest:

• Pay as you go (PAYG) withholding amounts including
• amounts withheld from interest, dividends and royalties
• amounts withheld by payers (including those withheld for the purpose of repaying contributions or debts under HECS-HELP)
• PAYG instalments
• Any part of a payment that exceeds the amount that is due and payable
• Activity statement payments

How to Claim Your Interest on Early Payment
There are two ways to claim any credit interest. You can claim it as a credit on your tax return (supplementary section) for the income year in which the entitlement to the interest arises, (if it is 50 cents or more); to do this you will need to calculate the amount of your entitlement.  You can also write to the ATO requesting payment of the interest; the interest will not be paid until after the due date for payment of the relevant tax liability.

A credit for early payment interest may not be claimed if the entity is also entitled to claim interest on overpayment on that early payment.

How to Work out the Period of Which Interest is Payable
For most taxpayers, interest is payable from the later of the date of issue of the tax liability notice or the date payment is made. Interest is payable up to and including the due date for payment, but only up to the value of the tax bill.

More detail and examples are available at the ATO – Early Payment of Tax.

Related References

• ATO – Credit for Interest on Early Payments Calculator
• ATO – Early Payment of Tax
• ATO – How Much You Owe and When to Pay

Single Touch Payroll is Back on the Agenda

Single Touch Payroll Reporting

(Update: 15th December, 2015)

Modified 23rd December due to Ministers Media Release

ICB Summary: The Mid Year Economic and Fiscal Outlook (MYEFO) from government recommitted the government and the tax office to making STP real. This has been further supported and explained by Media Release on 22nd December, 2015.

New: It will not be compulsory for small business (< 20 employees), for now. Although dates are vague we suggest not until a date after July 2018.

New: If a business with turnover of below $2m chooses to adopt STP, the Government will provide a tax offset (reduction in your tax bill) of $100 in the 2017-18 year, if you buy software or pay a software subscription.

Update: It is compulsory for employers with more than 20 employees from 1st July, 2018

The MYEFO statement did not change any concepts known about how it will work ie

• report every payrun
• option to pay every pay run
• allegedly will simplify Tax File Number Declaration process
• allegedly will simplify SuperChoice election of fund process
• allegedly will simplify the end of year payment summary process
• enhance superannuation compliance as the ATO will know whether super has been paid or not

ICB continue to support the Single Touch Payroll initiative and look forward to an efficient business process built into all our common payroll software to enable an easy system and easy compliance. The devil in the detail is yet to be developed.

Extract From the MYEFO Papers

The Government will simplify the reporting by employers of their Pay As You Go (PAYG) withholding obligations and superannuation contributions by progressively implementing Single Touch Payroll (STP).

Under STP, employers will automatically report individual employee payroll information to the Australian Taxation Office (ATO) using their business management software. STP will also introduce reporting of superannuation contributions information to the ATO when payments are made to super funds. Employers will have the option to pay their PAYG withholding at the same time they pay their staff.

The government will introduce streamlined processes for individuals commencing employment. Individuals will have the option of completing their Tax File Number Declaration and Superannuation Standard Choice forms using myGov or through their employer’s business management software.

This measure will be phased in as follows:

• from January 2017, there will be a voluntary pilot of STP. The pilot will focus on, but is not limited to, targeted small and medium enterprises;
• from July 2017, all businesses may commence STP reporting, with the option to make voluntary payments. In addition, the ATO will commence transitioning employers with 20 or more employees to STP; and
• from 1 July 2018, employers with 20 or more employees will be required to use STP enabled software for reporting to the ATO.

To assist small business that wish to take advantage of the benefits of STP, the government will provide businesses with a turnover of less than $2 million with a $100 non-refundable tax offset for expenditure on Standard Business Reporting (SBR) enabled software. This offset will apply from 1 July 2017, and will be available for software purchases or subscriptions made in the 2017-18 financial year only. This measure is estimated to have a gain to revenue of $267.4 million over the forward estimates period. The Government will provide $189.0 million to the ATO to implement this measure.

ICB Comment

We observe the paper stating that somehow Single Touch Payroll is going to raise $267.4m of revenue for the government. We can only presume this is because the level of compliance by employers will increase.

The ATO acknowledges that at times it is convenient for a business owner to purchase goods through their business that are in fact for private use, and also that there are goods that are purchased that may legitimately be used for both home and work purposes.

There is no problem with you paying for such goods through your business; however, you cannot claim the GST or the purchase amount as a business-related expense where it relates to private usage, unless Fringe Benefits Tax applies.

You may only claim a GST credit for the portion that relates to business usage. Generally a business would report the private usage adjustment on each BAS quarterly.

How to Work out the Private Portion of Expenses

1. Estimate or calculate accurately the portion of private use
2. Calculate the percentage of private use cost and the corresponding GST amount
3. Adjust the GST claim on each BAS

Annual Private Apportionment
A small business may elect to account for private usage annually rather than quarterly in some circumstances:

• Your annual turnover is less than $2 million
• You must assess eligibility for annual reporting by 31 July each year.

This means that you only make one adjustment either at the end of the financial year or in conjunction with the preparation of your income tax return, to account for private usage throughout that year.

Criteria for Claiming a GST Credit in Relation to Private Expenses

• The purchase must be at least partly for business use
• GST is included in the purchase price
• The business has paid (or will pay) for the expense
• You have a valid tax invoice for the purchase

Common Examples of Private Expense Adjustments

• Purchase of a laptop computer for use at both home and office
• Purchase of vehicle for both leisure and work use
• Percentage of contractor’s invoice where work was performed at home office

Hospitality Industry Stock Used for Private Use
The ATO will accept an estimate of the value of goods taken from trading stock for private use in certain hospitality/food related businesses. The ATO publishes a schedule of private use amounts for each financial year. See below for detail if relevant to your business.

What you Can’t Claim
You may not claim expenses that are solely private or domestic in nature, for example, childcare fees, clothing, or paying a cleaner for your home. Nor can you claim expenses that are not legally tax deductible such as parking fines, loans undertaken to pay off an ATO debt, or penalties imposed by court order.

Entertainment expenses are in their own category. You may be able to claim some entertainment expenses where it relates to employees and associates, however, these may also be considered for Fringe Benefits Tax. You will need to check before claiming the cost of any entertainment related expenses.

Bookkeeping and BAS Preparation
As your bookkeeper/BAS agent, I will make any necessary adjustment on your BAS according to your instructions regarding specific percentages related to the following expenses:

• Vehicle use
• Laptop use
• Contractor XYZ
• Other..

You may need to provide the accountant with verification for your claims at the end of the financial year.

What it Means to be a Director of a Company

A company is a separate legal entity with its own rights and obligations.  Company assets, liabilities, income and expenses belong to the company entity, not to the individual directors.

Directors are bound by certain rules that govern your behaviour.  You must carry out your duties as a director in good faith, in the interests of the company (even if that conflicts with your personal interest), and for a proper (legal) purpose.

The Corporations Act 2011 imposes legal obligations on company directors and sets out how directors must perform their duties and how they are expected to manage the affairs of the company.

Directors Key Responsibilities

• To act in good faith in the best interests of the company and for a proper purpose
• To exercise care and diligence
• To avoid conflicts between the interests of the company and your personal interests
• To prevent the company trading while insolvent (i.e. while it is unable to pay its debts as and when they fall due)
• If the company is being wound up, to:
  • report to the liquidator on the affairs of the company
  • help the liquidator (e.g. by giving the liquidator the company books and records that you may have in your possession)

It is expected that a director can guide and monitor the management of their company.  A director’s responsibilities are not changed or limited by previous experience (or lack thereof).

Directors have a duty to act with honesty and diligence according to your legal obligations as set out in the Corporations Act 2011, and any other relevant laws such as Superannuation Guarantee Act 2009 and Goods and Services Tax Act 1999.

Company Responsibilities

• Must have a registered office in Australia
• If the company operates from an address other than the registered office, ASIC must be notified of the principal place of business
• The company must notify ASIC of personal details of all directors – name, date of birth and residential address
• Must keep detailed financial records and lodge reports with ASIC if required
• Must keep ASIC details up-to-date; ASIC must be notified of changes to company details and personal details of directors within 28 days of changes
• Must pay relevant fees to ASIC and other licencing bodies as needed
• Must fulfil financial reporting and payment obligations as per the ATO requirements

Recommendations

• Always act in good faith and honesty in business dealings on behalf of the company
• Make sure you understand your legal obligations as a director
• Keep informed of the financial position of your company by reading and understanding financial reports regularly
• Get advice when considering changes to company and business activities
• Understand how any proposed changes may affect business performance
• Regularly meet with management and key personnel to remain informed about all aspects of the business
• Be careful when times are tough—it is illegal to trade while insolvent

What to do When Things go Wrong

In most cases, if things go wrong, the debts of a company remain with the company entity.  The company entity will be active until it is de-registered with ASIC.  However, in some circumstances, company directors may become personally liable for unpaid debts, and this liability may continue even though a company has ceased operations.

• Get professional advice from your tax agent before anyone else.  Your difficulties may be temporary and there may be payment plans available to manage cashflow in the short-term
• Take action as soon as you believe there may be problems.  Statistics show that directors who face the difficulties as soon as they are known about have a greater chance of overcoming the challenges and remaining in business.
• You may receive advice about voluntary administration, liquidation or receivership as appropriate to your company’s situation.
• Whoever is appointed, you must assist them in their assessment and management of the company as long as required.
• If administrators or liquidators are appointed, you lose some or all control of the company depending on the situation.  Again, depending on the circumstances, control may or may not be regained.

Summary

This is not a complete guide to director’s responsibilities but is meant as an overview.  You should check the links below for more detail on all aspects of your responsibilities as a company director.

• ASIC – Guide for Small Business Directors
• Australian Institute of Company Directors
• ATO – Director Penalty Regime
• ATO – Starting your Own Company