Instalment Activity Statement

Instalment Activity Statement

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IAS stands for Instalment Activity Statement. Think of it as a gap filler when you don’t have to lodge a BAS for a certain period.

Instalment Activity Statement

The Instalment Activity Statement (IAS) covers PAYG instalments, PAYG withholding and ABN withholding. These three – nothing else. So no GST.

Your IAS comes in, when a particular period is not covered by your BAS. For example, when you report PAYG W on a monthly basis but your GST on a quarterly basis.

PAYG Instalments

The ATO will tell you whether, when and how much you need to pay in PAYG instalments on your so-called instalment income.

Your instalment income includes dividends, interest, profits you made as a sole trader or through a partnership and other income that is not subject to any other withholding, but excluding capital gains. 

PAYG Withholding

For PAYG withholding you are either a small, medium or large withholder depending on your PAYG withholding. 

As a small withholder (less than $25,000 of PAYG W) you report and pay quarterly – through your BAS if you report GST quarterly, otherwise your IAS.

As a medium withholder ($25k to $1m of PAYG W) you report and pay monthly – whether through your BAS or IAS depends on what you do for GST.

Large withholders (more tha $1m) are complicated, so let’s put those aside.

ABN Withholding

If a supplier does not provide an ABN to you for goods and services of more than $75 (excluding GST), you need to withhold the top rate of tax from the payment and report this through your IAS or BAS.

IAS v BAS

If you are not registered for GST, you don’t have any Business Activity Statements (BAS) to worry about. All your reporting is done through an IAS – either monthly, quarterly or annually.

But if you are registered for GST, then it gets more complicated, especially if your GST and PAYG instalments or withholding are on different reporting cycles.

You might do your BAS quarterly but might be a medium withholder for PAYG Withholding and hence need to report PAYG W on a monthly basis. In that case you do both. You lodge your BAS quarterly, but then lodge an IAS for the months in between.

Does this make sense so far? Just call me if you get stuck. My number is 0407 909 779. I am Heide.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Common Tax and Accounting Muck Ups

Accounting Tips for Your Business

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Avoid some common mistakes with these 15 accounting tips for your business. 

15 Accounting Tips For Your Business

When you start a new business, the last thing on your mind is accounting and tax. And you are right. Your focus needs to be on the road ahead.

But your numbers are still important. You lose control without them. The good news is that this is not as hard as it sounds.

Here are 15 tips to help you get and keep what is yours. And avoid a few potholes along the way.

1 – Put a Value on Your Time

You only got 24 hours. And what you don’t do is as important as what you do. So delegate the parts that are not worth your time. 

2 – Get Xero

There are various accounting softwares around, but just go with the flow and get Xero. You will be glad you did.

3 – Collect Receipts

Missing receipts can cost you a lot of money later on. So best to stay on top. Just download Hubdoc – a receipt app that comes free with Xero.

4 – Get a Bank Feed

A bank feed will save you time and give you up-to-date numbers. Allowing you to focus on more important things.

5 – Get a Business Bank Account

Using just one bank account for both business and private turns messy very quickly. So get a free business bank account – for example with NAB.

6 – Register for GST on time

Register for GST when your forecasted turnover exceeds $75,000. The good news is that you get to claim the GST you pay.

7 – Treat Employees as Employees

Treat your employees as employees. It is tempting to treat them as contractors, but not worth the penalties and headaches.

8 – Pay SG and Wages On Time

The ATO is really tough around your employees’ super. So pay their super and wages first when cash flow is tight.

9 – Get Workers Insurance

Easy to miss but make sure your employees are ensured while working for you. So get the right policy from icare – might save you tons later.

10 – Lodge And Defer

Lodge your tax returns on time, even if your cash flow is tight. And then let’s talk to the ATO about a payment plan and remission of interest.

11 – Safeguard Your Losses

Your business’ tax losses might safe you tax later on, but are also easily lost. Please call me before you change your business structure.

12 – Weigh Up ATO v Bank

The ATO charges higher interest rates than banks. But is also more likely to forgive this interest for the right reasons. So let’s talk this through.

13 – Mind the PSI Rules

If your business depends on your personal skills and efforts, let’s discuss the personal services income (PSI) rules to avoid any potholes.

14 – Claim Car and Travel Expenses

When you use a car or travel for business or work, make sure you claim what is yours. Easy to leave money on the table with this one.

15 – Get and Keep What is Yours

There are many ways to save tax and make you better off. From discounts and conscessions over deductions and write offs to grants and structures. Make sure you get and keep what is yours.

This is just a short overview. Please call me to talk this through.

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Small Business CGT Concessions

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This overview of small business CGT concessions will give you a rough road map of the most generous concession for small business in Australia. 

Small Business CGT Concessions

Imagine the small business CGT concessions didn’t exist. Let’s say you have a small business. And your business is your life. Started from scratch 30 years ago. Risked the family home during the GFC for it. Risked everything. Gave dozens of people good steady jobs. Was part of the engine that drives Australia.

Now you get an offer to sell with a $1m capital gain. How much do you get to keep? 53% – the ATO will take the other 47%, assuming that you have other income and the capital gain fully hits the top marginal tax rate.

Doesn’t feel right. So can you see why we need the small business CGT concessions? To make sure your life’s work doesn’t evaporate in tax. If you qualify, you will pay little or no tax. It can change your life.

Do You Qualify In Principle?

The small business CGT concessions are very generous. But to qualify you have to pass three hurdles. 

Hurdle # 1   Basic Conditions

The basic conditions are your first hurdle. To pass these basic conditions, you need to meet one of 4 conditions – A, B, C or D. It is an either-or proposition. If you fail one, you can still get through with another.

A – Turnover 

You need to carry on a business and have a turnover of less than $2m. This is called the small business turnover test. If you don’t pass it, just keep going. Maybe you pass the net asset value test.

B – Net Asset Value 

You pass the maximum net asset value test, if you have net assets of $6m or less. Your net assets include your interest in the business you sell as well as certain assets of your affiliates and connected entities. But your net assets don’t include your main residence, personal use assets and superannuation for this test.

C – Partnership

If the asset you sell is a partnership asset, then the partnership as a whole must carry on a business and meet the turnover test. If that fails, then the your proportionate share of the partnership will go into your net asset value test under B.

D – Passively Held

If the asset is passively held and used by an associate or connected entity in a small business entity, you pass.

You only need to pass one of these four. Take a capital intensive business like a farm as an example. It might hold land worth more than $6m, but have a turnover of less than $2m, and hence qualify.

Hurdle # 2     Active Asset Test

The active asset test is your second hurdle. You need to always pass this test. This means that the asset must have been part of your business. ‘Used or held ready for use’ is the term they use.

Hurdle # 3      Shares or Units

And the third hurdle only applies if shares or units are involved. If they are not, skip this one. You are done.

If your set up includes shares or units, then this turns into a different ball game. It will get a lot more complicated. How this all works is a long story that we will cover later.  So for now let’s just assume that no shares or units are involved. That you are a sole trader selling your business. 

Do You Qualify For a Specific Exemption?

So you qualified in principle. But what do you actually get? It depends which specific concession you qualify for.

 There are 4 small business CGT concessions. Each of these four is unique with its own set of rules and requirements. Would be boring otherwise. And how you combine these four is important as well and might result in different tax outcomes.

Subdiv 152-B    15-Year Exemption

The first and most generous exemption is the 15-year exemption. It is unique in that it exempts the entire capital gain without any cap. Think about that. The entire capital gain: Tax-free.

This exemption takes priority over the other three exemptions. And it applies before any capital loss offset. So you can keep your capital losses and still get the entire capital gain tax-free.

But to pass you must have owned the asset for at least 15 years and be at least 55 years old. 

And the CGT event must happen in connection with your retirement or permanent incapacitation. What is or isn’t “in connection with your retirement” is often a point of contention though.

If you qualify for the 15-year exemption, you can stop reading here. Anything that comes after this won’t affect you anymore since your entire capital gain is disregarded. This exemption has priority. If you qualify, it applies whether you like it or not. But we have never met a living soul who doesn’t like this one.

Subdiv 152-C   50% Reduction 

This one is easy. The moment you pass the basic conditions, you have this one in your pocket. You don’t have to apply it but you can.

The 50% reduction allows you to reduce a capital gain by a further 50%. Why further? Because you probably already got the 50% CGT discount if you held the asset for at least 12 months.

So now in addition you get the 50% small business reduction when you pass the basic condition. And after that you can still apply the other two exemption, hopefully reducing your capital gain to zero.

Subdiv 152-D    Retirement Exemption

This one is also easy even though it comes with slightly more fineprint. You can claim a capital gain of up to $500,00 as exempt. But not more – ever. That is the lifetime cap.

And there is one more catch. If you are under 55, you have to pay the exempted amount into super. Some people don’t like that. And so they skip this one or park it. The secret word is J5. Sounds confusing – I know.

Here is an example how this works out in conjunction with the 50% reduction.  Let’s say the capital gain is $4m. The 50% CGT discount brings it down to $2m. The 50% reduction brings it down to $1m. And then you and your spouse claim $500,000 retirement exemption each. And voila. You walk away with $4m tax-free in your pocket. Not bad.

Subdiv 152-E  Rollover 

This one will buy you time. Your capital gain is not disregarded just yet, but you defer paying tax on it.

This rollover relief allows you to defer the capital gain for at least two years or beyond two years if you acquire a replacement active asset or incur capital expenditure on active assets. You can choose to rollover the entire capital gain or just a portion after the 50% reduction and retirement exemption. The decision is yours.

If you don’t acquire a replacement asset withing the 2 years, you trigger CGT event J5. But guess what? That might be exactly what you had inteded.

By now you might be 55 and no longer have to put the retirement exemption into super. So now you apply the retirement exemption and walk away with the cash tax-free. 

So that was a quick small business CGT concession overview to give you a rough idea. To show you what is possible.

But don’t give up if this sounds too confusing. Just ask your accountant or ask us. My number is 0407 909 779 – just call me. I am Heide Robson.

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

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NSW Payroll Tax

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Payroll tax is a blind spot for many. 

Do I Have To Pay NSW Payroll Tax?

The business is growing. You hire more staff and contractors. And suddenly payroll tax is an issue – a huge issue – an issue you didn’t see coming.

Rough Estimate

To assess whether payroll tax is an issue for you or not, start with a rough estimate. Add up everything you pay for workers – anything you pay for work to get done – wages, paid leave, super, contractor payments, other benefits everything. Does the total in that bucket exceed $1m?

If you are well below $1m, then don’t worry about payroll tax. If you might be getting close, have a closer look

Two Baskets

To work out whether you need to pay payroll tax or not, you need to separate your workers into two groups.  To make this easier imagine two baskets.

Put all your individual workers into the first basket. Individual workers are those who receive a wage from you. And they are those who gave you an ABN in their own name, so no partnership, trust or company involved.

And then you put everybody else into the second basket. Everybody working for you through a partnership, trust or company.

FIRST Basket – Individual Workers

Now you start looking more closely at the individuals sitting in your first basket. Those receiving a wage or working as sole traders.

You look at the totality of relationship. That is the key phrase – totality of relationship. You look at each individual and assess the totality of your relationship with them or their relationship with you – whichever way you look at it.

Totality of relationship means that you don’t just consider one factor, but the total – all six factors together. You look at the total relationship.

A worker is your contractor if they are:

1   –  Able to delegate – they arrive in a team
2  –  Paid for a result, not time – they fix problems at their own cost
3  –  Provide their own tools to complete the work
4  –  Bear the commercial risk – they can make a loss
5  –  Have control over their work – when and how
6  –  Independent of you – you don’t tell them what to do

If considering these six factors somebody looks like a contractor, move them to the second basket. Otherwise leave them in the first basket.

Moving into the second basket is good. You want that. It means you get a second chance. Because everybody left in the first basket is subject to payroll tax.

SECOND Basket – Contractors

Now you look at the second basket. Your contractors – those who work for you through a partnership, trust or company as well as those who came from the 1st basket.

Your aim is to get everybody out of this 2nd basket. But you can only take them out, if one of the 7 exemption applies.

These exemptions are about all or nothing. An exemption either applies to a contract or it doesn’t apply. There is no pro-rata thing going. One day over – gone.

So you go through these 7 exemptions for each contractor. If an exemption applies, great – you can take them out. If none applies, you leave them in there.

# 1  Services Ancillary to the Provision of Goods

It is all about the goods. The labour provided under the contract is ancillary to the supply or use of goods.  

Think of the glazier who delivers and installs the new state-of-the-art glass panels. It is all about the panels. The glazier installing them is just the side show.

# 2  Services Not Ordinarily Required

Your business doesn’t ordinarily require these services. And the contractor supplies the same type of services to the general public in that year.

Think of a plumber who comes to the site once-off to repair a broken pipe. You usually don’t have a broken pipe. And the plumber has plenty of other customers on other sites.

# 3  Services Required For Less Than 180 Days 

The business ordinarily only uses these services for 179 days a year or less. So this is about the service itself. Not the worker. Think of a ski-resort that only needs road clearing for 179 days a year. 

# 4  Services Provided For Less Than 90 Days

This is now about the worker, not the service itself. The worker works for less than 90 days in a financial year. Think of a virtual CFO who only comes  for a day each month.

# 5  Services Generally Supplied To the Public

This exemption only applies if the Chief Commissioner says so. So you need to specifically apply for this one.

This exemption applies when satisfied – based on evidence provided – that the contractor actually provided that type of service to the general public during the financial year. 

# 6  Services Performed by Two or More People

The contractor doesn’t arrive alone but brings at least one other person to help them. Think of the arborist who needs another person to hold his safety lines.

These six exemptions apply across Australia (apart from WA). That is why they are called the ‘six general provisions’.  But there is one more. One specific exemption that only applies to NSW.

# 7  Services Provided by an Owner-Driver

The contract is solely for the conveyance of goods in a vehicle provided by the contractor. The contractor must own or lease the vehicle and must not be an employee. Think of the truck driver who delivers cement for you in their own truck. 

Numbers’ Game

The rest is now just a numbers’ game. You add up everything you pay for the individuals left in the 1st basket and the contractors in the 2nd basket.

And if the total exceeds $1m*, you pay payroll tax. That is why you try to get everybody out of the 1st basket into the 2nd basket and then everybody out of the 2nd basket. That is why you try. 

As part of the NSW COVID-19 Stimulus Package there is no payroll tax during the corona virus crisis until 30 June 2020.

* The threshold for payroll tax is $1m from 1 July 2020 onwards. Lower thresholds apply to the years before that.

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

 

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Tax Deduct a Business Lunch

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How to tax deduct a business lunch. Or breakfast meeting. Or morning and afternoon tea. Or dinner.

Tax Deduct a Business Lunch

Most accountants will tell you that you can’t tax deduct a business lunch, nor a breakfast meeting, nor morning or afternoon tea, nor a business dinner. It is all entertainment. And hence not deductible.

And they are right. BUT…..

There are 5 back doors – FIVE – wide open – that allow you to claim a tax deduction nevertheless.

Backdoor #1   The 4W Test

This is the biggest door of all. Think garage door. And this door exist thanks to TR 1997/17. You have probably never heard of this tax ruling and will never again. But it is your best chance to claim a tax deduction for a meal.

TR 1997/17 allows you to tax deduct a meal if the expense passes the Why, What, Where and When test. So let’s call it ‘The 4W Test’.

If the Why, What, Where and When indicate that the dominant purpose of the meal was business, then it doesn’t count as entertainment.

The Why and What carry the most weight. You must get those right. And then you need at least one more – the Where or the When – or even better both.

WHY did you have it? Taking a client out to lunch means business. Taking out a friend doesn’t.

WHAT did you have? Something purely functional like sandwiches and coffee means business. A three-course meal doesn’t. 

WHERE did you have it? Business premises means business. Off site weakens your argument, but doesn’t kill it if the When supports your argument

WHEN did you do it?  During business hours means business. At night doesn’t.

So if your meal ticks at least 3 boxes, it is a business expense and hence not entertainment. And so it is tax deductible.

Backdoor #2    Sustenance

If you have a simple meal on business premises without alcohol, the ATO will count it as sustenance as long as it is finger food. Think of  a working lunch in the board room with sandwiches and tea, a morning tea in the staff room with muffins and coffee or an all-nighter at your desk with pizza and coke.

Sustenance doesn’t count as entertainment, but is a business expense, hence tax deductible.

Backdoor #3    FBT

If you pay FBT for an expense – any expense – then you can tax deduct that expense even if it is entertainment.

So whenever you pay FBT for a meal, you can tax deduct that portion of the expense that was subject to FBT.

Backdoor # 4    Sudiv 32-B

And then there is another door but a really tiny one. Certain entertainment expenses are tax deductible thanks to exceptions listed in Subdiv 32-B..

This subdivision is long and confusing with tricky details and a long list of exceptions. So we run a real risk of boring you with this one.

So below we have just listed a few to give you an idea, but please email or call if you want to try and fit through this tiny door.

You can tax deduct a meal if it falls under certain employer, seminar, promotion and advertising or other expenses. There is also a specific exception for businesses in the entertainment industry. 

If you provide a lunch in an in-house dining facility, that expense might be tax deductible per s32-30.  The same might apply to food or drink that would be subject to FBT but is not due to certain exemptions in the FBT Act. If you provide a business lunch at a seminar that lasts 4 hours or more, you can deduct these entertainment expenses per s32-35.  If you provide a lunch to promote or advertise your goods or services – a product lunch for example – you may be able to claim a deduction per s32-45, but only if ordinary members of the public have an equal chance to attend your event.

Back Door # 5    Travel

And then there is travel. All bets are off when it comes to travel. When you travel, you can have as lavish a meal as you like and it still counts as a business expense. Just stay off the booze. Alcohol and business don’t mix in the eyes of the ATO.

GST

If your lunch is tax deductible for income tax purposes, then you can also claim the input tax credit in your BAS. But if it isn’t, then you can’t

GST just follows what you do for income tax. Whatever is tax deductible as a business expense, gives you an input tax credit (as long as it is a taxable supply).

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.