Single Touch Payroll for streamlined reporting

From 1 July 2018, employers with 20 or more employees will report payments to the Australian Taxation Office at the same time as they pay their employees, using the Single Touch Payroll reporting system.

This reporting system will keep track of payments such as:

• Salary and wages
• Super contributions
• Deductions, e.g. workplace giving
• Pay as you go (PAYG)
• Allowances

The introduction of this new reporting measure does not incite changes to an employer’s payroll cycle; you can still make payments as you were, i.e., weekly, fortnightly, monthly, etc. When you do make these payments, the super and tax details of employees will be passed on, creating a more streamlined approach to make reporting and compliance more manageable.

For businesses with less than 20 employees, the single touch payroll reporting system will be in place by 1 July 2019.

Carrying on a business in an SMSF

Self-managed super funds can carry on a business providing the business is allowed under the trust deed and operated for the sole purpose of providing retirement benefits for fund members.

Carrying on a business through an SMSF does have restrictions that other businesses do not have, such as entering into credit arrangements or having overdrafts.

SMSF trustees that carry on a business through their fund must adhere to the sole purpose test. The ATO looks for cases where:

• the trustee employs a family member
• the ‘business’ is an activity commonly carried out as a hobby or pastime
• the business carried on by the fund has links to associated trading entities
• there are indications the fund’s business assets are available for the private use and benefit of the trustee or related parties

The same regulatory provisions still apply to funds that carry on a business, i.e, SMSF investments must be made on a commercial ‘arm’s length’ basis, business activities must be conducted in accordance with the SMSF’s investment strategy, collectables and personal use assets cannot be displayed at the business premises and so on.

The SMSF cannot be involved in the following business activities:

• selling an SMSF asset for less than its market value to a member or relative of a member
• purchasing an asset for greater than its market value from a member or relative of a member
• acquiring services in excess of what the SMSF requires from a member or relative of a member
• paying an inflated price for services acquired from a member or relative of a member.

Claiming the small business income tax offset

The small business income tax offset can help reduce the tax small businesses pay on business income by up to $1,000.

This offset is available from the 2015-16 income year onwards. Small businesses with an aggregated turnover less than $5 million can access the concession from the 2016-17 income year.

Business income derived by another partnership or trust, in which the small business owner is not a partner or beneficiary, is not eligible for the offset.

Small business owners can claim the offset if they receive a share of net small business income from a small business:

• partnership, in which they are a partner
• trust, in which they are a beneficiary.

The offset is 8 per cent for the 2016-17 income year onwards, 5 per cent for the 2015-16 income year. The offset will increase to 10 per cent in 2024-25, 13 per cent in 2025-26 and 16 per cent in 2026-27.

Identifying undervalued assets

Recent research has found that an alarming 31 per cent of SMSF trustees consider choosing investments as one of the hardest aspects of running an SMSF. Value investing is one such strategy that SMSF investors can utilise to boost their portfolios.

Value investing involves identifying undervalued assets that have the potential to increase in value over time. These assets are generally priced well below their intrinsic value due to missed expectations, market crashes, cyclical fluctuations and so forth.

To identify undervalued assets or asset classes you need thorough analysis and good judgment. Look for asset classes that are inexpensive and backed by news. It is much better to invest in industries where you understand the business dynamics, i.e., how they make their money, underlying conditions and so on.

Furthermore, looking for businesses in industries with a sustainable competitive advantage where external factors do not affect them too much is ideal.

When evaluating stocks look at companies with a low debt load, are paying steady dividends and have a quality rating that is average or better. Other metrics to consider include:

Price-to-earnings ratio: This is a stock’s current share price divided by its annual earnings. A lower ratio indicates it is cheaper. Stocks with a ratio of 9 or less are typically undervalued.

Price-to-earnings growth: A stock’s price-to-earnings ratio divided by its projected earnings growth rate over a certain time frame. Ideally, companies with no deficits and where earnings increase over that time period are better.

Price-to-book value: This is calculated by dividing the current price by the book value per share. Investing in stocks which are selling below their book value is key.

As with any other investment strategy, it is best to seek professional advice if you are unsure whether value investing is appropriate for you.

Have you received personal services income?

Personal services income (PSI) is income mainly produced from your personal skills or efforts. There are special tax rules that apply if your income is classified as PSI.

Almost any trade, industry or profession can receive PSI. The most common are financial professionals, IT consultants, engineers, construction workers and medical practitioners. PSI does not affect employees receiving only salaries and wages.

When more than 50 per cent of the amount you received for a contract was for your labour, skills or expertise, then the income is classified as PSI.

If you have received PSI (including if you have received it as a company, partnership or trust), you will need to work out if the PSI rules apply to that income. You can use the ATO’s Personal services income decision tool to do this.

Where the rules do apply, they affect how you report your PSI to the ATO and the deductions you can claim.

In the circumstances where the PSI rules do not apply, you are still required to declare any PSI amounts at the relevant labels on your tax return. Where you receive PSI but the rules do not apply, there are no changes to the deductions you can claim.

It is important to note that PSI is not only applicable to sole traders. Those who produce PSI through a company, trust or partnership and the PSI rules apply, the income will be treated as your individual income for tax purposes.

Increased access to Superannuation Clearing House

The ATO has changed the conditions of registration for businesses to access the Small Business Superannuation Clearing House.

The Small Business Superannuation Clearing House is a free online service available for small businesses to make super contributions for their employees. The Tax Office is now allowing businesses with 19 or less employees or businesses with an annual aggregated turnover of $10 million or less to use the service.

These employers can now make super guarantee contributions as a single electronic payment to the Clearing House and it will then distribute the payments to employees’ funds.

The super guarantee contributions count as paid on the date the Clearing House accepts them. Employers have 21 days to pass an employee’s choice of fund to the Clearing House.

The Clearing House reduces red tape and compliance costs for small business.

In early 2018, the Clearing House will be integrated with other ATO online services in the Business Portal to better serve the growing number of users.

Increased access to Superannuation Clearing House

The ATO has changed the conditions of registration for businesses to access the Small Business Superannuation Clearing House.

The Small Business Superannuation Clearing House is a free online service available for small businesses to make super contributions for their employees. The Tax Office is now allowing businesses with 19 or less employees or businesses with an annual aggregated turnover of $10 million or less to use the service.

These employers can now make super guarantee contributions as a single electronic payment to the Clearing House and it will then distribute the payments to employees’ funds.

The super guarantee contributions count as paid on the date the Clearing House accepts them. Employers have 21 days to pass an employee’s choice of fund to the Clearing House.

The Clearing House reduces red tape and compliance costs for small business.

In early 2018, the Clearing House will be integrated with other ATO online services in the Business Portal to better serve the growing number of users.

Tax penalty remissions

The Australian Taxation Office distributes penalties to ensure individuals are not making misleading or false statements regarding income, business and wealth matters.

Studies indicate there is over $5.5 billion lost every year through tax avoidance in Australia, a massive amount of money. One of the reasons these penalties exist is to ensure taxpayers take more care and responsibility in adhering to their tax responsibilities.

While the ATO has the power to distribute penalties, they also have the discretion to reduce or modify the penalties individuals owe. If you find yourself in a position where you are owing money due to penalties such as failing to lodge in due time, PAYG withholding, etc., there are a number of actions you can take. You can make a request to remit or cancel your penalty either online, by phone or by mail.

In your request to remit or cancel a taxation penalty, you will need to provide the following:

• Full name
• Name, address and contact number to contact you (or an individual on behalf of you) regarding your request
• Tax file number/Australian business number
• Reference number (you will be advised of when you receive your penalty notice)
• Reason/s as to why penalty should be reduced or cancelled
• Details of penalty amounts and dates.

The ATO will review your request and notify you of its final decision. Factors that will be considered include:

• Previous compliance history
• Deferred or avoided tax
• Reasons that brought about the penalty
• Whether the ATO became aware of your non-compliance through internal investigations or through voluntary disclosure.
• Your overall attitude towards resolving the issue.

Tax penalty remissions

The Australian Taxation Office distributes penalties to ensure individuals are not making misleading or false statements regarding income, business and wealth matters.

Studies indicate there is over $5.5 billion lost every year through tax avoidance in Australia, a massive amount of money. One of the reasons these penalties exist is to ensure taxpayers take more care and responsibility in adhering to their tax responsibilities.

While the ATO has the power to distribute penalties, they also have the discretion to reduce or modify the penalties individuals owe. If you find yourself in a position where you are owing money due to penalties such as failing to lodge in due time, PAYG withholding, etc., there are a number of actions you can take. You can make a request to remit or cancel your penalty either online, by phone or by mail.

In your request to remit or cancel a taxation penalty, you will need to provide the following:

• Full name
• Name, address and contact number to contact you (or an individual on behalf of you) regarding your request
• Tax file number/Australian business number
• Reference number (you will be advised of when you receive your penalty notice)
• Reason/s as to why penalty should be reduced or cancelled
• Details of penalty amounts and dates.

The ATO will review your request and notify you of its final decision. Factors that will be considered include:

• Previous compliance history
• Deferred or avoided tax
• Reasons that brought about the penalty
• Whether the ATO became aware of your non-compliance through internal investigations or through voluntary disclosure.
• Your overall attitude towards resolving the issue.

Understanding SMSF trustee responsibilities

Self-managed super fund (SMSF) trustees have onerous duties and responsibilities in relation to the management of their fund.

An SMSF trustee primarily needs to ensure the fund is properly managed for the benefit of members for their retirement.

All trustees must ensure the fund assets are held in trust and invested on behalf of the members. Trustees need to ensure their fund complies with all super rules including super laws and the fund’s trust deed.

Trustees must regularly review and update the fund’s trust deed and investment strategy in accordance with the law and the needs of the SMSF’s members.

Another responsibility is to accept contributions and paying benefits (income streams and lump sums) in accordance with super laws and the fund’s trust deed. Trustees must also advise the Tax Office of any changes in trustees, directors or members within 28 days of the change taking place.

SMSF trustees also have the duty of undertaking various administrative tasks such as lodging annual returns and record-keeping, as well as ensuring an approved SMSF auditor is appointed for each income year.

Where a conflict arises between your wishes as a member and your legal responsibilities as a trustee, you must comply with your trustee obligations. For example, if a relationship breakdown occurs between members, you must continue to act in the best interest of all members at all times and in accordance to the trust deed and with super laws.

It is also critical to keep fund assets (including money) separate from your personal and business assets. Fund assets should be solely used for fund purposes.

Finally, trustees are reminded that member benefits (money or other assets) cannot be accessed earlier than what is legally permitted (generally, until a member reaches preservation age). Member benefits can only be accessed in very limited circumstances, i.e., severe financial hardship and so on.

Remember, contravention of any of the super laws can result in significant penalties, including fines and jail terms.