What actions need to be undertaken before the end of the financial year? What are the planning opportunities post the end of the financial year?
What is the current state-of-play in relation to matters that are due to commence on 30 June?
The end of the financial year is fast approaching. We outline some tips and traps that you may want to consider as 30 June approaches.
While many not-for-profit entities are exempt from income tax, some will have separate commercial entities that are liable to income tax. We highlight some issues that impact on tax deductibility as well as other issues that arise irrespective of income tax paying status.
Meet PAYGW obligation to claim deduction
For payments that are subject to PAYG withholding, entities are required to comply with the PAYGW obligation and report correctly in order to claim tax deductions for that payment. The types of payments affected include payments made to workers, contractors and directors.
Directors can be held personally liable for unpaid PAYG withholding and super guarantee charge (SGC) if the company fails to comply with PAYG withholding and SGC.
When a non-cash benefit is provided instead of paying cash, entities are still required to report the PAYG withholding amount to the ATO except when the payment is a fringe benefit or a share or right under the employee share scheme. The amount required to be withheld is calculated using the current market value of the non-cash benefit.
When is super payment paid for the purpose of claiming a tax deduction?
Super guarantee payments are tax deductible when they are paid by the end of the income year. Super payments are only considered as being paid in the current financial year when they have been received by the super funds before 30 June.
The rule means that, even if the payments have been deducted from the employer’s bank account, the employer might not be able to claim tax deduction for that payment if it has not been credited to the super fund’s bank account before 30 June. This can be a little bit tricky because inter-bank transactions normally can take up to 3 business days depending on the method of payment, let alone with added delays due to congestion towards financial year end.
Employers should allow sufficient time to ensure super payments are received by the destination super fund. For instance, the ATO suggests that payments processed through the Small Business Superannuation Clearing House (SBSCH) need to be accepted by the SBSCH by 23 June 2020 to avoid missing out tax deduction for the income year.
Employers should also check with their employees for any change of their super fund details, in order to ensure payments are directed to a fund that will not reject the payment.
Don’t miss out on Government contracts
As part of the whole of Commonwealth Government action plan to tackle black economy, the Government has announced that businesses and their first tier subcontractors tendering for Commonwealth Government contracts over $4 million (GST inclusive) must obtain a statement of tax record (STR).
Only businesses with a STR showing satisfactory tax compliance record will be considered in the tendering process for Government contracts. A STR is valid for 6 or 12 months depending on whether you have an Australian tax record with less or more than 4 years. Businesses with an unsatisfactory STR can take corrective steps to secure a satisfactory STR for later years.
Businesses with TFN and ABN can apply online through the Business Portal or myGov account, or through their tax agent.
You may like to review the currency of your STR or obtain a STR ahead of the new financial year.
Instant Asset Write-off for eligible businesses
From 12 March 2020 to 30 June 2020, businesses with an aggregated turnover of less than $500 million can immediately write off each asset that costs up to $150,000. This measure applies to new or second-hand assets that was first used or installed ready for use by 30 June 2020.
The instant asset write-off threshold will revert back to $1,000 from 1 July 2020 and will only be available for businesses with an aggregated turnover of less than $10 million. It is unclear at this stage whether the government will make any changes to the threshold post 30 June2020. Watch this space!
Yearly review to check if you are still income tax exempt
If your not-for-profit (NFP) organisation is a charity, it needs to be registered with ACNC and endorsed by the ATO in order to be exempt from income tax. A charity should review its objects and activities to ensure both remain within the ambit of being charitable in nature. (TaxEd can help with advice on whether the charitable character exists for tax purposes.)
The ATO recommends that a NFP which is not a charity should also conduct an annual self-review to ensure they are still meeting the requirements to be tax exempt.
The three steps self-review process are:
Step 1: check if your organisation is within the types of income tax exempt organisations
Step 2: check your organisation meets all the requirements
Step 3: complete the worksheet as a record of self-review.
Organisations that are gift deductible recipients (DGRs) should also take the opportunity to review their ongoing DGR status for the new financial year commencing 1 July 2020. If your organisation is not currently a DGR, you might like to consider whether it would be eligible for endorsement as a DGR. (TaxEd can assist with the review and endorsement process.)
When the employer makes additional (i.e. non-compulsory) super contributions for an employee, you should consider whether there is a reportable superannuation contribution. Reportable superannuation contributions have been discussed on previous occasions. Basically, they arise where the employee has, had, or might reasonably be expected to have had the capacity either:
- to influence the size of the contribution; or
- to influence the way the amount was/is/will be contributed so that the employee’s assessable income is reduced
However, they do not arise where the contributed amount is included in the employee’s assessable income.
For example, extra contributions under salary sacrifice arrangements are reportable super contributions.
Employers are required to report the reportable super contributions in STP or payment summary for the relevant employees.
TaxEd can assist in identifying whether a particular contribution is reportable.
Taxable payments annual reporting obligation
Businesses in certain industries (see below) and government entities that made payments to contractors for services are required to lodge the Taxable Payment Annual Report (TPAR) by 28 August each year.
Basically, businesses in the following industries need to report payments made to contractors for provision of relevant services to the business:
- Building and construction services;
- Cleaning services;
- Courier services;
- Road freight services;
- Information technology services;
- Security, investigation or surveillance services; and
- Mixed services.
For government entities, the following links provide further guidance on the application of TPAR:
- Government entities that need to report
- Government entities excluded from reporting
- Payments which government entities don’t need to report
In addition to contractor payments, federal, State and Territory government entities, other than a local government body, need to report details of payments of certain grants that they made in the TPAR.
Government entities must lodge TPAR online through the ATO Business Portal. Tax agents and BAS agents can lodge TPARs on behalf of their clients.
Reporting allowances on payment summaries or on STP
There are different reporting requirements for allowances employers made to employees using Single Touch Payroll (STP) or payment summary.
The ATO’s website has provided useful summary of reporting requirements for the following types of allowances:
- Allowance an employee might receive
- Cents per kilometre car expense payments
- Award transport payments
- Laundry allowance for deductible clothing
- Award overtime meal allowances
- Domestic or overseas travel allowance involving an overnight absence from employee’s ordinary place of residence
Sometimes the employer may pay the employee an amount of travel allowance to cover the cost of accommodation, food and drink and incidental costs relating to the employee’s work-related travel away from their usual place of residence. When the employer paid the employee an amount of travel allowance (except travel allowance for overseas accommodation) that is not more than the reasonable amount published by the Commissioner each year, the amount of travel allowance is not required to be included in the employee’s payment summary or on STP.
TD 2019/11 determines the reasonable travel allowance amount for the 2019-20 income year.
Payroll Tax – Declaration by exempt client for employment agency purposes due 30 June
Certain not-for-profit entities (‘exempt entities’) are not liable for payroll tax (‘PRT’) in relation to remunerations paid to certain types of employees. Rather than employing such a worker directly, an exempt entity may choose to obtain the services of the worker through an employment agent – often this will occur where such a worker is required for a short-term assignment because an existing employee is ill.
Where an employment agent procures the services of a worker for an exempt entity and an employment contract between the worker and the exempt entity does not arise, PRT legislation generally imposes liability for PRT on the employment agent. However, where the exempt entity would not be liable to PRT if such an employment contract arose, the employment agent may be eligible for relief from PRT. Such relief allows the employment agent to reduce the amount charged to the exempt entity for providing the worker and avoids indirect imposition of PRT on the exempt entity.
In most states and territories (including VIC, NSW, QLD, TAS and NT), employment agents are required to obtain a declaration from the exempt entity in an approved form by 30 June in order to qualify for the PRT relief.
Organisations which may receive requests from their employment agents for such a declaration need to be aware of the importance to the employment agent of timely receipt of the declaration. Organisations should also consider whether their contractual arrangements with the employment agent require timely provision of the declaration in order to avoid an increased charge that reimburses the employment agent for PRT.
TaxEd can assist readers in determining whether it is appropriate to give a declaration in their particular circumstances.
Matters due to commence from July 2020
To assist our readers to plan for the new financial year, here are a couple of matters due to commence from July 2020 or shortly thereafter.
ACNC review to commence in July 2020
The Commissioner of ACNC has announced that the ACNC will review approximately 500 registered charities each year to assess their eligibility of charity status, commencing in July 2020.
The initial focus of the review will be on Public Benevolent Institutions (PBIs). The selection for review will be identified based on the charity’s risk profile. Charities can self-assess their risk profile using the ACNC’s self-assessment tool.
Extension of Annual Information Statement (AIS) to 31 August 2020
Due to the impact of COVID-19, the Commissioner of ACNC has approved the extension of AIS for due dates between 12 March 2020 and 30 August 2020 to 31 August 2020. This extension also applies to the due date that has been extended to 28 May 2020 for charities affected by the bushfire.
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.