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With the ATO’s compliance targeting of large businesses in the past few years reaping rewards, this tax time, its turning its attention to small businesses. As a small business owner, what do you need to be aware of to stay out of the ATO spotlight?

A recent interview with Tax Commissioner Chris Jordan revealed details of what the ATO will be paying particular attention to this year. Perhaps not surprising, the ATO will be targeting businesses that deal in cash. As a part of its cash and hidden economy operation, the ATO has compiled “data-maps” of cash-only businesses and those that do not frequently or readily use electronic payment facilities.

Using the data-maps the ATO is homing in on particular suburbs which have a high incidence of cash-only businesses. In Sydney, Cabramatta and Haymarket were cited as examples of areas that the ATO visited in relation to its operation. According to the Commissioner:

“People say to me: ‘it’s terrible – people steal the money, you’ve got to count it, you’ve got to reconcile it, you’ve got to have security around it, you’ve got to take it to the bank’ … There’s no compelling business reason to have cash only.”

With these cash and hidden economy visits the ATO is conducting, it is looking for several things: whether the business has undeclared income; whether the employees are allowed to work (visits in the past have been made in conjunction with the Fair Work Commission or the Department of Immigration); and whether the employees are receiving the correct amount of wages, conditions and superannuation.

Therefore, the other areas the ATO is targeting this tax time also include unpaid superannuation guarantee contributions and cash payments of wages without the associated conditions and benefits. According to the ATO, with the introduction of the single-touch payroll (STP), it will be able to receive information on unpaid superannuation contributions much earlier and act on it.

Even if you’re not running what the ATO deems to be a “cash business” there are other areas you will still need to be aware of this tax time. In particular, the ATO will be looking at small businesses wrongly claiming private expenses, and unexplained wealth or lifestyle.

Under tax law, you can generally deduct a business expense if it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided the expense is not capital, private or domestic. Commissioner Jordan noted that small businesses intermingling their private expenses with their business expenses have been an issue for a long time, but this year he has decided to “renew the discussion to highlight that we are going to be focusing on these areas”. Hence if you’re running a small business you should make sure all your expense claims are in fact business related, any expenses that are both business and personal needs to be apportioned on a reasonable basis.

The unexplained wealth or lifestyle targeted by the ATO includes instances of business owning families that have low or average reported incomes, but have a lifestyle that far exceed those modest incomes. Commissioner Jordan considers that having kids in private schools and taking frequent business class flights on overseas trips would be considered to be unexplained wealth. He said the ATO will use all its resources including obtaining information from other government departments (ie Department of Immigration) and social media (ie Facebook posts).

Want to find out more?

If you think your business may have some issues with ATO’s tax time focus areas, we can help you sort them out before the ATO get involved. If you’re thinking of moving away from cash and transitioning into electronic payments, we can assist with those first steps.

At MartinCo we’re the Sydney Accountancy and Finance firm that makes a difference for their clients. We help you build your wealth so that you can achieve your goals! With the convenience of two Sydney offices, one in Hurstville and the other in Edgecliff, we’re more than equipped for you to contact us today!

If you have any questions feel free to contact MartinCo for more information.

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At MartinCo, we offer our clients premium Accounting and Financial advice. We stay up to date with trending news topics to help our clients build their wealth and achieve their goals.

With the FBT lodgement deadline fast approaching, we give you some tips on areas of FBT which may need particular attention, such as motor vehicles, employee contributions, the living-away-from-home allowance, car parking and the employer rebate. These are the areas that the ATO is focusing their efforts on in terms of compliance. So, when you put together your FBT return, keep in mind these focus areas and you could avoid some costly mistakes.

In the countdown to FBT lodgement time, there are some areas that may need particular attention, such as motor vehicles, employee contributions, the living-away-from-home allowance, car parking and the employer rebate. Apart from non-lodgement of the FBT return, these are some of the areas that the ATO focus their compliance action on. For example, employers who fail to identify and report fringe benefits where a vehicle is available for private travel of employees will raise a flag within the ATO’s systems for a more detailed look at the company’s FBT records.

Similarly, the ATO will also be looking at employee contributions to ensure that the employer has declared the amount on both their FBT return and the income tax return. As well as making sure that the employer hasn’t overstated employee contributions on their FBT return to reduce the taxable benefits provided, which may be particularly prevalent in smaller private companies where the shareholders/directors are also the employees.

Some of the common mistakes the ATO has found in relation to the living-away-from-home allowance (LAFHA) include:

• claiming reductions for ineligible employees;
• failing to obtain required declarations from employees;
• claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food components in invalid circumstances; and
• failing to substantiate expenses relating to accommodation and where required food or drink.

If you’re an employer and you lodge an FBT return with LAFHA benefits you can be sure that the ATO will be looking closely at the benefits that have been provided. This is particularly true where the LAFHA is paid for more than 12 months for any particular employee without a change in employment location.

In relation to the car parking fringe benefits, the ATO will be focusing their attention on the following aspects:

• market valuations that are significantly less than the fees charged for parking within a 1 km radius of the premises on which the car is parked;
• the use of rates paid where the parking facility is not readily identifiable as a commercial parking station;
• rates charged for monthly parking on properties purchased for future development that do not have any car park infrastructure; and
• insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.

Remember however, if you’re a small business with a gross income of less than $10m, you may be able to get a car parking exemption in certain circumstances. An exemption is not the same as a rebate. The rebate, put simply, reverses the effect of the FBT gross-up method and is only available to certain non-government, not-for-profit organisations. The ATO will look very carefully at employers who claim the rebate to ensure that they are eligible. So, when you put together your FBT return, keep in mind these areas which need particular attention and you could avoid some costly mistakes.

Need help?

Do you know whether you’re entitled to a rebate? Or maybe you just want to find out whether you can access the exemption to car parking benefits? We can answer all your questions and help you with your FBT return. If you’re a little behind and think that you may miss the deadline for lodgement, we can help you get an extension.

At MartinCo we’re the Sydney Accountancy and Finance firm that makes a difference for their clients. We help you build your wealth so that you can achieve your goals! With the convenience of two Sydney offices, one in Hurstville and the other in Edgecliff, we’re more than equipped for you to contact us today!

If you have any questions feel free to contact MartinCo for more information.

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At MartinCo, we offer our clients premium Accounting and Financial advice. We stay up to date with trending news topics to help our clients build their wealth and achieve their goals.

FBT time is well and truly upon us, with only a month to go until the due date for the lodgement of the return. With the due date so close, most businesses would be in the middle of preparing or even finalising their returns. For those that have put it off, there is still time to lodge, we can help you understand any FBT issues you may have to expedite the process. If you need more time, we can help with an extended due date for lodgement. Remember if you’re a small business you may also be able to get exemptions.

FBT season is in full swing with only a month to go until the due date for the lodgement of the return on 21 May 2018. If you haven’t started getting the required information together, now is the time. Remember if you give benefits to any current, prospective or former employees or associates in connection with their current, prospective or past employment, then you may be liable to FBT.

The FBT rate for the 2017-18 FBT year (which runs from 1 April 2017 to 31 March 2018) is 47% and is the equivalent of the top marginal tax rate. If you’ve combed through your financial records and determined what you don’t need to lodge an FBT return, you must lodge an “FBT non-lodgement advice form” to let the ATO know of your situation.

If you’ve gone through your financial records and determined that you have provided a benefit to an employee, whether past, prospective or present, what do you do next? First, you have to determine the type of benefit you have provided. The most common types of benefit include car, car parking, loans/debt waiver, expense payment, giving of material goods, and entertainment (which includes meal entertainment).

All the above categories have their own special methods for determining the value of the benefit provided. Once the value is determined, an appropriate gross-up rate is applied to work out the taxable value. The taxable value is then multiplied by 47% to determine the FBT payable. Should the FBT payable exceed $3,000, you will need to pay FBT in quarterly instalments in the following year. The quarterly instalments will be based on the previous year’s FBT payable and is aligned with the BAS system.

If you’re running a small business (gross income of less than $10m) remember that you may be able to get a FBT car parking exemption provided the parking is not provided in a commercial car park. Small businesses can also provide their employees with multiple work-related portable electronic devices that have substantially identical functions in the same year and all the devices will be exempt from FBT.

However, this only applies to devices that are primarily used for work such as laptops, tablets and phones. These exemptions mean that the benefits are excluded from the definition of a fringe benefit and do not need to be included in any calculations.

What you will need to include is an employee’s “reportable fringe benefits amount” on their payment summary if their individual fringe benefits amount for the FBT exceeds $2,000. The actual amount shown on the payment summary is the grossed-up value of the individual fringe benefits amount. This will need to be done at the end of the financial year before the payment summaries are issued to your employees.

Too complicated?

FBT may seem daunting if you’re attempting to work it out for the first time, and even seasoned campaigners will come across some complex issues they are not quite sure what to do with. Don’t leave it too late! If you need help with the FBT process, talk to us first. We can also help you get more time, lodge through us and get an extended due date of 25 June for your return.

At MartinCo we’re the Sydney Accountancy and Finance firm that makes a difference for their clients. We help you build your wealth so that you can achieve your goals! With the convenience of two Sydney offices, one in Hurstville and the other in Edgecliff, we’re more than equipped for you to contact us today!

If you have any questions feel free to contact MartinCo for more information.

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At MartinCo, we offer our clients premium Accounting and Financial advice. We stay up to date with trending news topics to help our clients build their wealth and achieve their goals.

Paying the right amount of super to your employees can at times be a complex exercise, with the threshold changes in the recent years and the contribution base which changes every year according to indexation factors. With the rise of the gig economy there’s also a grey area as to whether a certain person working for you is actually an employee or a genuine contractor. Find out what your super obligations are this year.

Are you paying the right amount of super for your employees? It’s that time of the year again, where the Australian Bureau of Statistics (ABS) release the indexation factors that are critical in determining various superannuation thresholds. While the super guarantee is still frozen at 9.5%, the maximum contribution base will increase to $54,030 per quarter (or $216,120) for 2018-19. Employers are not required to provide the minimum super guarantee for the part of employees’ wages above the maximum contribution base.

Besides the part employees’ wages above $216,120, you as an employer, are required to make minimum contributions of 9.5% of an employee’s ordinary time earnings by quarterly due dates to their nominated superannuation funds if you pay the employee $450 or more (before tax) in a calendar month. This is irrespective of whether an employee is full-time, part-time, casual, a family member, company directors, those who receive a super pension or annuity while still working, or temporary residents.

You should note that the ATO considers certain contractors that are paid mainly for their labour to be employees for super guarantee purposes. This is the case even if the contractor quotes an ABN. According to the ATO, you as an employer must make super guarantee contributions of 9.5% on what you pay your contractors if they are paid:

• under a verbal or written contract that is wholly or principally for their labour;
• for their personal labour and skills which may include physical labour, mental effort or artistic effort; or
• to perform the contract work personally.

If you’re not paying the right amount of super for your employees and some contractors, beware, the ATO uses sophisticated data analytics to identify employers at high risk of non-compliance.

It also takes a differentiated approach to compliance and penalties depending on the compliance history of the employer and how actively they engage to meet their superannuation obligations. Therefore, it pays to be in the good books of the ATO as they may take a more accommodating approach should your business have any discrepancies in super guarantee payment to your employees.

However, employers who are unwilling to meet their super guarantee obligations should expect the ATO to take firm compliance action including the imposition of penalties such as the super guarantee charge, a Part 7 penalty (up to 200%) for late lodgement of the super guarantee statement or failing to provide information when requested, and an administrative penalty (up to 75%) may also apply for an employer who makes a false and misleading statement.

At MartinCo we’re the Sydney Accountancy and Finance firm that makes a difference for their clients. We help you build your wealth so that you can achieve your goals! With the convenience of two Sydney offices, one in Hurstville and the other in Edgecliff, we’re more than equipped for you to contact us today!

If you have any questions feel free to contact MartinCo for more information.

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We offer our clients the best Accounting and Financial advice by staying up to date with trending news topics. We do this to help our clients build their wealth and achieve their goals.

Cash might be king, but the use of cash by businesses is attracting attention from the ATO. It will begin visits of selected businesses to ensure that all tax obligations are met. Third-party data and risk analysis is being used to identify the types of businesses the ATO will visit, which will not be limited to one particular industry this time around.

In this competitive economic environment some businesses are increasingly turning to cash payments to dodge their tax obligations. This is becoming such an issue that the ATO has started a program of visiting businesses across Australia that may be using cash inappropriately or operating in the hidden economy.

A wide variety of resources including third-party data and risk analysis will be used by the ATO to identify the type of businesses it will visit. These include businesses that:

• operate and advertise as “cash only” or mainly deal in cash;
• do not take electronic payments according to data-matching;
• are part of an industry where cash payments are common;
• indicate unrealistic income relative to the assets and lifestyle of the business and its owner;
• fail to register for GST or lodge activity statements or tax returns;
• under-report transactions and income according to third-party data;
• fail to meet super or employer obligations;
• operate outside the normal small business benchmarks for their industry; and
• are reported by the community for potential tax evasion.

A wide net is being cast to target all businesses that could potentially be avoiding their tax and superannuation obligations. In the course of the visits, where there are suspicions of wrongdoing, the ATO will follow up, initially by a letter which could include recommendations such as:

• lodging a voluntary disclosure to mitigate the risk of an audit or potential prosecution;
• investing in an electronic payment and record keeping system to reduce the risk of mistakes and meet consumer preference; and
• attending ATO record keeping information sessions.

In the last round of visits, three common issues of not having separate personal and business accounts, not recording all sales or keeping proper books, and having employees working off the books were found, and over 60% of businesses visited required some kind of corrective action.

The hair and beauty, restaurant, cafe, takeaway and catering, and the building and construction industries all reported an increase in timely lodgement of activity statements after being targeted by the ATO for specific attention.

As a part of the visits, the ATO will also be working with industry associations and local authorities to educate businesses on the use of electronic payment and record keeping facilities, online lodgement, superannuation obligations to employees; proper registration and meeting of obligations, and help with business specific issues.

Need help?

To ensure that you and your businesses are not targeted under this operation, or that if you are targeted, you do not get a follow-up, the following broad suggestions may help:

• deposit all cash payments into bank accounts;
• keep evidence to support all income, expenses and lifestyles;
• account for any stock used for private purposes; and
• work out the performance of the business relative to other similar businesses in the same industry using the small business benchmarks.

If you need help with documenting your business income, expenses and stock or calculating whether your business is performing within the small business benchmarks, don’t hesitate to contact us today.

At MartinCo we’re the Sydney Accountancy and Finance firm that makes a difference for their clients. We help you build your wealth so that you can achieve your goals! With the convenience of two Sydney offices, one in Hurstville and the other in Edgecliff, we’re more than equipped for you to contact us today!

If you have any questions feel free to contact MartinCo for more information.

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Taxpayers need to be ever-vigilant about bogus calls, text messages and emails from scammers.

Some scammers go to great lengths to deceive taxpayers, including impersonating government representatives on the phone, sending fraudulent emails and even creating fake websites.

The ATO reported recently that the most common type of scam is where the scammer demands payment for a fake tax debt or sends an email asking for personal information in order to pay out a refund, which may at first glance appear quite attractive! Not only do scammers try to steal money, they also try to steal identities. The Government has identified several cases of misuse of stolen personal information that have led to fraudulent income tax returns, as well as GST, superannuation and welfare frauds.

Scammers are becoming more sophisticated in their attempts to defraud the public and trick people into handing over money, their tax file numbers and other personal information. A recent scam is to telephone people, displaying an official-looking ATO number as a caller ID so the victim feels confident enough to engage with the scammer and will provide personal information – this type of impersonation is known as “spoofing”. Sending emails containing links to bogus websites that mirror the official ATO website is also still a popular scamming method.

The typical story is that a fraudster contacts a taxpayer out of the blue claiming that the taxpayer has overpaid taxes and is entitled to a refund. The fraudster often asks the taxpayer to pay an “administration” or “transfer” fee to obtain the refund. They may also ask for the taxpayer’s personal details, including financial details such as bank account information so that the “refund” can be transferred. If the taxpayer hands over money, chances are that it is never seen again, and no transfer is forthcoming.

Another tactic is when fraudsters phone to demand that people pay allegedly unpaid taxes. The ATO is aware of one such aggressive scam where taxpayers are threatened with arrest if they do not pay a fake “tax debt” over the phone. Scammers may also demand payment in gift cards, such as iTunes or prepaid Visa cards.

Kath Anderson, Assistant Commissioner recommends for people to look out not just to protect their own personal identity but also to make family and friends available to the risks. Those people who may be particularly vulnerable are those who do not have regular interaction with ATO and so may find it more difficult to determine genuine requests for information from those that intend to cause harm.

“There are a few simple steps taxpayers can take to protect themselves online, including only giving out personal details to people you trust, keeping tabs on your tax affairs so you know what to expect, and to be cautious about personal information that you share, especially on social media.”

If you receive an email, a text message (SMS), or an unexpected phone call from “the ATO” claiming that you are entitled to a refund, or that you owe taxes, or that you must confirm, update or disclose confidential details, such as your tax file number, delete the message or hang up the phone. Do not click any links or download any attachments.

From time to time, the ATO itself will send emails, text messages or official social media updates to advise you of new services. However, the ATO’s messages will never request personal or financial information by SMS or email, and its representatives will never ask you to pay money into a personal bank account.

If you receive a call, an email or an SMS and are concerned about providing personal information, you can call the ATO on 1800 008 540 (8 am to 6 pm, Monday to Friday), forward the suspicious email to ReportEmailFraud@ato.gov.au, or check your myGov account for any message from the ATO. You can also contact our office for more information if you have concerns.

You should practise the same level of vigilance in relation to calls and emails from people who claim to be from other government bodies, such as state revenue authorities.

Document verification service for businesses

The Government has developed an electronic Document Verification Service (DVS) for business use. The DVS can help you protect your business against identity crime and makes it easier for you to meet any regulatory obligations to verify your customers’ identities. The DVS allows businesses to verify information on Australian-issued driver licences, passports, visas and Medicare cards “in real time” directly with the issuing agencies. The system is not a database and does not store any personal information. All DVS checks must occur with the informed consent of the person involved. Further information is available on the DVS website at http://www.dvs.gov.au/.

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In 2017, the Government flagged and publicised plenty of changes to the tax and superannuation system, but how many of them have actually been passed by Parliament and made into law? Parliament ended its final sitting week in December 2017 with plenty of outstanding matters for the Government to deal with in 2018. Here is a brief summary of these proposals and how they could affect you.

Personal

The Bill that proposes to increase Medicare levy rate from 2% to 2.5% of taxable income for the 2019–2020 and later income years is still before the Senate. Labor Senators have recommended the rate of 2.5% to apply only to those individuals with incomes above $87,000. In addition, they would also like to reinstate the Budget Repair Levy of 2% on taxable incomes in excess of $180,000 which ended on 1 July 2017. Labor has indicated that they will vote against the increase in Medicare levy rate should they not get the desired changes. The Government seems unlikely to agree to the changes to the Budget Repair Levy as requested by Labor, which all points to a difficult passage for the Bill unless the Government can do a deal with the minor parties and/or independents.

Business

The Bill that seeks to progressively lower corporate tax rate is still before the House of Representatives. In its current form the Bill proposes to extend the 27.5% corporate tax rate to all corporate tax entities by 2023-2024, at which point the tax rate would be progressively cut to 25% by 2026–2027. An associated Bill to ensure that a company will not qualify for the lower company tax rate if more than 80% of its assessable income is passive income (ie interest, dividends, or rent) is also before the House of Representatives.

Businesses will need to satisfy a passive income test to access the 27.5% corporate tax rate from 2017–2018.

For the 2016–2017 income year, a company only needed to be carrying on a business and have a turnover of under $10 million to qualify for the 27.5% tax rate. If this Bill passes, small companies set up to invest in property and collect rent would no longer be able to access the lower tax rate if that income consists of more than 80% of its total income. It would be a similar outcome for those companies who invest in shares.

Superannuation

The salary sacrifice contributions integrity Bill is still before the Senate. It proposes to prevent employers from using employees’ salary sacrifice contributions to reduce their own minimum 9.5% super guarantee contributions from 1 July 2018. The Bill also extends the choice of super funds to employees covered by new enterprise agreements and work determinations made on or after 1 July 2018.

Education

The Bill to reduce the Higher Education Loan Program (HELP) minimum repayment income thresholds is still before the Senate. The Bill lowers the minimum repayment threshold from $51,956 to $41,999 from 1 July 2018 with a 1% repayment rate. It also proposes to index the minimum repayment income threshold according to the Consumer Price Index (CPI).

Social security

Bills that implement major social security changes are at various stages before Parliament, including:

• the creation of a jobseeker payment to replace seven existing payments;
• cessation of the widow B pension;
• removing certain exemptions for drug or alcohol dependence;
• establishing a two-year drug testing trial in three regions; and
• changes to residency requirements for the aged pension.

How might these changes affect me?

If you would like to know more about how these changes could potentially affect you, or you would like to consider some forward tax planning for you or your business to get ahead in 2018, contact us today.

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