Welcome to the April 2021 edition of the Spry Roughley Report.
With a Federal Election expected in the next twelve months, tax policy is once again on the agenda. The Federal Budget speech will be delivered next month (11th May) which is when we can expect the Government to outline a pathway for a return to fiscal surplus and, at this stage, not to introduce any new tax or levy increases. The temporary full expensing of assets for businesses with aggregated turn-over of less than $5 billion is currently legislated to continue until 30 June 2022, and therefore it is unlikely we will see any further significant business tax breaks.
Over the past twelve months many business owners stepped further into daily management to assist with the various challenges and opportunities created by COVID-19 related events. For those business owners, now is the time to revisit your longer term goals and related business strategy before barrelling into another financial year.
National employment is rapidly returning to pre-pandemic levels and, without skilled migration into the country, finding the right candidate to fill roles is becoming increasingly difficult and in some cases, seemingly impossible. Retaining key managers to fulfill business growth plans or ownership transition strategies is a hot topic at the moment and we have recently helped multiple businesses with designing and implementing employee share or incentive schemes. If this is something of interest to you and your business then feel free to give us a call.
For those owners closer to retirement or interested in pursuing a shorter term business sale strategy, we have also completed a significant number of business valuations and appraisals over the last couple of months. It seems profit multiples are rising on the back of good economic conditions coupled with lower debt funding costs and seemingly easier to obtain financing. As such, now may be the time to step up business sale plans to capture the higher value on offer.
For payroll officers, the Australian Taxation Office (ATO) have provided further information on the upgrade to Single Touch Payroll (STP) Phase 2, which has a mandatory start date of 1 January 2022. Phase 2 STP will require reporting further detail of payroll transactions, principally breaking down gross wages into underlying components (bonuses, director fees, leave, salary sacrifice, overtime, allowances, and other). 1 July is the ideal time to make changes to payroll systems and process and as such, this is something worth reviewing and planning for now.
For other tax news and updates, read more below...
- It's time to consider FBT – If your business has provided any benefits to your employees, you may be liable for fringe benefits tax. FBT returns and payments are generally due to the ATO by 21 May.
- ATO reminder: lodge your TPAR – Taxable payments annual reports for the 2019–2020 income year are now long overdue, but the ATO says around around 60,000 businesses still haven't lodged theirs.
- COVID-19 stimulus and support measures winding back – Businesses and individuals need to prepare for an environment where the government safety net is not as wide.
- Life insurance in super: costs on the way up? – Having insurance through superannuation can be a tax-effective and cost-effective way of protecting yourself and your loved ones, but the Australian Prudential Regulation Authority has noted concerning developments that may see the costs rise in coming years.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email.
Fergus Roughley, Director
Spry Roughley Services Pty Limited
Liability limited by a scheme approved under Professional Standards Legislation
If your business has provided any benefits to your employees, you may be liable for fringe benefits tax (FBT). This includes benefits to current, prospective and former employees, as well as their associates. It's important to keep in mind that this applies no matter what structure your business has – sole trader, partnership, trustee, corporation, unincorporated association, etc. If a benefit was provided in respect of employment, then it may be a taxable fringe benefit.
Although the Australian income tax year runs from 1 July to 30 June, the FBT year is different, running from 1 April to 31 March the following year – so now is the time to consider your business's FBT obligations and organise your records for the year 1 April 2020 to 31 March 2021.
Business FBT returns and payments are generally due by 21 May if you lodge yourself, or by 25 June if we lodge electronically as your registered tax agent.
In total, there are 13 different types of taxable fringe benefits, each with their own specific valuation rules. The FBT tax rate of 47% may seem fearsome, but there are ways to reduce the amount of FBT your business may have to pay where a benefit has been provided.
One of the simplest ways to reduce the amount of your business's FBT liability is for your employees to make payments towards the cost of providing the fringe benefit. This is known as employee contribution, and certain conditions still apply.
Your business can also take advantage of various exemptions and concessions to reduce FBT liability, but you'll need to keep specific and careful records, including employee declarations and invoices and receipts. As a general rule, you should keep these documents for at least five years after the relevant FBT return is lodged.
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The ATO is reminding owners of businesses that provide various services to lodge their taxable payments annual report (TPAR) for the 2019–2020 income year. It estimates that around 280,000 businesses were required to lodge a TPAR for the 2019–2020 financial year, but at the beginning of March around 60,000 businesses still had not complied with the lodgment requirements. The reports were originally due on 28 August 2020. To avoid possible penalties, these businesses are encouraged to lodge as soon as possible.
The ATO notes that many businesses that have engaged delivery services (including food delivery services) though a contractor/subcontractor may not know they have to lodge a report.
Your business doesn't need to provide the relevant services exclusively to be captured under the TPAR system – if you only provide the service for a part of the year, or even if it is only a small part of your business, you may be required to lodge a TPAR.
The TPAR was introduced to combat the "black economy" which is estimated to cost the Australian community around $50 billion, or 3% of gross domestic product (GDP). It is designed to help the ATO identify contractors or subcontractors who either don't report or under-report their income (eg through hiding amounts received as "cash in hand").
The report is required for businesses that make payments to contractors/subcontractors and provide any of the following services:
- building and construction;
- cleaning services;
- courier services, including delivery of items or goods (letters, packages, food, etc) by vehicle or bicycle, or on foot;
- road freight services;
- IT services, either on site or remotely; and
- security, investigation or surveillance services.
For example, during the past year many eateries, grocery stores, pharmacies and other general retailers pivoted to providing home delivery for their customers. As such, they may have needed to engage contractors or subcontactors to provide courier services. If the total income received for these deliveries or courier services amount to 10% or more of their total business income, they will be required to lodge a TPAR even though they may not have needed to do so previously.
If your business is required to lodge a TPAR, the details you'll need to report about each contractor should be easy to find and are generally contained on the invoice you receive from them. This includes details such as their ABN, name and address, and the gross amount paid for the financial year (including GST).
Think your business may needed to lodge a TPAR ASAP? If you're not sure or just need some help with lodging the report, we have the expertise to help you.
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A number of important COVID-19 related government stimulus and support measures are now coming to an end, and some others have begun phasing out, which will occur over a slightly longer period.
This means that businesses and individuals need to prepare for an environment where the government safety net is not as wide.
If you or your business need information on managing your financial arrangements as you face the winding down of these government supports, we're here to help – contact us today.
The following are, at the time of writing, among the measures that will cease at the end of March 2021:
- JobKeeper (ends 28 March);
- Coronavirus Supplement (ends 31 March);
- the temporary COVID-19 qualification rules for JobSeeker payment and youth allowance (end 31 March);
- HomeBuilder (ends 31 March); and
- some apprenticeship wage subsidies (end 31 March).
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Having insurance through superannuation can be a tax-effective and cost-effective way of protecting yourself and your loved ones. Most funds offer three different types of insurance through super, each covering different contingencies: life insurance, total and permanent disability (TPD) insurance and income protection insurance.
Life cover pays a lump sum or income stream to your beneficiaries when you die, or if you are diagnosed with a terminal illness. TPD insurance pays a benefit if you become permanently or seriously disabled and are unlikely to work again. Income protection insurance pays you a regular income for a specified period if you can't work due to temporary disability or illness.
Depending on your situation, you may choose to hold insurance of one type or multiple types through your super, with the premiums automatically deducted from your super balance.
It's estimated that around 70% of Australians who have life insurance hold it through their super fund. However, the Australian Prudential Regulation Authority (APRA) has noted new and concerning developments that may see the costs of this insurance go up.
According to the data APRA has collected on life insurance claims and dispute statistics, premiums per insured member within super funds escalated during 2019 and 2020. APRA has likened this trend to what occurred between 2012 and 2016 when, after a period of significant premium reductions, insurers experienced significant losses. This led to large premium increases and more restrictive cover terms for insurance holders.
APRA notes that should this trend continue, super members are likely to be adversely affected by further substantial increases in insurance premiums and/or reductions in the value and quality of life insurance in superannuation. The regulator goes as far as saying that the ongoing viability and availability of life insurance through super may be at risk, which will impact a large proportion of the population.
It's not time to panic just yet, but it's important to regularly review what insurance you actually need, what cover you have through your super, and what you're paying for it, as premiums can add up and erode your super – especially if you're unnecessarily paying them to multiple funds!
Many funds allow you to adjust your insurance cover (either up or down) to suit changes in your situation, with corresponding premiums. And if you're not happy with the prices or levels of cover from your fund, you can always look into insurance offerings available separately from your super.
For now, APRA is continuing to monitor the situation to ensure that registrable superannuation entity (RSE) licensees take appropriate steps to safeguard pricing, value and benefits for members that adequately reflect the underlying risks and expected experience.
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