ATO reports on GST lodgments

Recent research by the Tax Office indicates that GST errors are made most frequently by small to medium businesses.

To assist taxpayers, the Tax Office has created a factsheet outlining how to avoid common errors that may occur when completing a business activity statement (BAS), accounting for GST and claiming GST credits.
Common GST errors include:

• Not reflecting the difference correctly when accounting on an accrual basis and lodging the BAS on a cash basis (vice versa);
• The BAS does not reconcile with accounting records or tax return;
• Leaving compulsory boxes unmarked even if it does not apply to you;
• Not keeping appropriate records for sales and purchases;
• Not locking the previous GST period; and
• Claiming full GST credits on purchases that are not for 100% business use.

Considerations to avoid GST errors include:

• Ensuring the GST codes are set up correctly for accounts;
• Checking that the tax invoices issued and received indicate GST;
• Using a registered BAS or Tax Agent;
• Being consistent with whether lodging GST annually or quarterly.

Lodging electronically may qualify for an extra 2 week lodgment extension.
 
For more information, click here.

The importance of GST clauses in contracts

Goods and Services Tax (GST) is a standard 10% tax on most goods and services transactions in Australia. Despite having been implemented on July 1, 2000, some contracts continue to inappropriately address or even totally disregard GST clauses.

The Tax Office generally advises that contracts should include clauses that:

• Recognise whether the contract price is inclusive or exclusive of GST
  
• Clarify if GST has been determined with reference to the margin scheme
  
• Limit the liability of either party if GST was later found to be incorrect
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A recent case, Duoedge Pty Ltd v Leong & Anor [2013], highlighted this risk:

• The purchaser tried to recover the GST component from the vendor after the purchaser's claim of input tax credits was disallowed by the Tax Office (residential property has no GST)
  
• The contract clearly stated the price was GST inclusive, although the vendor had not remitted GST to the Tax Office; and
  
• The court held that no implied terms and conditions could be read into the contract for the purpose of rectification and a claim to recover the GST was denied. To access an overview of the case, click here.

As a result, clauses in a contract may carry significant weight in court and parties not carefully considering the GST position of a transaction may be disadvantaged.

The Tax Office provides a 'Property contract and tax invoice – GST checklist' that deals with GST and property contracts which can be accessed here. The Tax Office further states that in order to claim GST, a valid tax invoice is required.

ATO’s crackdown on the restaurant, café and takeaway industry

Over the next three years, the Tax Office will review restaurant, café and takeaway businesses via various methods, including:

• Looking for lifestyle and spending habits that outweigh business income;
• Comparing businesses against the small business benchmarks;
• Reviewing third party information such as bank transactions and comparing it to what businesses have reported; and
• Investigating information provided by employees and the community

If a mistake has been made regarding the disclosure of business income or expense, remedy actions must be taken immediately by making a voluntary disclosure or contacting a tax advisor for assistance.

Hefty penalties may be imposed if a business is found not to comply with the Tax Office reporting requirements.

For more information, click here.

How to recognise employee entitlements in relation to a public holiday

The recognition of employee entitlements in relation to a public holiday may differ across businesses due to the difference between state or territory laws, and the difference between various awards and enterprise agreements.

Certain dates in a year are recognised as public holidays by the National Employment Standards, which apply across Australia. However, different laws across States and Territories also recognise additional days as public holidays.
Generally, employees are entitled to penalty rates for working on a public holiday. However, some awards and agreements may provide that employees can:

• Substitute the public holiday for a different day;
• Accumulate an additional day of annual leave; or
• Get time off in lieu

Employees can refuse to work on a public holiday if their refusal is reasonable, after considering various factors including the employee’s personal circumstances, the needs of the workplace, and how much notice the employee was given about working.

If full time and part-time employees choose not to work on a public holiday, they should be paid their base rate of pay for their ordinary hours.
Casual employees do not get paid for public holidays, unless they actually work on the day.

An employee’s roster cannot be changed to avoid paying their entitlements for a public holiday.

If an employee is on annual or personal leave when a public holiday falls, the day is treated as a public holiday and should not be taken off the employee’s annual leave or personal leave balance.

For more information, click here.

Employees and Workplace Giving and Salary Sacrifice

There are 3 methods an employer can use to record donations made by an employee that the employer pays directly on their behalf.

1. After Tax Donation. This way the gross/net pay is calculated as usual with the tax amount; the donation is made from the net pay. The donated amount appears on the payment summary at the end of the year. The employee can then claim this donation against their taxable income in their tax return.
    
2. Salary Sacrifice. This way the employee can “sacrifice” the wage to the charity, and pay no tax on the sacrificed amount. This is reported the same as super salary sacrifice, and reduces gross payments accordingly. This however does not get reported on the payment summary, and the employee cannot claim the amounts donated against their tax return.
    
3. Workplace Giving Scheme. An employer may offer a workplace giving program where a donation to a DGR is deducted from the employee’s wages and paid directly to the DGR on behalf of the employee. This is an optional program and is an ATO approved scheme where the tax is calculated differently - essentially the employee gets a slightly reduced tax rate for donating some of their after tax income to a charity. The donated amount appears on the payment summary at the end of the year. The employee can then claim this donation against their taxable income in their tax return. There are specific guidelines and tax calculations for setting up a workplace giving program.

In all cases, the employee still gets the Super Guarantee paid on the gross wage. Also in all cases, for the employer to pay directly to the charity it must be a registered Deductible Gift Recipient.

If the employee wishes to donate to an entity other than a registered DGR, they must do this themselves, the employer cannot get involved. It is up to the employer to check the status of the charity and confirm that they are DGR before paying them. Check the charity’s ABN to verify their status.

There is no limit to how much of their wage an employee can donate. If they choose, they can donate their entire wage

ASIC targets false declarations in the building and construction industry

ASIC’s surveillance program was set up in September 2013 to monitor the building and construction sector with particular regards to identifying illegal phoenix activities.

Feedback from the latest surveillance campaign uncovered larger companies are making false statutory declarations to claim payments for contracted work.

ASIC Commissioner Greg Tanzer said in a media statement that larger companies were sub-contracting smaller businesses to do a job, then claiming the cost but not paying the sub-contractors.

This substantially impacts the cash flow of small businesses affecting their ability to manage operating expenses and creditors.

Generally, false statutory declarations and matters of fraud are not dealt by ASIC, but under the Corporations Act ASIC can take civil or criminal action against company officers who knowingly make false statements.

Last year, ASIC banned 60 directors who engaged in misconduct including phoenix activities.

For more information, click here.

ATO sets guidelines on Bitcoins and other crypto-currencies

Generally, the Tax Office does not consider Bitcoins to be money, foreign currency nor a form of financial supply for GST purposes but instead views it to be an asset for capital gains tax purposes.

Capital events arising from the disposal of Bitcoins by individuals for personal consumption is disregarded provided that the cost of the Bitcoins is $10,000 or less.

However, individuals who purchase Bitcoins as a form of investment may be subject to capital gains tax upon disposal.

Businesses receiving Bitcoins as a form of payment for goods and services have to record ordinary income at the fair value obtained from a reputable Bitcoins exchange. Similarly, businesses are entitled to a deduction based on the fair value if business items are purchased using Bitcoins.

Any GST charged when receiving Bitcoins as payment can be claimed if the underlying supply of goods and services is a taxable supply.

Businesses dealing with Bitcoins for profit-making undertaking, such as the mining of Bitcoins, conducting Bitcoins exchange or providing Bitcoins ATMs, will need to treat Bitcoins transactions as assessable income and are required to account for them as trading stock at year end.

Finally, fringe benefits tax may apply if Bitcoins are used to remunerate an employee under a valid salary sacrifice arrangement. Under other circumstances, Bitcoins are treated as normal wages and are subject to PAYG withholding.

For more information, click here.