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Errors and over-claiming for work related expenses and the Tax Gap (Part 2)

In case you missed it, Tax Commissioner Chris Jordan made a public address on the 5th of July 2017 in which he spoke about the ATO’s plans moving forward, especially concerning tax gaps. Let’s take a brief rundown of the situation as it stands:

  • The ATO, for the first time is going to publish estimates for corporate tax and income tax gaps for different segments. They were previously publishing estimates for GST based gaps.
  • Their first release of these numbers was for the corporate tax gap calculated based on 2014-15 data, which is approximately $2.5 billion (a tax gap is the difference between what the ATO has collected and what it should have collected, were everyone compliant with the existing laws.)
  • This $2.5 billion tax gap shows that the ATO has collected about 94% of the corporate tax they should be receiving, 91% voluntarily declared and 3% through compliance intervention. While this is around global best practice, the ATO will continue to closely watch the 1400 businesses in that segment.
  • Their current aim for corporate tax is to work with taxpayers to encourage voluntary compliance and move away from the necessity for increased intervention.
  • The ATO is now dedicating more resources to other markets they believe, from their initial findings to have higher tax gaps. Namely; small businesses, the black economy (the cash economy) and the individuals market.

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Errors and over-claiming for work related expenses and the Tax Gap (Part 1)

Commissioner Chris Jordan AO

Address to the National Press Club, Canberra

5 July 2017

The ATO has expressed concerns about the numbers of incorrect work-related expense claims and the tax gap. Below is the key points extracted from the address of Commissioner Chris Jordan AO in early July at the NPA.

The Tax Gap:

  • The ATO will also continue with administrative reforms under our Reinvention Program, such as: earlier engagement, greater transparency and cooperation with clients and partners prevention and early warning, rather than correction and ‘gotcha’ more sophisticated use of data for both service and compliance purposes increased digital service offerings and streamlined interactions.
  • Now, let me share with you ‘what next’; the next big challenges we are facing: Influencing community perceptions and attitudes about tax; and, minimising tax gaps.
  • I want instead, to support mindsets where people feel more positive about their total tax experience – satisfied with their interactions and confident that the ATO is taking action against those who are not paying what they should. Let me turn to that now – paying the right amount and minimising tax gaps.
  • The tax gap is approximately $2.5 billion.
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Reconciliation of Your Payment Summaries

The six important steps of payment summary reconciliation that employers often overlook. 

Payment summaries generation is a simple task, however the back end reconciliation does take half to a day of work. Here are list of 6 STEPS that our staff have to go through to ensure that your payment summaries are faultless!

1. Reconcile all staff payslips in the past 12 months with BASs submitted to ATO during the year. Incorrect payment summaries is the biggest trigger to an ATO tax audit...we understand how important it is to ensure our data is perfectly matched with ATO data;

2. Reconcile all staff payslips information: Gross Salary, PAYG withholding, FBT, Super payable, Salary sacrifice, Termination pays. A full reconciliation between payroll report vs General Ledgers are conducted for the full year to ensure your staff pays are agree with what coded into your accounting software for the last 12 months; 

3. Once ATO = Pay summaries = General Ledger (debit/credit), our staff will print payment summaries and re-check them with employee payroll setup to ensure their pays are in line with their contract/award;


4. Payment summaries to be email to business owner/HR manager/CEO to check before we email to your staff;

5. Payment summaries to be emailed to staff before 14th July;

6. After 1 week from sending staff payment summaries, if we don't need to do any amendment, we will send Annual Payment Summaries to ATO before the DUE DATE 14th August.

 

 

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Simpler BAS and implications on businesses

Business Activity Statements (BAS) reporting has often been a time consuming and complex process for many small and medium enterprises (SMEs) since goods and service tax (GST) was introduced in 2010. The Australian Taxation Office (ATO) is introducing Simpler BAS for SMEs to reduce the reporting burden. If your annual turnover is less than $10 million, you will report GST on Simpler BAS (unless you report GST by installment).

SMEs who use Simpler BAS will be required to report for the following fields only;

  1. G1 Total sales
  2. 1A GST on sales
  3. 1B GST on purchases

In other words, SMEs are no longer required to report the following fields;

  1. G2 Export sales
  2. G3 GST free sales
  3. G10 Capital purchases
  4. G11 Non-capital purchases

This means that businesses will need only three GST codes instead of seven when reporting BAS. This will not only save time for business owner, accountant & bookkeeper but also reduce room for error….less is more!

However, please be aware that Simpler BAS only affects the GST field, that is, other BAS fields such as PAYG instalment, PAYG withholding and luxury car tax remain unchanged.  Also this does not change the frequency of BAS submissions.

Although this change will reduce the time to complete the BAS and simplifies recording GST information, the change will not significantly change the amount of work performed to get all GST number right! Please do not sacrifice the time that you spend on GST reconciliations as it mean creating more room for mistake. GST still has to be recorded in the correct manner as the underlying GST law has not changed, at Tailored Accounts, we are actually spending the time saving on report to build more layer of GST reconciliation to ensure that our quality assurance is maintained.

While the change is likely to only provide a small reduction in the reporting burden, this certainly has some effects on the setup & function of your accounting department. Not all the accounting software fully supports this change or will require some adjustments or variations. If you need any support in regards to Simpler BAS, please contact Tailored Accounts.

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End of Financial Year Preparation: Magical touch on your books!

With end of financial year (EOFY) fast approaching, the Tailored Accounts team is counting down to the last day of the financial year! Offices of accountants and bookkeepers will be filled with the hustle and bustle of time-critical challenges. You may wonder why EOFY often becomes such a hectic time for us. I hope this article can shed light on the inner processes of EOFY preparation.

Having worked in the accounting industry for more than a decade, I consider EOFY preparation as a chance to place extra effort to ensure accurate, up-to-date numbers as well as presentable reporting. These outputs are the results of, what I call, a magical touch on your books.

The following list articulates the main examples of magical touches that we exert to ensure your books are in the best order:

1.      The year-end payroll

During the financial year, we process 12 – 52 payrolls for our clients subject to their pay cycles. At the end of each month or quarter, our team reported the payroll information to Australian Taxation Office (ATO), including Gross Wage and Tax details. In addition to the accurate reports regularly lodged to the ATO, payroll reconciliations at year-end takes care and attention to ensure all requirements are met. Here are the core tasks that our team has been undertaking in the process of EOFY preparation:

  • Final super payment runs must be done before 25th June each year to ensure the last super payment is eligible for a tax deduction in the current financial year. Final salary sacrifice payment runs must happen on or before the same date to ensure all salary sacrifice arrangements are captured in the current year’s payment summary for employees. These particular tasks will require a few extra hours of work during the EOFY period.
  • Payment summaries are to be communicated to employees via email/post before 14th July. We ought to undertake a full year payroll reconciliation to ensure the accuracy of the information in payslips, Business Activity Statements (BAS), and payment summaries. This significant task requires half a day at a minimum, depending on the number of employees and complexity of the payroll structure.
  • Payment summary reports must be submitted to the ATO before 14th August in the following year. The task usually takes an hour to complete. To illustrate, 300 clients at Tailored Accounts are interpreted into a budget of minimum 300 hours for all payment summaries with no mistakes allowed.

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Single Touch Payroll & four things that business owners should know

Harry Hoang

Single Touch Payroll (STP) is now becoming compulsory for businesses, which have minimum 20 employees. You will be required to report on the new system from 1st July 2018. What needs to be prepared to get ready for the new system? Would there be any impact on your business transaction or cash flow?

Here are few check points to ensure that you are ready for STP:

1.      Your STP readiness: If you have 20 or more employees on 1st April in a later year, you will commence reporting under STP from the next 1st July. It means you will have a minimum of 3 months to organise your systems & procedures to meet requirement of STP.

3-month period is not sufficient to prepare thoroughly for the change if your accounting system has not been ready for STP. You should check with your software provider NOW to ensure they are STP if you plan to have 20 employees in the next 6-12 months. As a XERO Gold partner, we can confirm that XERO will be compliant with STP.

                                                                                           

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ATO Announcement: PAYG Tax Tables Changes by 1 October 2016

Dear customers,

Please be informed that PAYG Tax Tables will be updated to reflect all the changes by Saturday, 1 October 2016. Details of the changes could be accessed HERE

Image result for 1 october 2016

We encourage you to stay updated from the changes. XERO system will be updated accordingly as per the PAYG tax change. Should you have questions regarding the change, please contact us at  02 6169 5196. Our accountants will assist you with the information. 

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