ATO monitors personal living expenses

In an ongoing effort to address the misuse and abuse of the tax and regulatory systems, the ATO has implemented a new tool to monitor what constitutes reasonable personal living expenses.

Information is requested by the tax office to identify unreported cash income when looking at household expenditure. An individual will be required to provide this information to work out if they need to make adjustments to their business and record-keeping practices as well as help the ATO identify if they should be selected for an audit.

In the event of an audit or when making an assessment in the course of examining an individual’s tax affairs, the ATO will employ a set of guidelines presented in the form of questionnaire worksheets. These worksheets will require taxpayers to provide certain details about the living expenses of their household.

Discrepancies in tax returns that have been discovered by individuals completing a personal living expenses worksheet can be adjusted through voluntary disclosure. Taxpayers that voluntarily inform the ATO of mistakes before an audit may be eligible for reduced penalties.

Increase to fuel tax credit rates

The ATO has increased fuel tax credit rates from 4 February 2019. As fuel tax credit rates are updated regularly, it is important to check the rates each time you lodge a business activity statement (BAS).

Fuel tax credits provide businesses with a credit for the price of fuel used in machinery, plants, equipment, heavy vehicles, or light vehicles travelling on private roads. The amount of credit will depend on when the fuel is acquired, what fuel is used and the activity it is used for.

The changes in fuel tax rates are indexed twice a year, in February and August in line with the consumer price index (CPI). The current rates apply from 1 July 2018 to 30 June 2019.

If you claim less than $10,000 in fuel tax credits each year, you can use a simplified method to make claims to the ATO. For further information on claiming fuel tax credits and specific rates, you should consult your registered tax agent.

Made a mistake on your BAS? Here’s what you need to know

Lodging a business activity statement (BAS) is something all business owners will be familiar with, however, mistakes can still be made. You must ensure that you have reported carefully and correctly to avoid incurring a penalty. In the event an error has been made in the reporting of your activity statements, here is what you will need to know to rectify the misreporting.

If you have made a mistake or left something out on a previous activity statement, in most cases you are able to correct the errors on your next statement or lodge a revised statement.

An error or mistake relates to an amount that was incorrect at the time of lodgement and can be fixed by revising the original BAS or making the relevant changes on your next BAS. Examples of a mistake include:

• Clerical or transposition errors.
• Reporting a taxable sale/purchase as GST free, or reporting a GST free sale/purchase as taxable.

An adjustment relates to a report that was correct at the time of lodgement but a situation has since occurred that changes the amount of reported GST. Examples of when to make an adjustment are:

• If the price of a purchase changes.
• If the goods are returned and the sale has been cancelled.

To avoid penalties, all mistakes must be corrected within four years. You can do this through myGov, on the Business Portal of the ATO, from your business software if it is enabled for Standard Business Reporting (SBR), or by contacting the ATO.

Getting your GST at settlement right

The ATO has seen a number of common errors made on forms submitted by property purchasers since changes were made to the way GST is collected at settlement in July 2018.

Property settlement forms:
In the case of a withholding obligation, those purchasing new residential premises or potential residential land are required to submit both of the two online notification forms:

1. GST property settlement withholding notification.
This form covers various areas including contact details, property details, purchaser details, supplier details and an overall summary. The form can be submitted any time after you have entered into the contract and before the date of the withholding obligation is due.

2. GST property settlement date confirmation.
This form requires you to confirm that the settlement has occurred. It can be submitted at the due date of the withholding obligation. In most instances, this will be at settlement or the next business day.

It is necessary to understand your obligations as a property purchaser. Filling out these forms incorrectly can cause processing and payment delays and failing to submit on time may also result in penalties being imposed by the ATO.

Changes to personal income tax

The Personal Income Tax Plan has gone through recent changes regarding rates, thresholds and offset entitlements. These changes were announced in the 2018-2019 Federal Budget and were implemented at the start of the 2019 financial year. For the upcoming tax season, individuals should review these changes in case they are affected.

The 32.5% tax bracket was increased from $87,000 to $90,000 for the years 2018 to 2022. The following two years will see a further increase to $120,000 and in 2024 it will increase again to $200,000. These changes will apply to residents, foreign-residents and working holiday makers. Pay As You Go (PAYG) withholding rates and schedules will also be updated to include these changes.

Australian residents whose income does not exceed $125,333 could now be entitled to an addition to the low and middle income tax offset. This can be available after an assessment of a person’s individual income tax return. This addition applies to the 2018 to 2022 financial years. The amount you receive will be based on the following income levels:

• If below $37,000 you are entitled to $200
• Between $37,000 and $48,000 you are entitled to $200 plus 3% of the amount of the income that exceeds $37,000
• Between $48,000 and $90,000 you are entitled to $530
• Between $90,000 and $125,333 you are entitled to $530 plus 1.5% of the amount of the income that exceeds $90,000.

In 2022 and future financial years, the low income tax offset will be amended to include individuals who receive less than $66,667, pending assessment of individual tax return. This offset will be $645, reduced by 6.5% of the amount by which your income exceeds $37,000 but does not exceed $41,000 and a further 1.5% of the amount by which your relevant income exceeds $41,000.

PAYG withholding: New penalties for non-compliance

New penalties for business’s pay-as-you-go (PAYG) withholding and reporting obligations are to be introduced as a result of legislation commencing 1 July 2019. The law will now prevent businesses from claiming deductions for payments to employees and certain contractors if they fail to comply.

Payments that are impacted include salary, wages, commissions, bonuses or allowances to an employee, payment under a labour-hire arrangement, payment to a religious practitioner, or payments for a supply of service. This measure highlights a key reason why governance over all employment tax is important.

Specifically, the new laws will prevent an employer from claiming a deduction for payments to employees if the employer fails to:
Withhold an amount from the payment as required under PAYG withholding rules; or
Report a withholding amount to the ATO as required.

If you make a mistake by failing to withhold an amount or to report it, your business will not lose its deduction if you voluntarily disclose this to the ATO before an audit or other compliance activity in regards to your tax affairs. Taking early action to ensure your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for deductions.

Determining whether GST is for business or private use

The goods and services tax (GST) is applied to most goods and services sold in Australia, taxed at a rate of 10%. If you run a business, you are likely to have GST obligations such as claiming credit for any GST included in the price of goods and services that have been purchased for your business.

However, many businesses have expenses that are used privately as well as for business purposes. This means that a business must divide the GST on these costs between private and business use. The ATO allows an annual adjustment for these expenses when it comes to determining exactly how much something is used for business or private purposes.

Common types of purchases that can be made for both business and private use include:

• Home office costs/home power use
• Home telephone and internet costs
• Motor vehicle purchases and running costs
• Computers and other electronic devices

At the end of the financial year when the business’ income tax return is being finalised, adjustments can be made to account for the reduction in the GST amount for private use that can be claimed back. The adjustment will either increase the amount of GST that businesses are liable to pay or reduce the GST refund for the tax period the adjustment is made in.

ATOs small business benchmarks

The ATO small business benchmark guides are designed to help small businesses compare performance with similar companies in the same industry. These guides have been updated to include data from the 2016-2017 financial year.

Within this system, there are two benchmarks businesses can use. Performance benchmarks apply to all industries and businesses. This area consists of the financial ranges so you can make comparisons and improvements to your business performance. Ranges you can look into are income tax, which is information provided by businesses on their tax returns, and activity statements which are provided using financial year activity statements. Input benchmarks only apply to tradespeople working on projects and purchasing their own materials. Within this benchmark, you can receive an expected range of income based on labour and materials used in a project. This is designed to help estimate turnover and ensure records accurately reflect income.

The small business benchmark system is also designed to aid the ATO in identifying businesses that may be avoiding tax obligations by not reporting elements of their income. The information reported by a business is compared to key elements of the benchmark for their industry, ensuring all activity is in line with the regular work practices.

STP extension for small businesses

The ATO has released a statement in relation to transitioning to Single Touch Payroll (STP) for small employers. Parliament has passed legislation to extend STP to include employers with fewer than 20 employees from 1 July 2019. STP is payday reporting by employers to the ATO as it happens.

The initiative is designed to help keep up with advances in technology and firmly establish business reporting. As some small employers do not currently use commercial payroll software, the ATO is working with software providers to develop low and no-cost reporting solutions including simplifying payroll systems.

It has been highlighted that to further assist in the transition, the ATO is offering:

• micro employers (1 to 4 employees) help to transition to STP and a number of alternative options.
• Small employers can start reporting any time from the 1 July start date to 30 September 2019. Deferrals will be granted to small employers who request additional time to start STP reporting.
• No penalties for mistakes, missed or late reports for the first year.
• Exemptions can be provided from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.

“Building a Better Tax system” What does this mean for you?

The Australian government has launched the Better Tax campaign in order to help inform the public of tax reforms coming into effect. Designed to “better Australia”, here is a look at what this plan means for you.

Individual Tax:

• New low to middle-income tax offset: Offering immediate relief of up to $530 after an individual lodges their tax return for each income year from 2018-19 until 2021-22.
• Increase to income tax rate thresholds: Changing over the next seven years so less tax is paid by Australian taxpayers. The first change took effect on 1 July 2018 with future changes in 2022-23 and 2024-25.
• Reduction in the number of tax brackets: In order to simplify the system, in 2024-25 the tax system will move from five tax brackets to four.

Business Tax:

• Tax cuts for incorporated small and medium businesses, with a turnover of less than $50 million per annum. These companies will move to a 25 per cent tax rate by 2021-22.
• The small business income tax offset; increasing the rate of the tax discount for unincorporated small businesses with a turnover below $5 million
• Increasing the instant asset write-off threshold from $20,000 to $25,000 and extending it until 30 June 2020. The increased threshold will apply from 29 January 2019, with legislation to be introduced.
• Increasing the small business entity turnover threshold from $2 million to $10 million per annum, extending access to a range of tax concessions.