Vision, understanding and results SOLE TRADERS 2015 year end information and checklist In brief Date 7:30pm AEST 12 May 2015 Pre 30 June 2015 Changes and actions Small businesses with a turnover below $2m: Immediate tax deduction for any assets purchased and used, or installed and ready to use, by 30 June 2017 that cost less than $20,000. Primary producers: Immediate deduction for capital expenditure on fencing and water facilities. Plus all capital expenditure on fodder storage assets deductible over 3 years. Pay superannuation to deduct contributions in the current financial year. Complete a stocktake where required (see Do you need to do a stocktake?). Write off bad debts and scrap any obsolete stock. Ensure any inter-entity management fees have been raised. 1 July 2015 Small businesses with a turnover below $2m: a 5% tax discount applies to income tax payable on business income received. The discount is capped at $1,000 per individual for each income year, and delivered as a tax offset.* SuperStream - electronic reporting and payment of employee super contributions: o Mandatory for employers with 20 or more employees from 31 October 2015 (extended from 1 July 2015). o Employers with 19 employees or fewer can start using SuperStream from 1 July 2015. SuperStream will be mandatory from 1 July 2016. Start up businesses: Immediate tax deduction for professional expenses - cost of lawyers and accountants - to get a business up and running.* Change to the way work related expenses for cars are calculated. The '12% of original value method' and 'one-third of actual expenses method' removed. 'Cents per kilometre method' simplified to one 66 cents per km rate.* 14 July 2015 (on or before) PAYG Payment Summaries provided to any employees. 28 July 2015 Quarterly super guarantee payment due (1 April 30 June). 14 August 2015 Annual PAYG Payment Summary lodged with the ATO. Penalties apply for late lodgement. 28 August 2015 Taxable payments annual report for the building & construction industry due. 1 January 2016 ASIC to release new crowd-funding guidelines * Change pending legislation and not currently law. Liability Limited by a scheme under Professional Standards Legislation
What s new Small business entities (SBEs) with an aggregated turnover below $2 million have access to a number of special concessions and benefits. Aggregated turnover is the annual turnover of the business plus the annual turnover of any affiliates or connected entities. Another entity is connected with you if: you control or are controlled by that entity; or, both you and that entity are controlled by the same third entity. The aggregation rules prevent businesses splitting their activities to access the concessions. Access to the concessions is based on the income generated by the business in the previous and/or current year. In general, if the aggregated turnover of the business in 2014-15 and/or 2015-16 is under $2 million, the business can access the concessions in 2015-16. Some special rules exist so please check with us if you are uncertain. New concessions for SBEs announced in the Budget include: 5% tax reduction for small business For taxpayers operating through an unincorporated business structure (sole trader, partnerships, trusts, etc.), they will receive a 5% tax discount on the income tax payable on business income received. The discount is capped at $1,000 per individual for each income year, and delivered as a tax offset. $20k immediate deduction On Budget night, the Treasurer announced that the threshold to claim an immediate deduction for assets purchased by SBEs will increase from $1,000 to $20,000. The increased threshold is intended to apply until 30 June 2017. There are no limits to the number of times you can use the immediate deduction assuming your cashflow supports the purchases. If your business is registered for GST, the cost of the asset needs to be less than $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount. Second hand goods are ok. However, there are a number of assets that don t qualify for the instant asset write-off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc. If you purchase assets costing $20,000 or more, the immediate deduction does not apply but small businesses have the ability to allocate the purchase to a pool and depreciate the pool at a rate of 15% in the first year and 30% for each year thereafter. These new concessions are on top of the existing concessions for SBEs including the simplified trading stock rules that might mean you don t need to do a stocktake, an immediate deduction for certain prepaid expenses, a series of CGT concessions, an FBT car parking exemption, and relief from GST and PAYG reporting requirements. Liability Limited by a scheme under Professional Standards Legislation Page 2 of 7
SuperStream - electronic reporting and payment of employee super contributions Under SuperStream, employers must electronically report and pay super contributions for employees through a system that conforms to the SuperStream requirements or an external provider. While this will mean a change for some employers who currently manage superannuation payments manually, generally the change should reduce compliance as all super payments can be managed though one channel. From 1 July 2015, employers with 19 employees or fewer have access to SuperStream but it is not mandatory until 1 July 2016. The ATO s free Superannuation Clearing House, Xero premium plans, MYOB s PaySuper, Quickbooks Online Payroll, all offer SuperStream compliant services. Even if the move to SuperStream is not compulsory for your business now, you need to start investigating your options as you may need to collect some additional information from employees. Start-up businesses can immediately deduct professional fees From 1 July 2015, start-up businesses will be able to immediately deduct a range of professional expenses required to start up a business such as professional, legal and accounting advice. Changes to how work related car expenses are calculated The way work related deductions for car expenses claimed by individuals are calculated is changing from 1 July 2015. The '12% of original value method' and the 'one-third of actual expenses method' will be removed. The 'cents per kilometre method' will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars. The Commissioner of Taxation will update the rate each year. Your business may want to consider updating the rate it pays car allowances to employees to match the 66 cents per kilometre rate that will apply to individuals when they claim deductions. Fly in and fly out employees excluded from Zone Tax Offset If you have employees who fly in fly out (FIFO) or drive in drive out to work locations, whose normal residence is not within a zone, they will be excluded from the zone tax offset from 1 July 2015. This means that some employees who currently qualify for the offset will miss out from the 2016 income year onwards if they do not actually live full-time in a zone. The ZTO is a concessional tax offset available to individuals in recognition of the isolation, uncongenial climate and high cost of living associated with living in identified locations. Eligibility is based on defined geographic zones. Currently, to be eligible for the ZTO, a taxpayer must reside or work in a specified remote area for more than 183 days in an income year. The Government estimated that around 20% of those claiming the concession do not actually live fulltime in the zones and have moved to restrict the concession. Liability Limited by a scheme under Professional Standards Legislation Page 3 of 7
Financial house-keeping Before you roll-over your software Before rolling over your accounting software for the new financial year, make sure you: Prepare your financial year-end accounts. This way, any problems can be rectified and you have a clean slate for the 2015-16 year. Once rolled over, the software cannot be amended. Do not perform a Payroll Year End function until you are sure that your payment summaries are correct and printed. Always perform a payroll back-up before you roll over the year. Employee reporting PAYG payment summaries You need to provide all of your staff with their PAYG Payment Summary on or before 14 July 2015. This includes any staff that left your employment during the 2014-15 financial year. If we prepare your Payment Summaries for you, please provide us with the data file from your accounting software. The ATO imposes penalties for the late lodgement of PAYG Payment Summary Statements. The annual PAYG Payment Summary Statement for the year ending 30 June 2015 needs to be lodged with the ATO on or before 14 August 2015. However, if we are preparing your Payment Summary for you and you only employ family members in your business (closely held employees), you may be eligible for an extension. Reportable Fringe Benefits on PAYG Payment Summaries Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount on their PAYG Payment Summary. This is referred to as a `Reportable Fringe Benefit (RFB) amount and a label is included on the PAYG Payment Summary for this purpose. Do you need to do a stocktake? 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 $2 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 Liability Limited by a scheme under Professional Standards Legislation Page 4 of 7
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. Tax traps Is your contractor really a contractor? The implications of misclassifying contractors are enormous. Not only will employers be obliged to meet the required superannuation, payroll tax and workers compensation liabilities for the period the person was employed, but harsh penalties and interest charges are likely to apply. What your business decides to call the relationship with a contractor is irrelevant - it is the characteristics of that relationship that determine liability. As a general rule of thumb, businesses that hire independent contractors are not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, the ATO s strict position on what is an employee for tax purposes has been upheld in a number of court cases to the detriment of the employer involved. Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time. Earning income from your personal skills and effort If your business relies on your personal effort and skill to generate income, then you need to be aware of the rules applying to personal services income. If your business earns income from your personal services, you may not be entitled to a range of tax deduction that would normally be available to businesses unless certain tests can be satisfied. Liability Limited by a scheme under Professional Standards Legislation Page 5 of 7
Even if the rules haven t affected you in the past, this is an annual test and you might be caught if your circumstances have changed. If you are concerned about your position, talk to us today for clarification. Reduce your risks & minimise your tax Top tax tips 1. Write-off bad debts To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors ledger by 30 June. If you don t maintain a debtors ledger, a resolution confirming the write-off is a good idea. 2. Review your asset register and scrap any obsolete plant Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for each pool. This means you only have to do one calculation for the pool rather than for each asset. 3. Bring forward repairs, consumables, trade gifts or donations To claim a deduction for the 2014-15 financial year, consider paying for any required repairs, replenishing consumable supplies, trade gifts or donations before 30 June. 4. Pay June quarter employee super contributions now Pay June quarter super contributions this financial year if you want to claim a tax deduction in the current year. The next quarterly superannuation guarantee payment is due on 28 July 2015. However, some employers choose to make the payment early to bring forward the tax deduction instead of waiting another 12 months. Don t forget yourself. Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal contributions need to be received by the fund before 30 June to be deductible. 5. Realise any capital losses and reduce gains Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses that is, sell the asset and lock in the capital loss. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this. 6. Raise management fees between entities by June 30 Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO s documentation expectations will be much greater. This is an area under increased scrutiny. Liability Limited by a scheme under Professional Standards Legislation Page 6 of 7
What we need from you This is a general list of what to have ready when we next meet with you: Accounts data file (MYOB, Quickbooks, access to Xero) Debtors & creditors reconciliation Stock take if applicable (or if your business is a Small Business Entity, use the simplified trading stock rules mentioned above) 30 June bank statements on all relevant loan documents Documents on new assets bought or sold, including the date you entered the contract and the date the asset was first used or installed ready for use Payroll reconciliation Superannuation reconciliation Bank statements on operating accounts Cash book (if applicable) 30 June statements on any investment or operating accounts Liability Limited by a scheme under Professional Standards Legislation Page 7 of 7