A Grade Tax News Business Newsletter
Taxation of Family trusts has been a focus of attention for the Australian Taxation Office (ATO) in recent months.
It has issued a number of statements lately, most notably in early June 2010 when it released important documents dealing with two issues:
1. Allocating trust income to company beneficiaries, and
2. The High Court decision in Bamford. As a result, trustees of family trusts should check their trust deeds and income distribution practices.
The ATO’s final ruling on the question of ‘unpaid present entitlements’ (UPEs) involving company beneficiaries of a trust has been released. Essentially, it maintains the same view as a draft ruling released late last year.
Broadly, the issues covered by the ruling arise when a family trust has allocated some of its income to a company beneficiary, but has not paid the full amount to the company by the due date for lodging the trust’s tax return for the year.
The ATO’s view is that, at this time, the unpaid trust distribution becomes a loan, thus triggering the deemed dividend rules in Division 7A (see example below).
This is a change from the previous understanding of whether Division 7A applied in such cases.
According to the tax ruling, Division 7A rules will be applied to any allocation of trust income made on or after 16 December 2009, which usually will mean from the 2010 tax year. The ruling will only apply retrospectively where something more has been done, such as the trustee actually creating a loan in its accounts.
Example - unpaid present entitlements
Cash Sales - New Tax Office Benchmarks!
Are you? - A small business owner?
The Tax Office recently released a new category of small business benchmarks which focus on cash sales within a business.
You should be aware of the new benchmarks for small business.
- Contact us if you require any clarification or advice.
The small business benchmarks were introduced by the Tax Office to provide a tool for assessing the performance of a business as well as checking the reasonableness of various costs incurred in the business relative to its turnover.
The benchmarks provide a means of assessing what is happening in a particular industry.
The Tax Office has announced that it will be using the cash sales benchmarks to determine the proportion of cash sales a business should be making to identify businesses that may be avoiding their tax obligations.
The cash sales benchmarks have been initially developed for the following industries:
· Clothing retailers;
· Beauty Supplies;
· Coffee Shops;
· Fruit and Vegetable retailers;
· Fuel Retailers;
· Garden Supplies retailers;
· Grocery retailing and general stores;
· Hardware and building supplies retailing;
· Meat retailers and Butchers;
· Pubs, taverns and bars;
· Restaurants; and
· Takeaway food services
Small businesses that are found to be falling outside the benchmarks for a particular industry will be more likely to attract an audit by the Tax Office.
The Tax Office estimates that it will contact over 100,000 businesses this year.
Changes to Rules Governing Company Dividend Payments are now in Force
Are you? - A company director considering paying dividends?
At a glance: - The Government has made amendments to the Corporations Act to alter the conditions under which dividend payments can be made.
You should: - Consider whether the changes will have an effect on your company's dividend policy.
- Contact us if you require any clarification or advice.
Under the original rules governing company dividends under the Corporations Act, companies were only allowed to pay dividends out of profits.
A recent amendment has effectively abolished this concept and replaced it with a more comprehensive assets test.
As a result, companies can now pay dividends even if there are no profits, provided the following tests have been satisfied.
The company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and
The payment of the dividend is fair and reasonable to the company's shareholders as a whole; and
The payment of the dividend would not materially prejudice the company's ability to pay its creditors.
Private companies can generally choose to use their own accounting records to determine the assets and liabilities, while public companies must calculate their assets and liabilities according to relevant accounting standards.
For more information on the change to dividend policy under the Corporations Act, visit the ASIC website at www.asic.gov.au.
Please contact A Grade Tax Penrith on (02) 4731-1405 with your specifice tax accounting needs.
Businesses may have to pay superannuation to contractors in some circumstances after the Australian Taxation Office (ATO) succeeded in three separate actions.
The ATO won its arguments the contractors were actually employees, so their employers were required to pay the compulsory superannuation guarantee (SG) levy on their behalf.
Business advisory firm Hayes Knight director Greg Hayes told Risk Report a Federal Full Court action involved pollster Roy Morgan Research; and the Administrative Appeals Tribunal heard two cases against an interpretation and translation services company, Associated Translators&Linguists, and garment manufacturer John Brilliant.
"Any business that engages contractors needs to check the arrangements in place to determine whether there could be a Superannuation Guarantee exposure," Hayes said. "It all comes down to whether the individual is deemed an employee under the Superannuation Guarantee Act."
He said businesses that engaged contractors where the supply was principally labour were at greatest risk because those contractors were more likely to be deemed employees."Small business has fewer resources to check through all the details and they may think they are doing the right thing but could still be risk exposed." Hayes said legislative definitions of 'employee' varied and the lack of a consistent definition created uncertainty.
But Freehills partner and superannuation expert Natalie Gullifer told Risk Report the laws were very clear. Employers needed to closely examine the Superannuation Guarantee Act and not assume, perhaps incorrectly, they were not required to pay contractors' superannuation, she said. (Associated Translators and Linguists Pty Ltd v Commissioner of Taxation , AAT 260, 14/4/10; Brilliant v Commissioner of Taxation , AAT 267 16/4/10; Roy Morgan Research Pty Ltd v Commissioner of Taxation , FCAFC 52, 26/5/10)
The Australian Tax Office (ATO) is launching a data matching program focusing on individuals and businesses who have sold more than $20,000 in goods and services on the online selling sites eBay and The Trading Post in any of the last three financial years.
If you are running a business through online selling sites, or you have an existing business and are making additional sales through these sites, then you need to include this income in your activity statement and/or tax return.
The data match will detect businesses that are under reporting or not reporting income generated from these sources.
Tax Commissioner Michael D’Ascenzo is encouraging anyone who may have understated their taxable income in the last three years to make a voluntary disclosure.
“If you do so you will be treated fairly and benefit where applicable from significantly lower penalties. You can make a voluntary disclosure on this or any other matter by writing to the ATO – more details are available on the ATO website,” Mr D’Ascenzo said.
Tax Commissioner Michael D’Ascenzo said the data matching program helps to ensure that there is a level playing field so that businesses doing the right thing are not disadvantaged.
“The online data matching program is part of the ATO’s focus on encouraging high levels of voluntary compliance and addressing the issues raised by non-compliant behaviour,” Mr D’Ascenzo said.
“Data matching allows information from a variety of sources to be brought together and compiled, identifying individuals and businesses that are avoiding their tax obligations.
“Records will be matched against different identifiers such as tax file numbers, ABN’s, addresses and date of births which will improve the integrity of our data matching program.
We are receiving enquiries from employers and employees regarding the amount to include on the 2010 PAYG Payment Summary for "Reportable Empoyer Superannuation Contributions".
Reportable employer super contributions are those contributions you make for an employee where all of the following apply:
• your employee influenced the rate or amount of super you contribute for them
• the contributions are additional to the compulsory contributions the employer must make under any of the following
◦ super guarantee law
◦ an industrial agreement
◦ the trust deed or governing rules of a super fund
◦ a federal, state or territory law.
In other words - all amounts an employer pays into a superannuation account for an employee under a salary sacrifice arrangement.
Please contact (02) 4731-1405 A Grade Tax Accountants Penrith for all your accounting and taxation services, superannuation advice and tax planning.
What super obligations do I have for contractors?
If you pay your contractors under a contract that is wholly or principally for labour, you have to pay super contributions for them. This is even if the contractor quotes an Australian business number (ABN). These contractors are considered your employees for Superannuation guarantee purposes.
Generally, a contract is principally for labour if more than half of the value of the contract is for the person’s labour, which may include:
- Physical labour,
- Mental effort, or
- Artistic effort.
The Australian Tax Office have web-based tools to help you work out if someone is an employee or contractor, and if they are eligible for super contributions at:
Please contact A Grade Tax Penrith on (02) 4731-1405 or visit our website www.agradetax.com.au for all your taxation services, tax advice and planning.
As a self-employed business person, you are not required to contribute to a super fund. However, you may wish to consider super as a way of saving for your retirement.
From 1 July 2007, most self-employed people will be able to claim a full tax deduction for contributions they make to their super until age 75. You may also be eligible for the Super Co-contribution payment.
You also need to make sure you give your super fund (or ensure your super fund has) your tax file number, otherwise:
- Your super may be taxed an additional 31.5%, and
- Your fund wont be able to accept member contributions from you, which may mean you'll miss out on any super co-contibutions you may be eligible for from the government
A Grade Tax Accountants Penrith on (02) 4731-1405 offer a full range of taxation and accounting services, bookkeeping, tax returns, superannuation advice and planning.
You are generally only entitled to an ABN if you are carrying on an enterprise in Australia or have a clear business intent.
Contractors differ from employees and holding an ABN means that you:
•have entered the business tax system and are now responsible for reporting your income and paying your tax and super entitlements
•may be responsible for your own workers compensation.
Just having an ABN doesn’t make you a contractor.
Contractors are paid for the result they achieve rather than the time they work. Contractors do not normally have to work during hours set by an agreement or award and the employer does not provide them with the tools to do their work or direct their work.
If you are an employee, then your employer must withhold tax from any salary, wages, commissions, bonuses or allowances they pay you.
Your employer may also have Superannuation Guarantee Surcharge (SGS)obligations.
For further information on all your taxation and accounting services, superannuation, bookkeeping, tax return, tax advice and planning contact A Grade Tax Accountants Penrith on (02) 4731-1405.
Employers must pay super contributions to a complying super fund for all eligible employees by the quarterly deadlines. These contributions are in addition to the employees’ salaries and wages, and must be calculated based on ordinary time earnings.
Employers also need to pay super contributions for contractors you pay under a contract for labour, because they are considered employees for the purpose of super guarantee. This includes contractors who quote an Australian business number (ABN).
The Australian Tax Office also have a range of publications, tools and calculators to help you understand and meet your tax and super obligations at:
For further tax advice on all types of taxation services please contact A Grade Tax Accountants Penrith on (02) 4731-1405 or visit our website www.agradetax.com.au
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