In brief
Date
Changes and actions
From 1 July 2014
A cap of $100m on the amount of eligible Research & Development (R&D) expenditure is now in place.
7:30pm AEST 12 May 2015
Primary producers: Immediate deduction for capital expenditure on fencing and water facilities. Plus all capital expenditure on fodder storage assets deductible over 3 years.
Pre 30 June 2015
Review shareholder loan accounts and make minimum loan repayments (may need to declare dividends).
Pay superannuation to deduct contributions in the current financial year.
Complete a stocktake where required
Write off bad debts and scrap any obsolete stock.
Ensure any inter-entity management fees have been raised.
1 July 2015
Employee share scheme reforms come into effect improving how they are taxed and introducing special incentives for start up companies.*
Change to the way work related expenses for cars are calculated. The ‘12% of original value method’ and ‘one‑third of actual expenses method’ removed. ‘Cents per kilometre method’ simplified to one 66 cents per km rate.*
Taxation of Managed Investment Trusts (MITs). MITs able to elect to adopt new rules. See What’s new.
14 July 2015 (on or before)
PAYG Payment Summaries provided to all of your staff.
28 July 2015
Quarterly super guarantee payment due (1 April – 30 June).
14 August 2015
Annual PAYG Payment Summary lodged with the ATO. Penalties apply for late lodgement.
28 August 2015
Taxable payments annual report for the building & construction industry due.
31 October 2015
SuperStream – electronic reporting and payment of employee super contributions:
Mandatory for employers with 20 or more employees from 31 October 2015 (extended from 1 July 2015)
Employers with 19 employees or fewer can start using SuperStream from 1 July 2015. SuperStream will be mandatory from 1 July 2016.
1 December 2015
Introduction of application fees on all real estate, business and agricultural foreign investment proposals.*
1 January 2016
Crackdown on multi-nationals
Increased transfer pricing documentation requirements for large global multinationals with global revenues of $1bn or more.*
Tax Commissioner gains power to recover unpaid taxes and issue a fine or “compensating adjustment” of an additional 100% of unpaid taxes plus interest for large multi-nationals where multinationals move profits to low tax countries.*
Import Processing Charge and import-related licence charges increase
1 July 2016
Primary carers with employer provided paid parental leave will be prevented from claiming Government support.*
* Change pending legislation and not currently law.
What’s new
SuperStream – electronic reporting and payment of employee super contributions
Under SuperStream, employers must electronically report and pay super contributions for employees through a system that conforms to the SuperStream requirements or an external provider. While this will mean a change for some employers who currently manage superannuation payments manually, generally the change should reduce compliance as all super payments can be managed though one channel.
Employer size
SuperStream start date
SuperStream mandatory from…
20 or more employees
1 July 2014
31 October 2015*
19 or fewer employees
1 July 2015
1 July 2016
– extended from 1 July 2015
For employers with 20 or more employees, SuperStream is mandatory from 31 October 2015 (the ATO extended the date from 1 July 2015). Employers with 19 or fewer employees, can start utilising SuperStream from 1 July 2015 but it is not mandatory until 1 July 2016. Xero premium plans, MYOB’s PaySuper, Quickbooks Online Payroll, all offer SuperStream compliant services.
Employee share scheme reform
Changes to how Employee Share Schemes (ESS) are taxed from 1 July 2015 will make the schemes more attractive with a common sense approach to how they are taxed.
Under an ESS, employers issue shares (an ownership stake) and/or options (a right to acquire shares at a later date) to their employees at a discount to the market value of the shares or rights. In general, when an employee receives shares or rights under an ESS they are taxed on the discount they have received. Under the new rules, it will be easier to defer the taxing point until it’s clear that the employee will actually derive some economic benefit from the shares or options they have received (this is possible under the old rules but in a narrower range of situations).
Special rules exist for start-ups that allow the small discounts received by employees in relation to shares or rights not to be taxed at all under the ESS rules if the relevant conditions are met.
If your company is interested in establishing an employee share scheme, or understanding whether establishing an ESS would be beneficial, give (name) a call on (insert phone) or by email to (insert email).
Changes to how work related car expenses are calculated
The way work related deductions for car expenses claimed by individuals are calculated is changing from 1 July 2015. The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed. The ‘cents per kilometre method’ will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars. The Commissioner of Taxation will update the rate each year.
Your business may want to consider updating the rate it pays car allowances to employees to match the 66 cents per kilometre rate that will apply to individuals when they claim deductions.
Fly in and fly out employees excluded from Zone Tax Offset
If you have employees who ‘fly in fly out’ (FIFO) or ‘drive in drive out’ to work locations, whose normal residence is not within a ‘zone’, they will be excluded from the zone tax offset from 1 July 2015. This means that some employees who currently qualify for the offset will miss out from the 2016 income year onwards if they do not actually live full-time in a zone.
The ZTO is a concessional tax offset available to individuals in recognition of the isolation, uncongenial climate and high cost of living associated with living in identified locations. Eligibility is based on defined geographic zones. Currently, to be eligible for the ZTO, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year. The Government estimated that around 20% of those claiming the concession do not actually live fulltime in the zones and have moved to restrict the concession.
GST on digital goods & services
In the 2015 Federal Budget, the Government announced that it will create a “level playing field for the suppliers of digital products and services in Australia in relation to the GST.”
Draft legislation broadens the GST system to digital products and other imported services supplied to Australian consumers by foreign entities in a similar way to equivalent supplies made by Australian businesses.
This change will result in supplies of digital products, such as streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services receiving similar GST treatment whether they are supplied by a local or foreign supplier.
In some cases the GST liability might shift from the supplier to the operator of an electronic distribution service where those operators have responsibility for billing, delivery and terms and conditions.
The regulations will be amended to allow for a change to the GST registration process for affected entities. Entities will also be able to elect to have limited registration for GST, which will prevent them from accessing input tax credits.
While not intended to apply until 1 July 2017, it’s an important impending issue to be aware of if your company is entering into any contracts or agreements for the supply or distribution of digital goods and services.
Financial house-keeping
Before you roll-over your software…
Before rolling over your accounting software for the new financial year, make sure you:
Prepare your financial year-end accounts. This way, any problems can be rectified and you have a ‘clean slate’ for the 2015-16 year. Once rolled over, the software cannot be amended.
Do not perform a Payroll Year End function until you are sure that your payment summaries are correct and printed. Always perform a payroll back-up before you roll over the year.
Employee reporting
PAYG payment summaries
You need to provide all of your staff with their PAYG Payment Summary on or before 14 July 2015. This includes any staff that left your employment during the 2014-15 financial year.
If we prepare your Payment Summaries for you, please provide us with the data file from your accounting software.
The ATO imposes penalties for the late lodgement of PAYG Payment Summary Statements.
The annual PAYG Payment Summary Statement for the year ending 30 June 2015 needs to be lodged with the ATO on or before 14 August 2015. However, if we are preparing your Payment Summary for you and you only employ family members in your business (closely held employees), you may be eligible for an extension.
Reportable Fringe Benefits on PAYG Payment Summaries
Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount on their PAYG Payment Summary. This is referred to as a `Reportable Fringe Benefit’ (RFB) amount and a label is included on the PAYG Payment Summary for this purpose.
Selecting the best stocktake value method
Businesses that buy and sell stock generally need to do a stocktake at the end of each financial year as the increase or decrease in the value of stock is included when calculating the taxable income of your business. If you do need to complete a stocktake, you can choose one of three methods to value trading stock:
Cost price – all costs connected with the stock including freight, customs duty, and if manufacturing, labour and materials, plus a portion of fixed and variable factory overheads, etc.
Market selling value – the current value of the stock you sell in the normal course of business (but not at a reduced value when you are forced to sell it).
Replacement value – the price of a substantially similar replacement item in a normal market on the last day of the income year.
A different basis can be chosen for each class of stock or for individual items within a particular class of stock. This provides an opportunity to minimise the trading stock adjustment at year-end. There is no need to use the same method every year; you can choose the most tax effective option each year. The most obvious example is where the stock can be valued below its purchase price because of market conditions or damage that has occurred to the stock. This should give rise to a deduction even though the loss has not yet been incurred.
Reduce your risks & minimise your tax
Top tax tips
1. Declare dividends to pay any outstanding shareholder loan accounts
If your company has advanced funds to a shareholder or related party, paid expenses or allowed a shareholder or other related party to use assets owned by the company, then this can be treated as a taxable dividend. The regulators expect that top up tax (if any applies) should be paid by shareholders at their marginal tax rate once they have access to these profits. This is unless a complying loan agreement is in place.
If you have any shareholder loan accounts from prior years that were placed under complying loan agreements, the minimum loan repayments need to be made by 30 June 2015. It may be necessary for the company to declare dividends before 30 June 2015 to make these loan repayments.
As the tax rules in this area can be extraordinarily complex and can lead to some very harsh tax outcomes, it is important to talk to us as soon as possible if you think your company has made payments or advanced funds to shareholders or related parties.
2. Directors’ fees and employee bonuses
Any expected directors’ fees and employee bonuses may be deductible for the 2014-15 financial year if you have ‘definitely committed’ to the payment of a quantified amount by 30 June 2015, even if the fee or bonus is paid to the employee or director after 30 June 2015.
You would generally be definitely committed to the payment by year-end if the directors pass a properly authorised resolution to make the payment by year-end. The employer should also notify the employee of their entitlement to the payment or bonus before year-end.
The accrued directors’ fees and bonuses need to be paid within a reasonable time period after year-end.
3. Write-off bad debts
To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.
4. Review your asset register and scrap any obsolete plant
Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June.
5. Bring forward repairs, consumables, trade gifts or donations
To claim a deduction for the 2014-15 financial year, consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June.
6. Pay June quarter employee super contributions now
Pay June quarter super contributions this financial year if you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2015. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months.
Don’t forget yourself. Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.
7. Realise any capital losses and reduce gains
Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses – that is, sell the asset and lock in the capital loss. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.
8. Raise management fees between entities by June 30
Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.
Tax traps
International dealings
The transfer of money between related entities, particularly when those entities are in low taxing environments, is an area of intense focus for the Australian Tax Office right now.
Foreign currency accounts
If your business has any foreign currency bank accounts with a credit balance, any withdrawals from those accounts trigger an event that could give rise to a taxable foreign exchange gain or deductible loss. The compliance obligations for these accounts can be very onerous. For many businesses, making a ‘limited balance election’ or ‘retranslation election’ in relation to these accounts can simplify the calculations required for tax purposes. Please contact us as soon as possible if you have any foreign currency bank accounts as elections generally cannot be made retrospectively.
Cross border transactions
Does your business deal or have loans with related parties overseas? If so, you need to comply with the transfer pricing rules. Under these rules, the ATO has the power to substitute arm’s length values if the pricing of specific transactions or the profits being reported in Australia do not represent arm’s length values.
In addition to getting the numbers right, the ATO also has high expectations of the documentation for these transactions.
The ATO expects all businesses to follow specific steps when dealing with transfer pricing issues.
Also, if the value of your transactions (including loan balances) with international related parties exceeds $2m for the 2015 income year, then your business will need to complete an International Dealings Schedule with the tax return. This schedule is used by the ATO to identify businesses that might be trying to shift profits overseas.
If your business needs to lodge this schedule, it is more important than ever that we discuss your approach to transfer pricing as soon as possible.
Is your contractor really a contractor?
The implications of misclassifying contractors are enormous. Not only will employers be obliged to meet the required superannuation, payroll tax and workers compensation liabilities for the period the person was employed, but harsh penalties and interest charges are likely to apply.
What your business decides to call the relationship with a contractor is irrelevant – it is the characteristics of that relationship that determine liability.
As a general rule of thumb, businesses that hire independent contractors are not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, the ATO’s strict position on what is an employee for tax purposes has been upheld in a number of court cases to the detriment of the employer involved. Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time.
Earning income from your personal skills and effort
If your business relies on your personal effort and skill to generate income, then you need to be aware of the rules applying to the diversion of personal services income.
If your company earns personal services income, the ATO will treat the income as having been derived by you personally (rather than the company) unless certain tests can be satisfied. This means that your personal tax rates will apply to the business income and you will be denied access to a range of tax deductions normally available to businesses.
Even if the rules haven’t affected you in the past, this is an annual test and you might be caught if your circumstances have changed.
If you are concerned about your position, talk to us for clarification.
What you’ll need when you meet with your adviser
Accounts data file (MYOB, Quickbooks, access to Xero)
Debtors & creditors reconciliation
Stocktake if applicable
30 June bank statements on all relevant loan documents
Documents on new assets bought or sold, including the date you entered the contract and the date the asset was first used or installed ready for use
Payroll reconciliation
Superannuation reconciliation
Bank statements on operating accounts
30 June statements on any investment or operating accounts
And, if you’re preparing your individual income tax return:
PAYG Payment Summary
Tax statements of managed investment funds
Interest income from banks and building societies
Dividend statements for dividends received
For share sales or purchases, the purchase and sale contract notes
For real estate sales or purchases, the solicitor’s correspondence for the purchase and sale
Rental property statements from real estate agent and details of other expenditure incurred
Work related expenses
Travel expenses
Donations to charities
Health insurance and rebate entitlement
Family Tax Benefits received
Medical Expenses (if you claimed the rebate last year and expenses over $2,162 after rebates)
IAS statements or details of PAYG Instalments paid