Authorisations for Single Touch Payroll

On the 1 July 2018, the Australian Government introduced Single Touch Payroll (STP) for employers with 20 or more employees. The new scheme requires employers to report payment activities each time employees were paid. Authorisations for an agent to act on behalf of an employer to streamline the process of STP are provided below.

STP Engagement Authority
If a registered agent reports through STP for an employer, they can get written authorisation to make this declaration through an annual agreement. This authorisation will allow the registered agent to make the relevant declaration to the Commissioner when they lodge an STP at each pay event. Both parties should have a copy for their records although there is no need to provide a copy to the ATO

The agreement should include:

• An outline of the responsibilities of both parties
• Agreed terms of the employer’s collation of payroll
• Their process for calculating and paying their employees
• Taxation and superannuation obligations

Eligibility for the Authority
For eligibility to provide an agent with the powers given above regarding STP, the employer must not:

• Have any overdue activity statement lodgements
• Have any outstanding debts, unless they are covered by a payment arrangement or subject to review
• Currently be or have been the subject of ATO compliance activity for PAYG withholding in the last two years

Exclusions
The STP engagement authority does not apply to the other approved forms or finalisation declaration. A registered agent must still obtain a signed declaration in writing from an employer before making the finalisation declaration on behalf of the employer at the end of the financial year.

Changes to FBT for Utes

The Australian Tax Office (ATO) has released draft guidelines changing its previous stance on Fringe Benefits Tax (FBT) for utes. Amendments originated from reports that dodgy tax returns were responsible for a loss of $8.7 billion in income tax due to wrongful claims. Failure to comply with new requirements listed below may result in a 20 percent FBT imposed on the cost of the vehicle.

The requirement of a logbook
New rules require employers to ensure their workers using these vehicles keep detailed logbooks. Whether the logbooks are electronic or hard copy, it is vital that the process be effective for returns lodged in the 2019 FBT year, when the law takes effect. Employers receive confirmation via email from employees using the vehicles at the end of the 2019 FBT year with their logbook including all regulated diversions and private use.

Diversions and private use rules
The guidelines introduce capped limits for the log books to comply with. Professional travel means that the vehicle must not deviate more than 2km from its usual route. However, 1000 km of non-work related travel is allowed, provided that there is no single trip exceeding 200 km. Such regulations provide greater flexibility than previous guidelines. What the ATO deems “minor” or “irregular trips” like carpooling the children to and from school or an occasional trip to visit relatives will not render you non-compliant so long as it is recorded as non-professional use.

Income tax return: what to report

The time to report and lodge your annual tax return for your business is fast approaching. Remember, what you must report will depend upon the type of business entity you have.

Sole traders
As a sole trader, you are required to lodge a tax return even if your income is below the tax-free threshold. This will include:
– tax return for individuals including the supplementary section
– business and professional items schedule for individuals.

You must report:
– The business income minus the business deductions you are eligible to claim.
– The other income like wages and salary (from a payment summary), rental income and dividends, minus deductions against this income.

Partnerships and partners
The partnership must lodge a partnership tax return. This will include the partnership’s net income (assessable income less allowable expenses and deductions).

The ATO does not require the partnership to pay tax on the income it earns. Rather, every partner must pay tax on the share of net partnership income you each receive.

For you (as an individual partner) you must report:
– Your share of the partnership net income or loss.
– Any other assessable income like wages and salary (shown on a payment summary), dividends and rental income.

Trusts and Beneficiaries
When you operate your business through a trust, the trustee will be required to lodge a trust tax return. The trust reports its net income or loss (the trust’s assessable income minus deductions).
Each trust beneficiary must lodge their tax return, i.e., an individual or company tax return.

As a beneficiary of a trust, you must report:
– Income received from the trust.
– Other assessable income including dividends, salary and wages (on an individual’s payment summary), and rental income.

Companies
You must lodge a company tax return. The company is required to report its taxable income, tax offsets and credits, PAYG instalments and the amount of tax it is required to pay on that income or the amount that is refundable. Your personal income is kept separate from the company’s income.

With deregistered companies – ensure you lodge a final company tax return before it is deregistered by the Australian Securities and Investments Commission (ASIC). The ATO will be unable to process a company tax return if the company is deregistered.

TPRS extension to contractors

From 1 July 2018, businesses that supply cleaning or courier services must report payments made to contractors (if payments are for cleaning or courier services) via the Taxable payments annual report (TPAR) each year.

However, the ATO does not require taxpayers to lodge their TPAR during the period up until the proposed law change is passed by Parliament.

Instead, they are expected to keep appropriate records to ensure a TPAR could be prepared and lodged as soon as practical (after the law is enacted).

After the new law is enacted taxpayers will need to check payments, they have made to contractors from 1 July 2018 and then complete and lodge a TPAR for the 2018-19 income year.

The ATO does not require those taxpayers who recorded their payments and lodged their TPAR (in accordance with the changes) to do anything else. Those who did not record their payments (to contractors) must review their records and form a summary of all payments made after 1 July 2018 and the required details for each payment.

Businesses who also supply road freight, security, investigation, surveillance or IT services must report payments made to contractors (if payments are for road freight, security, investigation or IT services) from 1 July 2019.

Similar to cleaning or courier service payments, taxpayers are expected to report these payments using the TPAR each year.

Tax deduction for landcare operations

You may be able to claim a tax deduction for capital expenditure on a landcare operation in Australia in the year it is incurred. Providing you are a primary producer, a rural land irrigation water provider who incurred the expenditure on or after 1 July 2004, or a business using rural land for taxable uses (excluding mining and quarrying businesses) you are eligible to claim a deduction.

Many operations fall under the category of a landcare operation.

For instance, when you primarily and principally:
– eradicate, exterminate or destroy plant growth detrimental to the land.
– put in fences to keep animals from areas affected by land degradation to prevent or limit further damage and assist in reclaiming the areas.
– eradicate or exterminate animal pests from the land.
– construct drainage works to control salinity or assist in drainage control.
– prevent or combat land degradation by means other than fences.

Other operations the ATO defines as a landcare operation include:
– constructing a levee or similar improvement
– erecting fences to separate different land classes as set out in an approved land management plan
– for expenditure incurred on or after 1 July 2004, a structural improvement or alteration, addition, extension or repair to a structural improvement that is reasonably incidental to the construction of a levee or drainage works.

Recouped expenditure
When you claim a deduction and receive recoupment, the recoupment is assessable income. However, you cannot claim a deduction if the capital expenditure is on plant unless you incurred the costs on certain fences, dams or other structural improvements.

If landcare expenditure is incurred by a partnership, each partner is entitled to claim the relevant deduction for their share of the costs.

Rental property and tax

The Tax Office is reminding individuals who either own or are looking to purchase a rental property that there are essential record-keeping and taxation obligations that they must meet.

Examples of records to keep (for the period the individual owns the property for and up to five years after it is sold), include:
– Rental income
– Contract of purchase and sale
– Expenses
– Loan and refinancing documents
– Periods when the property was used for private use (i.e., family use)
– Steps taken to rent out the property (i.e., advertising)

Individuals must also declare all income they receive from renting out their property.
Examples of income may include:
– Rent received (before fees or expenses)
– Reimbursement for deductible expenditure
– Any fees collected from cancelled bookings
– Insurance payouts
– Booking or letting fees

Individuals can claim many expenses related to the property as immediate tax deductions or deductions over a number of years.

Immediate expense deductions include:
– Repairs and maintenance on the property
– Loan interest
– Property management fees

Expenses to claim as deductions over a number of tax returns include:
– Depreciating assets
– Capital works or improvements
– Borrowing expenses

Expenses accrued in buying or selling the property, using the property for personal use or travelling to inspect the property will not qualify for tax deductions.

While individuals can not claim expenses relating to buying or selling the property, these will form part of the Capital gains tax (CGT) calculations.

Avoid these top tax misconceptions

As tax time continues, the ATO has announced the top misconceptions many individuals make when completing their claims for tax deductions.

Four popular tax misunderstandings include:

1. Individuals can give credit card statements as proof of claim

Debunked: When making a claim, individuals must be able to show they spent the money, what the money was spent on, the supplier and the date the purchase was made unless record-keeping exceptions apply.

2. Individuals can automatically claim $150 for clothing and laundry, under $300 for work-related expenses or 5000 kilometres for car-related expenses

Debunked: While taxpayers are not required to provide receipts relating to the above in certain circumstances, these are not ‘standard deductions’ everyone can just claim. An individual can only claim if they have spent the money, and the expense relates to earning their income. They must also be able to explain how they calculated the amount.

3. Individuals can claim home-to-work travel

Debunked: Individuals can only claim home-to-work travel in limited situations, i.e., in some circumstances where they must transport bulky equipment.

4. Individuals can claim work clothes when required to wear a particular colour

Debunked: Individuals can only claim a deduction for work clothes if they are required to purchase a uniform that is unique and distinct to their employer or because they are required to buy occupation-specific or protective clothing to earn their income.

Cents per kilometre rate rises for work-related car expenses

The Tax Office has confirmed the rate for work-related car expenses will rise to 68 cents per kilometre for the income year beginning 1 July 2018.

The new rate will affect those eligible individuals who elect the cents per kilometre method when calculating the income tax deductions for their work-related car expenses for the 2018-19 income year. This rate also applies to the following income years until the Commissioner of Taxation deems it should be varied (these rates are reviewed each year).

Taxpayers working out their car expenses for the 2015-16 year, 2016-17 year and the 2017-18 year should remember that the previous rate of 66 cents per kilometre still applies to their calculations.

When selecting the cents per kilometre method, eligible individuals:
– are not required to supply the ATO with written evidence of how many kilometres they have travelled;
– may need to show how they worked out their business kilometres calculations;
– cannot claim more than 5,000 business kilometres per car;
– and cannot make a separate claim for depreciation of the car’s value.

It is also important to note that the amount will take into account all the vehicle running expenses.

Income tax gap results

The ATO has released its latest findings on the tax gap for Australian individuals. The estimated gap in 2014-15 is approximately $8.7 billion or 6.4 per cent.

The income gap is an estimate of the difference between the tax the ATO collects and the amount that would have been collected if each taxpayer was fully complaint.

Over 93 per cent of income tax received from individuals not in business is paid voluntarily or with little intervention from the ATO. There are around 9.6 million individuals who are not in business and lodge tax returns. These taxpayers earn their income from salary and wages and investments.

The tax gap is primarily driven by incorrectly claimed work-related expenses. The ATO says the most common mistakes include:
– Claiming deductions where there is no connection to income
– Claims for private expenses
– No records to show that an expense was incurred.

Other areas of concern include high rates of incorrect claims for rental property expenses and non-reporting of cash wages.

The ATO is warning taxpayers to take care with that they claim, because all of those little amounts add up.

The Tax Office uses data and technology to identify outliers, as well as tailoring advice and guidance products, auto-correct mistakes, streamline reporting and substantiation processes, access third party data to verify claims and provide pre-fill information in tax returns.

Avoid scams this tax time

The Australian Tax Office (ATO) is reminding individuals to remain vigilant against any scams that may pop up this year around tax time.

With over 37,000 scam attempts reported to the ATO this time, last year, individuals need to be wary of scam artists looking to trick taxpayers into either paying for fake debts or giving away their personal details.

Common scams include:
– The ‘fake tax debt’ phone scam
– ‘Fake refund’
– ‘Refund for a fee’
– Email and SMS contact – i.e., asking to click a link, download a file or open an attachment.

Avoid being caught out in a tax-related scam by following these simple measures:

Protect your personal details
Scammers can use an individual’s personal information (i.e., tax file number, full name, date of birth or passwords) to impersonate them. Protect your personal details by storing them in a safe and secure location.

Use correct payment methods
To avoid paying a scam artist for a false debt to a non-ATO related account, make sure you are aware of the proper avenues for paying legitimate debts to the Tax Office.

Avoid oversharing on social media
Scammers may also try to use any personal information you have published on social media sites to steal your identity.

Be cautious when receiving requests for personal details
Should you receive a request to confirm or clarify your personal information, it is always best to contact the ATO to check if the contact is valid or part of a scam.