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The Minister for Small Business Bruce Billson and the Assistant Treasurer Josh Frydenbergrecently announced a government initiative they promise will cut red tape for employers by simplifying tax and superannuation reporting obligations through the introduction of an application called “Single Touch Payroll”.
Under this online interactive tool, it is planned that employers’ accounting software will automatically report payroll information to the Tax Office when employees are paid.
This will eliminate the need for employers to report employee-related pay-as-you-go withholding (PAYGW) in their activity statements throughout the year and employee payment summaries at the end of the year.
In addition, the announcement said the government will streamline tax file number declarations and Super Choice forms by providing digital services to simplify the process of bringing on new employees.
Single Touch Payroll builds on the ongoing initiatives to build and improve the current Standard Business Reporting products, and utilises the innovation of software developers to provide accounting software solutions that meet the needs of employers.
Single Touch Payroll will be available from July 2016 and transition arrangements will be the subject of consultation with the business community early in 2015. The Tax Office and Treasury will consult with the business community on the phasing of the start date for different sized employers and the arrangements to support the move to Single Touch Payroll. This will include how the new arrangements will build on the SuperStream changes currently being implemented.
In addition, consultation will examine the potential for employers to remit PAYGW and the Superannuation Guarantee at the same time employees are paid their salary and wages, and what support businesses may require to enable such a transformation in payments to government and superannuation funds.
Compliance regime for small business faces revolutionary change
The Board of Taxation has released a report titled Review of Tax Impediments Facing Small Business, which contains its recommendations to government on what it deems to be the main impediments to small business owners in Australia. The board is a body that was set up to look at various aspects of our tax system and make recommendations based on the board’s expertise.
The recommendations in its latest report are based on a stated aim of reducing the cost of compliance and to “focus on options for the simplification and deregulation” of the small business regime. In particular, it was charged with looking closely at aspects of the present tax system that unreasonably impede the goals of a broad cross section of businesses.
The report identifies a number of initiatives that the Board of Taxation believes can be implemented relatively quickly, and it says the Tax Office has already started implementing aspects that it agrees with. Other recommendations would require legislative change and therefore will need to go through the required processes if they are adopted.
Not all recommendations are listed below — see Appendix A of the report for the full list. However the main takeaway points that will affect small businesses are the following.
Small business entity test
Based on Australia’s business population data, the Board of Taxation has recommended that the small business turnover threshold be increased to at least $3 million (from its present $2 million turnover). It also recommended investigation of the feasibility of further increasing the threshold to $5 million.
Complexity and cost of compliance were the two main concerns raised about the small business CGT concessions. The board identified some options to improve the regime, which includes the option of raising the turnover threshold and considering a more “tapered” approach to the concessions. However it considers that a comprehensive fundamental review is warranted.
One suggestion to note is its recommendation to raise the “minor and infrequent” FBT threshold from $300 “to at least $500”. It has also recommended that that there be an investigation of the possibility of aligning the FBT year to the income tax year. The board notes however that transitional implications and reporting timeframes would need to be considered.
One (possibly) welcome change that the board mentions is the possibility of reviewing whether small businesses could simplify reporting obligations so that an annual combined income tax return and business activity statement, based on the same data, could be lodged once annually after the end of the financial year.
Personal services income tests
It also says that while the Tax Office has developed a decision tool to work through the personal services income (PSI) tests, further work needs to be directed to this tool so that clarification is provided to the user about what tax outcomes will emerge from the test results. It goes further by recommending that where the PSI tool is used in good faith, this should provide protection from the imposition of penalties where the user relies on the outcome.
Super guarantee charge
The present penalty regime faced by employers regarding the super guarantee charge (SGC) is described by the board as being “unnecessarily harsh”, and implemented with “often disproportionate outcomes”. It therefore recommends that a broad discretionary power be implemented where the Tax Office can remit certain SGC components. A review and/or objection process would be required.
Inspector-General of Taxation considers the taxman’s administration of valuation matters
Small business owners may be looking at simpler, cheaper and less time-consuming valuations when claiming certain tax breaks if the government takes up recommendations made by the Inspector-General of Taxation (IGT) Ali Noroozi in his latest report Review into the Australian Taxation Office’s (ATO) administration of valuation matters.
Under the current system, valuations are at times required for accessing tax breaks such as capital gains tax concessions or deductions for gifts. Noroozi concluded in his report however that to date the valuation process has become too subjective to be efficient, with concepts such as “market value” hard to define and leading to the majority of taxpayers having to appoint a professional valuer.
There have even been reported instances where the cost of getting a valuation exceeded the tax break being sought. “During this review, stakeholders have asserted to the IGT that a small business was more likely to incur costs of around $10,000 to $20,000 for a full valuation for the purpose of the small business CGT concessions,” Noroozi says in his report.
He says the costs may be substantially higher for more complex assets and transactions. “This amount does not include the ATO’s opportunity costs, for example, time staff spent in collecting valuation-related information and drafting instructions for valuers.”
Noroozi notes in his report that small businesses often depend on their accountants to make informal valuations, rather than paying for a professional valuer, which can often lead to disputes. He says some small businesses do not even bother trying to determine eligibility and may miss out on benefits because of the high cost of compliance.
The report makes nine recommendations to the Tax Office aimed at taking a more practical and transparent approach to assessing taxpayer valuations and developing administrative safe harbours.
The IGT has also made three recommendations for the government’s consideration, which include:
• consideration of ways to limit the need for valuations when developing tax law, including shortcuts or safe harbours as an alternative to full valuations
• consultation on ways to reduce reliance on valuations to access the small business capital gains tax concessions, and
• tapering the eligibility criteria for tax concessions.
Beware the “fat cat” fees that are eating up your retirement savings
Weak or average investment performance is often viewed by investors as an anomaly that they have to put up with temporarily until a market or managed fund gets back on track.
Holding out for improved returns is also likely to be tolerated in view of the local sharemarket edging higher (approaching a five-year high) on top of the global financial crisis fading into history.
There is however another dampener on returns — fees — which has been highlighted in recently published research.
Data published in the inaugural “Fat Cat Funds Report” has exposed the managed investment products and superannuation funds that have performed badly compared to the relevant benchmark over a reasonable period, and have done so consistently, but that are also typically charging investors higher fees for the privilege.
Put together by online investment adviser and fund manager Stockspot, the report has identified 75 “fat cat” funds — poor performers that have been singled out as not doing so well mainly because of the fees they charge. The report found that 89% of these were sitting on platforms owned by the big four banks, Perpetual or AMP.
The Fat Cat list is well populated with big bank platforms in the S&P/ASX 200 sphere, which the report said showed an average annual fee of 2.21%, representing 30.8% of the total benchmark return. “This means that for every $1 of returns generated by the market, 30¢ was paid to these fund managers,” the report said. “This average fee is also 46% higher than the average fund in this category.”
“Funds and platforms have remained largely unaccountable for poor performance and high fees,” the report said. “Similar to the findings of the Grattan Institute’s April 2014 report, our research suggests that fees would need to fall between 28% and 32% for just half of super fund managers to beat their benchmark.” It said the huge reduction in fees would even be necessary in order to generate mediocre performance.
For the Grattan Institute report “Super Sting”, which found that Australians are paying fees of up to three times more than they should for superannuation.
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