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EOFY 2021 – Final Reminder Superannuation Contributions

The end of the 2020-2021 financial year is nearly here.  This is a reminder about getting a tax deduction in the current financial year for superannuation contributions.

Generally, to get a tax deduction for a superannuation contribution for your employee, the superannuation fund must have received the payment by 30 June.  Making the payment before 1 July will not guarantee that this has happened.

If you want to get a tax deduction for the contributions, make sure they are paid well before 1 July 2021 so there is time for the money to be received by your employees’ superannuation funds.  Otherwise, the deduction will have to be claimed in the year ending 30 June 2022.

There is a slightly different position if you use the ATO’s Small Business Superannuation Clearing House (“SBSCH”).   If you make the superannuation contributions to the SBSCH on or before close of business on 30 June, the ATO will consider that the payment has been received by the employees’ superannuation funds and you will get a tax deduction.  This concession only applies to the SBSCH and not other clearing houses.

Also, please remember that the super contribution rate increases to 10% from 1 July 2021.  Payments of wages on or after this date will be subject to this superannuation contribution rate, even if some of the wages have been earned in the current financial year.

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2021 Federal Budget Report Summary: Tax Compliance & Superannuation

Source: Tax & Super Australia

On Tuesday, 11 May 2021, Treasurer Josh Frydenberg handed down the 2021-22 Federal Budget, his 3rd Budget.

1. Tax-related measures announced:

  • Personal tax rates - no changes were made to personal tax rates, the Government has already brought forward the Stage 2 tax rates to 1 July 2020. The Stage 3 personal income tax cuts remain unchanged and will commence in 2024-25 as already legislated.
  • LMITO retained for 2021-22 - the Government will retain the low and middle-income tax offset for the 2021-22 income year. The LMITO provides a reduction in tax of up to $1,080.
  • Temporary full expensing extended - the Government will extend the 2020-21 temporary full expensing measures for 12 months until 30 June 2023. This will allow eligible businesses with aggregated annual turnover or a total income of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, acquired from 7:30 pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2023.
  • Loss carry-back extended - the loss years in respect of which an eligible company (aggregated annual turnover of up to $5 billion) can currently carry back a tax loss (2019-20, 2020-21 and 2021-22) will be extended to include the 2022-23 income year.
  • Individual residency test reformed - the Government will replace the existing tests for the tax residency of individuals with a primary "bright line" test under which a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.
  • Employee share schemes - the Government will remove the cessation of employment as a taxing point for the tax-deferred employee share schemes.
  • ATO debt recovery - the AAT will be given the power to pause or modify ATO debt recovery action in relation to disputed debts of small businesses.
  • Self-education expenses - $250 threshold to be removed.

2. Superannuation and related measures:

The key superannuation and related measures announced in the Budget include:

  • Superannuation contributions work test - to be repealed from 1 July 2022 for voluntary non-concessional and salary sacrificed contributions for those under age 75. However, the work test will still apply for personal deductible contributions by those aged 67-74.
  • SMSF residency rules - to be relaxed by extending the central management and control test safe harbour from 2 to 5 years, and removing the active member test for both SMSFs and small APRA funds.
  • Conversions of legacy income streams - individuals will be permitted to exit certain legacy retirement income stream products (excluding flexi-pensions or lifetime products in APRA-funds or public sector schemes), together with any associated reserves, for a 2-year period. Any commuted reserves will not be counted towards an individual's concessional contribution cap. Instead, they will be taxed as an assessable contribution to the fund.
  • Super Guarantee $450 per month threshold - to be removed from 1 July 2022.
  • Downsizer contributions - eligibility age to be lowered from 65 to 60.
  • First Home Super Scheme - to be extended for withdrawals up to $50,000, plus some technical changes for tax and administration errors in applications.
  • Victims of domestic violence - the Government will not proceed with its previous proposal to extend the early release of super to victims of family and domestic violence.
  • Pension Loans Scheme - will be expanded to allow access up to 2 lump sums in any 12-month period (up to a total of 50% of the maximum annual Age Pension); together with a Government guarantee that "No Negative Equity" will apply.

At the same time, the Budget did not contain any change to the legislated Super Guarantee rate increase from 9.5% to 10% for 2021-22.

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Part 7 Penalty: Directors Are Personally Liable When Facing Super Guarantee Stuff-Ups (Part 2)

Due to Covid-19, there was an amnesty period for businesses to comply and voluntarily disclose their unpaid super via SGC (Super Guarantee Charge) without incurring the administrative penalty or administration component, and to claim a tax deduction for the Superannuation Guarantee Charge (SGC) amounts paid. The Superannuation Guarantee (SG) Amnesty closed on Monday 7 September 2020. Business owners should have received letters from ATO if they were having unpaid super without lodging SGC by that time. Business owners, directors and volunteer directors of NFPs should pay attention to the key dates below:

Understandably, your business might have a cash flow issue during Covid-19, so if you have missed the first payment deadline, please do not miss the SGC deadline, which is exactly 1 month after the first payment deadline. If you are uncertain of how to fill an SGC form, please seek advice from your accountants or bookkeepers.

Please be aware that once you submit your SGC form, ATO will send you a statement that outlines the super owing amounts. It means that ATO has distributed super payments to your staff super funds. You will be required to clear your SGC debts with the ATO. Referring back to Part 1 in which I explained the consequences of having missed $10,000 for 2 quarterly super payments would turn into a $33,850 liability.

Don't forget the severity of the Part 7 penalty alone can drive businesses to insolvency, and directors’ personal liability is a further risk, especially when you don’t have a good financial system or governance!

My tips to stay in compliance:

  • Consider super obligations as important as staff salary payments;
  • Include SGC as a part of your compliance process, saving the key dates;
  • Make an informed decision between a business loan cost vs. the heavy penalty of unpaid super;

There are special circumstances that ATO may consider to reduce the penalty rate from 200%. These circumstances could be: 

  • Health & mental incapable (death or serious illness); 
  • Unprecedented situation (can’t access financial records due to bushfire); Loss of files due to cyber-attack; 
  • Having a good compliance history. 

If you would like further information or to discuss your circumstances, please contact Tailored Accounts. We will assist with providing advice on your circumstances and any potential liability; representing your business with the ATO to make a voluntary disclosure.

 

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Part 7 Penalty: Directors Are Personally Liable When Facing Super Guarantee Stuff-Ups (Part 1)

Author: Harry Hoang CPA

ATO’s increased focus on unpaid superannuation contributions

There are often myths and misunderstanding surrounding the Super Guarantee (SG) Obligations within our SME and Not-For-Profit communities. Not-for-profit volunteer directors would often expose themselves to a large extent of liability risks if their management do not comply with the superannuation law.

Part 7 Penalty dictates that directors will be personally liable for an amount equal to any unpaid superannuation guarantee contributions. This article will explain the implications of Part 7 Penalty on unpaid super and the consequences of failing to meet your SG obligations as directors.  

A few months ago, one of my clients expressed a concern regarding the SG. Being self-employed with only an employee made my client unaware of the SG obligations. I offered my professional advice. However, business owners should not assume that your SG obligations are always administered by accountants, unless your accountants are given permission to look after our payroll.

If you manage your company payroll, it is your responsibility to fulfil the SG obligations. Simple fact yet often overlooked by busy directors and business owners!

The importance of superannuation never receives enough attention from SMEs. I strongly believe that it is as critical as paying staff salaries. The ATO’s increased focus on unpaid superannuation contributions is a wake-up call for businesses to change.

Consequences of failing to meet your super obligations

Let’s say you missed two quarters of your super payments, which was equivalent to $10,000. The unpaid super amount now becomes non-tax deductible regardless of its super expense coding in your books. The business has lost a tax deduction of $2,750 (27.5 percent) for FY 20/21. There are interest rates which are to be applied on your unpaid super, according to the ATO website. Another 7 percent interest cost will be incurred on your expense, adding on top of the 27.5 percent tax loss.

There will also be an admin fee of $20 per employee per quarter. If you have 10 employees, 2 quarters of unpaid super will cost another $400. That is 4 percent to be incurred.

Last but not least, due to the implementation of Single Touch Payroll, the ATO will now be more aware than ever of when a business is failing to meet its superannuation obligations. Part 7 Penalty which could go as far as 200 percent on the unpaid amount. It would become another non-deductible $20,000 to penalise the misconduct. The initial $10,000 unpaid super now turns to $33,850 which is 240 percent more than what you should have paid in the first place.

Despite the ATO’s enhanced capacity to monitor late or unpaid superannuation, it remains important to keep an eye on your own contributions. If you have unpaid superannuation contributions, you should consider seeking professional advice.

Given the ATO’s crackdown on businesses that don’t pay superannuation, it is now more important than ever to obtain professional advice on the available strategies and options you have.

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Late super contributions: How much attention do you pay to the biggest item in your books?

Author: Harry Hoang

In 2018, I had a chance to participate in a discussion with top Australian HR experts about payroll compliance. The discussion centred on how poorly HR has been managed in small and medium enterprises, leaving it a sizeable contributor to business failure.

From an accounting perspective, what could be an explanation?

Although there are many self-professed payroll experts, few have the experience and qualifications to consider themselves authorities on the issue. While many have a basic understanding of the relevant software, most fail to grasp the full implications of compliance with payroll systems and the subsequent transactions. Some business owners choose to forget experts altogether and attempt to manage their payroll themselves, usually using outdated and flawed methods. Alternatively, a few accounting and bookkeeping provide payroll services, but these tend to solely give out advice, leaving the actual process to business owners or their contractors.

HR and Payroll are immense problems that have been attracted very little attention from business owners. Believe it or not, we are currently looking after over 300 sets of books from businesses ranging from $50,000 to $20 million per annum and the biggest expense in their books is always salary and wages. Think back - if you spent 40-60% of your budget to salary and wages, how much did you really invest to make sure that it was managed properly? In our opinion, at least 1% of salary and wages should be invested HR, and a further 1% should go to payroll processing and compliance management. So if you have 10 employees receiving a salary package of $100,000 per year, you should put aside $10,000 for HR and $10,000 for payroll management, so as to ensure you are not only legally covered but also getting the best return on your biggest investment!

We also discussed with the expert the conflict that often exists when payroll experts attempt to give advice on HR matters and vice versa. In some businesses, HR 'experts' are going so far as to manage payroll and group certificates for their clients! We think that the world is moving toward decentralization, where service providers will specialise in their area of interest and refrain from giving advice in other areas. This enables collaboration between different experts to give you the best business advice possible for your enterprise.

Before finishing this topic, I would love to share some good tips to prevent mistakes in your payroll:

  • If you are investing less than 1% of your salary and wages budget into payroll, you are likely not getting the right return on your investments. You are also expos yourself to higher risk.
  • If your payroll system doesn't sync with your accounting system, please invest in the right payroll software like Xero or Keypay;
  • If your payroll clerk doesn’t spend a minimum of 10 hours in Continuing Professional Development each year learning all the updates and change to payroll compliance, you are increasing the risk of non-compliance in the workforce.
  • If your payroll system relies on one person who controls the process from data entries, there is a great vulnerability to fraud. Payroll duties should be segregated, with a minimum of 2 people checking and reviewing each transaction;
  • If you experience employee complaints regarding late or inaccurate wages, super payment or miscalculated leave, you need an expert to review the whole payroll system. Invest in it, because you will get great return!
  • If you have gotten a few letters from the Australian Tax Office about late lodgment of IAS or BAS, or overdue super and tax, you likely have a serious payroll issue. If, worse still, you got a letter from Fairwork Australia about incorrect pay or unfair dismissal, you could be facing serious consequences. As you are aware, paying superannuation contributions late, or not at all, according to Tax & Super Australia, it can turn into a very bad deal for your business. Most employers have little idea of how quickly late payment of superannuation contributions can increase to a cost that is multiples of the amount of the contributions paid late. Due to the introduction of STP and the finish of the SGC amnesty, we should all expect the ATO to be very active in following up on late paid (or not paid) superannuation contributions.

So invest 1% of your wage and salary in the best HR and Accounts personnel you can find - your books will thank you for it!

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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.

2.      The last GST & BAS of the financial year

As you may be aware, April-June BAS is not due until 28th July in the next year. Regardless of the due date of BAS, our team finalises the last quarterly BAS before 14th July to reconcile balances between payslips and BAS. To prepare the end of the year BAS, the assignments below must be carefully completed:

  • Our team undertakes all reconciliation processes for the last quarter BAS as usual, requiring half a day.
  • We review all quarterly sets of BAS submitted during the financial year to reassure the integrity of your financial data since all adjustments need to be made in the final BAS. This task usually takes half a day.

3.      The final review of all other accounts

After the big year-end reconciliation processes of Payroll and BAS, our team also reviews every single account in your Trial Balance prior to closing your books. If your business has 50 accounts codes, for instance, we will need to thoroughly go through all 50 of the accounts. To deal with the sheer volume, the Tailored Accounts team implemented the effective way to review the accounts as follows:

  • We reconcile final bank account, credit card, petty cash & term deposit first. These reconciliations are usually completed by 30th June; however, a good summary of the whole year bank reconciliation will be prepared separately to support your tax agent in finalising their files. This task takes up to two hours.
  • We undertake stock-taking and complete the asset register. If on-site, physical stock-taking is required, it will take from three hours to a day for completion. Based on the volume of stocks and assets, our team may require another half a day for their reconciliation and adjustment.
  • We reconcile debtors’ information, normally taking half a day. This task includes a follow-up with debtors to identify doubtful debts and subsequent end of year adjustments.
  • Our team reconciles creditors’ information, which usually takes less time since most businesses pay their creditors regularly.
  • We reconcile loan accounts where businesses have internal loan transactions with directors. Preparing interest schedules and calculating a final balance should be completed before 30th June, which will then be rigorously reviewed for another two hours.
  • Our team prepares consolidation of all accounts after the reconciliation of Payroll and BAS, taking an hour to methodically consolidate them. The items include Salary & Wages, PAYG withholding, Super payable, Super expenses, Leave entitlement, GST, Sales, Capital purchases, Non-capital purchases, and PAYG tax installments.
  • We finally analyse other accounts from the Statement of Profit and Loss, including a Budget versus Actual comparison and discrepancy identification. This task will require up to four hours as Tailored Accounts places its accuracy as a top priority.

Total hours of required effort tend to rely on a number of factors, such as the size of your books, your accounting software, and the maintenance status of your accounts.

For instance, a small business, with up to five employees and having less than $500,000turnover,would need three hours for the year-end payroll processes, three hours of finalising all sets of BAS, and another six hours for other EOFY tasks. An additional provision of three hours is required for assisting your tax agent or auditor.

Accordingly, one-hundred small business clients can be translated into a budget for 1,500 hours (equivalent to 6.5 full-time staff) at a minimum for six weeks prior to EOFY. This response, hence, addresses the original question, "Why are accountants and bookkeepers busy during the EOFY period?"

At Tailored Accounts, we adopt the latest technology to minimise manual reconciliations. The purpose of implementing the most recent systems and processes is to save time and cost during EOFY period, consequently providing you with optimal savings. With strong attention to details, the Tailored Accounts team and I have always delivered neat, error-free and presentable reports to more than five-hundred clients since 2008. As the EOFY period is now approaching, this is an opportunity to set your financial reporting right by contacting Tailored Accounts today!

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End Of Financial Year 2018: Get ahead of the game with Tailored Accounts

It's nearing end of financial year 2018. And because it’s super busy, Tailored Accounts would like to save your time by sharing some important dates in preparation for FY 17-18.

Super contributions

To be eligible for tax deduction in the current Financial year, your final superannuation guarantee payment for FY 17-18 should be made 7-10 days before 30 June 2018 (allow for delays) to ensure that super funds receive the contributions by 30 June 2018.

Salary Sacrifice Super payment will happen on the same date to ensure that the salary sacrifice super contribution appears in this financial year’s payment summary.

If your Super is being managed by Tailored Accounts, all the deadlines will be met so there won’t be any hassles! Super reports and reminders will be sent out well in advance so that you will have sufficient time to review and make super payments before the deadline.

Make sure you are aware of the following rules:

  • The concessional contribution cap is $25,000 for all the individuals regardless of age for this income year 2017-18.
  • Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and employee personal contributions claimed as a tax deduction

Payment Summaries

Tailored Accounts will be preparing Payment Summaries on behalf of our clients and submit them to the ATO. By 14 July 2018, your employees should receive their payments summaries from our team. We will send payment summary annual report to the ATO by 14 August 2018.

If you are managing your own payroll, you will also need to have Payment Summaries ready for employees by 14 July 2018 and the ATO by 14 August 2018.

Final Business Activity Statements for FY 17 - 18

April – June 2018 BAS is not due until the 28 July 2018. Tailored Accounts will be asking our clients to send us the quarterly paperwork few days after 1 July 2018. This will help us with End of Year reconciliation and ensure that your BASs are complete before the due date.

Thank you for entrusting Tailored Accounts for your EOFY services – We guarantee 100 percent of your payment summaries are completed before the due date 14 July!

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