Tax treatment of prepaid deductible expenses

Special prepayment rules apply to certain types of prepaid expenses made by businesses and individuals that relate to something to be done in one or more subsequent years.

 

Generally, a prepaid expense that occurs within the same year is not considered a prepaid expense and therefore the prepayments rules do not apply. Prepayments that relate to more than one period may be subject to the prepayment rules unless the payment falls under the excluded categories.

 

A prepaid expense subject to the prepayment rules is deductible over the eligible service period, or ten years if that is less, rather than being immediately deductible. However, certain prepaid expenses may be immediately deductible under the prepayment rules if:

• The expenditure is considered to be excluded prepaid expenditure;
• The 12-month rule applies; or
• It is related to a pre-Review of Business Taxation (RBT) obligation.

Large businesses, small business entities and individuals that do not meet any of the exceptions to the prepayment rules are required to apportion the expenditure.

For more information click here

Superstream Changes Our World

Software companies are advertising this feature – so what is it?   The government advises: (www.business.gov.au)

From 1 July 2014, if you have 20 or more employees, you can use the new Superannuation Data and Payment Standard when making super contributions.

The standard offers a simpler way of making super contributions and, for many employers, will provide a single channel for making contributions to multiple super funds.

Under the standard, employers will need to:

• send all super data electronically (such as the employee's details and the amount of super being paid)
• make contribution payments electronically
• link data and payments with a unique payment reference number
• send data and payments on the same day

 

Some options to help you meet the standard include:

• upgrading your software so that it complies with the standard
• engaging a service provider who can meet the standard on your behalf
• getting advice from your super fund on how your business can meet the standard.

To help you understand the standard, the Australian Taxation Office (ATO) is sending important information about the standard to all employers with 20 or more employees. Watch out for this letter in the mail in the coming days.

Find out more about the Data and Payment Standard on the ATO website.


Smaller businesses

From 1 July 2015 all employers need to use this system         

IT IS A BETTER PLACE TO BE in our view

 
We are a strong believer and proponent in business efficiency. Accordingly giving business the ability to comply with all their superannuation obligations quickly and easily and make payments from within their normal business software is a great step forward.

What does it mean?

1.   From within your payroll system you state which superfund needs to be paid for which employees.

2.   Your system keeps track of the amounts

3.   When payments are due the software should create the payment instruction to the superannuation clearing house/s and send the money to that clearing house

4.   The superannuation clearing house takes the bulk instruction from you, separates the information (data) and the payment into the respective funds and sends it on                i.e., push button SGC obligations met!

 

Who does it?

A.  The Medicare superannuation clearing house has been available for small business (less than 20 employees) for some time (See information and instructions here)

This is now administered by the Department of Human Services/Medicare. This was a great first step towards this system but it is not an automatic process and in fact you need to duplicate your data by having all your relevant employee information in the Medicare system. This system continues for the time being.

 

B.  MYOB have had the M-Powered Superannuation in place for many years. From within their desktop product (ie not ARLive yet – see below), you establish the superannuation information in the payroll area and at the push of a couple of buttons the superannuation is paid and information sent through their M-Powered Superannuation Clearing House.

MYOB have recently advised “If you are using a current MYOB product to calculate and complete your payroll, we will release a SuperStream solution well before July 2014.”    See the full article here.

This refers to all their product range: AccountRight Live, AccountRight V 19, LiveAccounts, Powerpay, AccountEdge

 

C.   Xero have “auto super” which does the same process and uses clearing house “Clicksuper”

Xero have recently advised “With the new Business Edition subscription bundles that Xero announced last week, we used this as an opportunity to embed auto-super payments across all Premium plans. This feature was previously only available in our large subscription.”

D.   Other products – we will advise as we become aware of their involvement with Superstream

ATO, FBT and Christmas

We have all heard of Charles Dickens famous ‘Christmas Carol’ and none of us wish to appear to be Scrooge, but as business owners we have to think of the ATO, FBT and Christmas Parties.

·     Fringe benefits tax (FBT) and entertainment for small business (NAT 71590)

·     Fringe benefits tax (FBT) and entertainment for government (NAT 71589)

·     Fringe benefits tax (FBT) and entertainment for non-profit organisations (NAT 71586)

·     Fringe benefits tax and Christmas parties for tax-exempt bodies

The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee & certain conditions are met.  This provision also applies to the employee’s associate. 

The provision of a gift to an employee at Christmas time, such as a hamper, may be a minor benefit that is an exempt benefit where the value is less than $300.  Where the Gift is given at the Christmas Party each benefit can be considered separately.

Christmas party held at Your Premises On a Work Day:

Only  Employees attend = NO FBT

Current Employees & spouses @ 180pp = NO FBT (minor exemption applies for spouse)

Employees, spouses & clients @ 365pp = Employee–NO FBT, Clients-NO FBT/no income tax deduction,   Associate-FBT applies as value more than $300pp

Christmas Party held at Other Premises:

Only  Employees attend @ 195pp = NO FBT(minor exemption applies)

Current Employees & spouses @ 195pp = NO FBT (minor exemption applies for both)

Employees, spouses & clients @ 365pp = Employee & Associate – FBT applies as value more than $300pp,  Clients-NO FBT/no income tax deduction

Child support payments for employees / contractors

Child Support payments may be made various ways, commonly through payroll. If an employer is asked to make payments to the Child Support Agency (via the Department of Human Services) on behalf of an employee, then the employer is legally obliged to deduct payments from the employee’s wages. This may also apply to subcontractors.

DHS has two types of payments according to the status of the employee:

1.   Section 72A Notice is based on a given cents per $ rate, & there is no protected earnings amount. This is typically used for casual, contract or seasonal workers. The amount is deducted from the GROSS wage & then the wage is taxed.

2.   Payment Schedule which is a specific amount to be paid per pay period as notified by DHS. This amount does not change unless notified by DHS. The payment is deducted from the NET wage. Used for permanent or regular casual employees whose income tends to vary little or not at all.

The employer must take care of the protected earnings amount, currently set at $333.53 per week. Generally with this method the amount instructed by DHS will preserve the protected earnings amount, however if the worker’s earnings varies for any reason it is up to the employer to preserve this amount.

Section 72A Payroll Setup

 

1.   Set up a new wage category in the Deductions section, called Child Support Payments. Set up a liability account for the CSA payments.

                            i.       Setup the deduction as a percentage rate & exempt the category from PAYG Withholding.

                          ii.       Link the category to the relevant employee

                         iii.       Select “show on pay slip”

                         iv.       Exclude from Superannuation Guarantee calculation.

2.   Set up a liability account for the CSA payments

3.   Link the expense account (deduction category wages expense) to the liability account.

4.   Process the payroll.

5.   Either set up an automatic payment from the business bank account to Child Support Agency or process with other electronic payments

 

 

Payment Schedule Payroll Setup

1.   Set up a new wage category in the Deductions section, called Child Support Payments.Set up a liability account for the CSA payments.

                            i.  Setup the category as a fixed dollar amount per pay period as notified by DHS.

                          ii.   Link the category to the relevant employee

                         iii.   Select “show on pay slip”

                         iv.   Exclude from Superannuation Guarantee calculation.

2.   Set up a liability account for the CSA payments

3.   Link the expense account (deduction category wages expense) to the liability account.

4.   If you need to set up Protected Earnings:

5.   Process the payroll.

                            i.    Set up a Wages Category called CSA Protected Earnings

                          ii.    Create the category as a fixed amount set at the current Protected Earnings amount of $333.53

                         iii.    In the standard pay details, adjust the wage amount to reflect the total less the protected Earnings amount

6.    Link the category to the relevant employee

7.   Check that entitlements & superannuation are accruing correctly. 

8.   Process the payroll

9.   Either set up an automatic payment from the business bank account to Child Support Agency or process with other electronic payments.

End-of-year Payment Summary
Child Support deduction is to be detailed on the payment summary in the deduction fields. Within the payment summary setup, link the child support deduction wage category to one of the Deductions fields, listing Child Support Agency in the Description field, so it will appear separately on the Payment Summary.

Busting the myths in the workplace

When starting their first job or changing jobs, it is important that employees understand their rights and obligations. Employers have a responsibility to ensure employment terms, contracts and other employment related rights and obligations are acknowledged.

 

Employers may face penalties for breaching an employee's rights. Therefore it is important that employers keep themselves aware of any changes made to employment law.

 

Some of the myths the Fair Work Ombudsman has dispelled include the following:

 

Myth	Fact
You don't need to pay employees for time spent opening/closing a store or attending training outside normal work hours.	You must pay employees for all the time they are required to work.
Casual employees don't get leave.	Casual employees are entitled to some unpaid leave.
You don't have to give employees pay slips.	You must give all employees pay slips within 1 working day of pay-day.
As an employer you have to give employees three warnings before firing them.	There is no legal requirement that says you have to give three warnings.

 
To find out more about employee rights and obligations, click here.

To find out more about other workplace myths and facts, click here.

Keeping in Touch while on Parental Leave Pay

In addition to taking PPL, an employee has the option to remain in contact with their workplace under the Keeping in Touch provisions.

Keeping in Touch is an arrangement between an employer and employee that allows an employee to remain connected to their workplace, assists in the transition back to work and has no effect on the PPL payments.

Once an arrangement is in place, the employee has access of up to 10 Keeping in Touch days that can be used during the start and end of their PPL period. However, there are some restrictions which apply when choosing to use one of the days, which include:

• An employee cannot use a day within the first two weeks following birth or adoption of their child;
• An employer cannot ask an employee to use a day within their first six weeks of birth or adoption;
• Both the employer and employee must agree in unison to do a Keeping in Touch activity on the chosen day, otherwise it will not proceed;
• An activity only counts towards an employee’s 10 day limit if the duration is one hour or more on the day that it is taken; and
• An employee using more than the 10 day limit will result in their PPL to end and be considered to have returned back to the workplace.

An important note to consider is that there is a distinction made between paid work and a Keeping in Touch activity. If an employee participates in paid work during their PPL other than a Keeping in Touch activity, their PPL will cease immediately.

For more information on Keeping in Touch provisions, including related activities click here.

ASIC - National Business Names Register

As of 28 May 2012, ASIC took over the administration of the business names register from the states and territories and has created a new online business names register.

 

To ease the transition, ASIC has released a guide in form of a printable booklet to assist businesses in navigating the online business register.

The booklet addresses the advantages of the new online business register, such as:

• Time savings - one central location to renew, register, update and search for business names;
• Lower compliances costs;
• A lower annual registration fee of $33 or $76 for 3 years;
• Single registration with nation-wide effect; and
• Free online searches for name availability, registration details and business ownership.

To have access to the business register, you will need to sign up to ASIC Connect. Once registered you can link all your business names you have registered using your ASIC key to your ASIC account.

An ASIC key is a unique 11 digit number that is used for verification for each business name you have registered.

The booklet also goes through further points, which include:

• How to register for a business name;
• How to renew a business name;
• How to transfer a business name; and
• How to use the search function

To access the National Business Names register guide, click here.