Contents:
SIMPLER RULES FOR SMALL BUSINESS
AUDIT ALERT ?? ato data matching
2005 TAX YEAR END CHECKLIST
The administration of your employees?? super is changing ?? again!
From 1 July 2005, under the new super choice rules, many of your existing and new employees will have the right to choose the superannuation fund into which their employer superannuation contributions are paid.
It??s not only a matter of getting ready for these changes now. You will also need to manage the ongoing requirements of these new rules.
To help you get ready, here??s a checklist of some of the steps you will need to consider.
As always, it??s best to get more detailed advice about how to implement these steps for your particular employees.
1. Where do I start?Identify which employees have to be offered super choice.
Generally, you will have to offer super choice to employees whose super contributions are paid under a Federal award or their super contributions are not covered by an industrial agreement or a State award.
Some employees are not eligible for super choice (e.g., in most cases you don??t have to offer super choice to employees employed under Australian Workplace Agreements or under state industrial awards).
Does an employee have to change?
- Some employees entitled to super choice are under the misconception that they must change funds. This isn??t the case.
- An eligible employee has a right to choose a fund, but he or she doesn??t have to exercise that choice or can in fact choose to nominate his or her existing employer super fund. Whatever happens, it??s up to the employee.
Provide each eligible employee with a standard choice form .
This is a form produced by the ATO that captures all the information necessary to implement super choice.
It has sections that both you and your employee need to complete.
Most importantly, it will contain information provided by your employee that any fund he or she nominates:
- is a complying fund; and
- will accept the contributions you make.
When do YOU have to do it?
- For all your existing eligible employees as at 1 July 2005, you will have to provide each one with a standard choice form before 29 July 2005.
- For eligible new employees starting work on or after 1 July 2005, you will need to provide them with this form within 28 days of when they start work with you.
Act on your employee??s choice.
If an eligible employee makes a choice correctly, you should pay your employee??s super contributions into his or her nominated fund.
In most instances, you will have 2 months to get ready to make contributions to this fund.
A note of caution
- An employee can choose a self managed super fund (sometimes referred to as a ??DIY Fund??).
- Make sure the employee has also attached to the standard choice form the required documentation from the ATO confirming this DIY is a regulated fund.
Make contributions into your employer fund .
If your employee doesn??t choose a fund or doesn??t make a choice correctly, you still have to make the compulsory super guarantee payments on your employee??s behalf.
You should make these contributions into the employer superannuation fund nominated by you on the standard choice form.
A word to the wise?
The super choice rules don??t affect your obligations to make compulsory super guarantee contributions for your employees.
SIMPLER RULES FOR SMALL BUSINESSThe Simplified Tax System (STS) commenced on 1 July 2001. It provides eligible small businesses with simpler rules for:
- trading stock ?? stocktakes and accounting for changes in the value of trading stock need only be done in limited circumstances; and
- depreciation ?? depreciating assets costing less than $1,000 each can be written off immediately and most other depreciating assets can be pooled and deducted at a rate of 30%.
To access these simpler rules, an eligible small business also currently has to use the cash basis to recognise income and deductible expenses. This doesn??t suit a lot of small businesses.
To address this problem, from 1 July 2005, the STS rules have been changed. From then, an eligible small business can now calculate its business income under the accruals method as well the cash basis under the STS.
STS not everyone??s cup of tea
STS is an optional system ?? so you need to seek advice about whether your business is eligible and whether it??s appropriate for your business.
AUDIT ALERT ?? ato data matchingThe ATO is using data matching much more extensively to detect non-compliance in lodgment, registration and payment, and to check the accuracy of statements and returns.
The ATO is getting serious and more sophisticated about data matching in a number of areas that you should be aware of.
You would already be well aware of the ATO??s ability to track down undisclosed interest and dividend income.
Of special interest at the moment to the ATO are property transactions. In its latest data-matching project announced in the Commonwealth Gazette, the Tax Office will be getting information from property data kept with RPDATA Pty Ltd, a company that tracks and records property transactions.
The ATO plans to match this information with its own data holdings to identify non-compliance with lodgment and payment obligations (e.g., on undeclared capital gains).
Keep proper records
This is where a lot of problems start ?? so it??s best to approach record keeping as if your business could be audited at any time. Here??s some tips to help you:
- Generally you should keep your records for five years.
- You will need records like bank statements, cheque butts, deposit slips, cashbooks, and accounting records (e.g. your general ledger, trial balance, and preliminary profit and loss statement and balance sheet).
- Watch out for some types of expenses that need particular records (e.g. motor vehicle log books, diaries for travel expenses).
As a general rule, you are required to give your employees their payment summaries (??group certificates?? in the old language) on or before 14 July 2005.
Reporting tip
- Watch out for fringe benefits - if the total grossed-up value of the reportable fringe benefits provided to one of your employees in the FBT year ended 31 March 2005 is more than $1,000, you will need to show this amount on the employee??s 2005 payment summary.
- This disclosure requirement applies to EACH employee who receives reportable fringe benefits in excess of $1,000.
Working out the tax implications of selling business assets these days is complicated.
An assessable or deductible amount arising on the sale depending on whether or not you sell the asset for more or less than its final adjustable value.
Also, there may be:
- A capital gain or loss (e.g. the asset was used partly for private, non-taxable purposes).
- A potential GST liability.
RECORD KEEPING TIP
Keep an up-to-date business assets?? register that lists all plant, equipment, furniture, fittings, other assets, including all items bought, sold & disposed of during the year.
Prepaying your expensesIt??s that time of year when you may be considering increasing your business deductions before 30 June 2005.
One way to do this is to consider prepaying some items of expenditure. For example:
- Before you prepay any business expenses, you will need to check out the current prepayment rules to make sure your business is able to maximise its deductions.
- These rules can be complex ?? you may have to apportion the deduction over more than one tax year.
|
EXAMPLES Commonly prepaid business items include: | |
|
· rent & lease payments |
· audit & accounting fees |
|
· business subscriptions |
· repairs & maintenance |
|
· interest |
Value trading stock correctly
Resist the temptation to guess your stock levels or their value at year end:
- You will need to value properly your closing stock on hand and work-in-progress at June 30.
- It??s also important to specify which valuation method you use ?? cost, replacement, market value (or less if the stock is obsolete).
- Are you carrying on a business alone or in partnership?
- Has your business received income from more than one activity?
- Has one (or more) of these activities made a loss?
You may be able to offset this loss against profits from your other business activities during this year ?? but there are some commerciality tests (known as the ??non-commercial loss?? provisions) that your business will need to satisfy so you can do this.
START A NEW BUSINESS ACTIVITY?
If you have started up a new business venture during the year which has made a loss, not uncommon in the early stages of a new venture, you will need to find out whether these rules let you claim this loss against your other income.
Check for bad debtsIf your business has a debt which has already been brought to account as assessable income, you may be entitled to a deduction if the debt is ??bad?? and is written off before 30 June:
A debt is likely to be ??bad?? if:
- you have made an effort to collect it;
- there is little likelihood that you will ever be successful in collecting it; and
- you have abandoned any debt recovery action.
Make sure you write off any bad debts in your accounts before 30 June.
Avoid common GST problemsGST compliance is still a high priority on the ATO??s audit hit list. Here??s some common traps to avoid:
- Be careful not to understate the total value of goods and services supplied.
- Make sure you are not overstating your entitlement to input tax credits.
- Keep a watchful eye on the timing of supplies or purchases - make sure you report them in the correct period.
- Classify your supplies correctly ?? be particularly careful if you think a supply is GST free.
Watch out for any private company loans to shareholders or anyone linked with or related to a shareholder:
There may be some unexpected tax bills if a loan like this is not:
- fully repaid in the same tax year in which it arises; or
- repaid on commercial terms where the loan is for more than a tax year.
Ouch!!
The loan could be treated as an unfranked dividend from the private company, which is then fully taxable in the recipient??s hands.
At-call loans
If you have loaned your company money and it has been treated as an at-call shareholder loan in your company??s books, from 1 July 2005 this loan may be treated as an ??equity interest??.
This means that if interest is being charged on the loan it may no longer be a deductible expense for your company.
Disclaimer Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.