EOFY Tax tips & reminders

From 1 July 2019, if taxpayers don’t meet their PAYG withholding and reporting obligations to the ATO, they will not be able to claim a tax deduction for payments:  

• of salary, wages, commissions, bonuses or allowances to an employee;
• of Director’s fees;
• to a religious practitioner;
• under a labour hire arrangement; or
• made for services where the supplier does not provide an ABN.

If you make a mistake and voluntarily correct it before the ATO begins a review or audit, a deduction may still be available but penalties may still apply for failure to withhold the correct amount of tax.  

Payments to contractors operating in certain industries need to be reported to the ATO by 28 August 2020.  This Taxable Payment Report is required for:  

• Building and construction services
• Cleaning services
• Courier services
• Road freight services
• Information Technology (IT) services
• Security, investigation or surveillance services
• Mixed services (providing one or more of the services listed above)

The Superannuation Guarantee (SG) amnesty provides a one-off opportunity to disclose historical non-compliance with the superannuation guarantee rules and pay outstanding superannuation guarantee charge amounts.

• 7 September 2020 is the last day that employers can take advantage of the SG amnesty.  
• This only applies to voluntary disclosures.  

To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply.  

ACTION STEP: If you have any unpaid employee super from prior years, contact us ASAP so that we can work with you to help prepare and lodge the SG Amnesty Form with the ATO.    

Small businesses with 19 or less employees and that employed family members were due to start reporting these employees (known as “closely held”) through Single Touch Payroll (STP) from 1 July 2020.  

However, due to COVID-19 the start date of this has been extended to 1 July 2021.

Your small business can start voluntarily using STP earlier than this date.  

All other employees should now be reported through STP.  

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 your business has an aggregated turnover below $10 million, you can use the simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes if the difference in value between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year is less than $5,000.  You will need to record how you determined the value of trading stock on hand.  

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.

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2020 at the latest.  Decisions made by the trustees should be documented in writing, preferably by 30 June 2020.  

If valid resolutions are not in place by 30 June 2020, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).  

ACTION STEP: If you haven’t already signed your Trust Distribution Resolution, please contact our office before 30 June 2020 so that we can properly prepare this document for you to sign.  

Payroll tax applies to all entities that have an Australian payroll that exceeds state-based limits.  

You should note that in addition to normal salaries and wages, the following items are generally also included in payroll expenses if payroll tax applies:  

• fringe benefits based on the grossed-up taxable value of fringe benefits;
• all employer contributions to superannuation on behalf of employees; and
• some contractor or sub-contractor fees.

For more detailed information about whether payroll tax applies to your business, please contact our office.  

ACTION STEP: The Annual Return/Reconciliation for payroll tax must be lodged by 21 July 2020 (QLD, VIC, NT, TAS and WA) or by 28 July 2020 (NSW and SA) with your State Revenue Office.

Your WorkCover / WorkSafe insurer sends an annual reconciliation to all registered employers at the end of the financial year.  

In completing your annual reconciliation, you will need to include the following items in addition to normal salaries and wages:  

• fringe benefits based on the taxable value of fringe benefits (do not gross-up);
• all employer contributions to superannuation on behalf of employees; and
• some contractor or sub-contractor fees.

For more detailed information about what items to include in the reconciliation statement, please contact our office.  

Once the reconciliation is received and processed by your WorkCover / WorkSafe insurer, you will be issued with a final assessment or a refund depending on the instalments you have paid during the year.  

ACTION STEP: Complete and lodge the Annual Reconciliation with your WorkCover / WorkSafe insurer by the due date.

A reconciliation of GST should be performed as at 30 June 2020 to determine if there has been an under or over-payment of GST in the 2020 tax year.

If a discrepancy has arisen, then it is possible to adjust a subsequent Business Activity Statement (BAS) to rectify the error, however there are limits imposed on adjustments that can be made in this way.  

Income declared on your BAS should be reconciled to income declared on your income tax returns.  

Also, please note that you are required by law to substantiate all Input Tax Credit claims with a complying Tax Invoice, and you need to retain these documents for a minimum of 5 years.  

ACTION STEP: Complete the annual GST reconciliations, and check that you have all required tax invoices and other supporting documents.

Please note that the ATO and State Revenue Office are constantly increasing their audit activities.

There has been an increase in audit activity for PAYG Withholding, Payroll Tax, WorkCover, GST, Division 7A loan accounts from companies, and Trust distributions from Discretionary Trusts.  

We can offer a review of your records and record-keeping procedures if you are concerned about your ability to satisfy an audit.  

ACTION STEP: Please contact our office if you would like to request this service.