SINGLE TOUCH PAYROLL UPDATE
The ATO has reminded employers that legislation has been passed to extend Single Touch Payroll (‘STP’) to include all employers from 1 July 2019.
This will be a gradual start, and not all employers will start reporting at the same time.
Most software providers are offering STP enabled products, although some providers have asked the ATO for a later start date (a deferral) for their employer clients to report through STP, so it may be worthwhile checking with the relevant provider.
Employers with 5 to 19 employees (‘small employers’)
Small employers can determine when they need to start reporting from one of the following options.
- Start reporting early – If an employer uses payroll software which offers STP, they can update their product and start reporting any time. The ATO recommends such employers talk to their software provider, or visit their website, to find out what needs to be done. The ATO also has a checklist with the steps employers need to take to connect their software to the ATO.
- Start reporting any time from 1 July to 30 September 2019.
- Apply for more time to get ready – If an employer will not be ready to start reporting by 30 September 2019, they can apply for a deferred starting date (using the ATO’s online form).
- Ask the ATO for an exemption – Employers that live in an area with intermittent or no internet connection can use the ATO’s online tool to apply for an exemption.
Employers with 1 to 4 employees (‘micro employers’)
Employers with four or less employees (referred to as ‘micro employers’) that do not currently use payroll software will be able to use other ways to report STP information.
The ATO has asked software developers to build no-cost and low-cost (less than $10 per month) STP solutions for micro employers – including simple payroll software, mobile phone apps and portals.
The ATO has published a list (on its website) of companies offering or intending to offer these solutions.
Micro employers will also have the option for their registered tax or BAS agent to report their STP information quarterly, rather than each time they run payroll (this option will be available until 30 June 2021).
Employers with closely held payees
A ‘closely held payee’ means the payee is directly related to the entity from which they receive payments, for example:
- family members of a family-owned business;
- directors or shareholders of a company; or
- trustees or beneficiaries of a trust.
Employers may not always pay closely held payees a regular salary or wage, and instead may draw on income from the business throughout the year.
As STP information is reported each time payroll is run, employers would not be able to report their closely held payees this way, but there are flexible reporting options available to employers with closely held payees.
Employers with 19 or less employees do not need to report closely held payees in 2019/20.
Employers will be exempt from reporting closely held payees during the 2020 income year.
However, all other employees (i.e., ‘arms-length employees’) must be reported through STP from 1 July 2019 (or a deferred start date if one has been granted).
There is no need to apply for an exemption for reporting closely held employees.
Employers will be able to lodge payment summaries for closely held employees up to the due date of the employer’s income tax return.
Employers with 19 or less employees can report closely held payees quarterly from 1 July 2020.
This report will be due at the same time as the employer’s activity statement.
They will need to make reasonable estimates each quarter of the amounts paid to closely held payees, using one of the following methods:
- Actual withdrawals (not including payments of dividends or payments reducing liabilities owed to the closely held employee by the employer).
- 25% of the salary/director fees from the previous year (per quarter).
- Vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary for the current financial year.
If employers choose to report closely held payees quarterly, they will have up to the due date of their income tax return to finalise the information they have reported and to make any adjustments.
Employers with 20 or more employees have extra time to finalise closely held payees information.
Once an employer starts STP reporting they should be reporting closely held payees along with arms-length employees; however, they will have until 30 September 2019 to finalise closely held payee information (in line with the concessional payment summary annual report (‘PSAR’) lodgement date).
Employees and Payment summaries
The ATO has also reminded employees that how they get their end of financial year information from their employer, showing their earnings for the year (i.e., their payment summary or income statement) depends on how their employer reports their income, tax and super information to the ATO.
They will be provided with either:
- a payment summary – employers that are not yet reporting through STP will continue to provide employees with a payment summary by 14 July; or
- an income statement – employers that report through STP are no longer required to give employees a payment summary; instead this information will be made available to the employees through ATO online services via myGov and finalised by 31 July (i.e., when the employer marks it as ‘Tax ready’).
Employers should let employees know if they won’t be giving them a payment summary this year.
Employees with more than one employer may receive both a payment summary and an income statement, and they will need to check that income from their payment summaries is included in their return (e.g., through pre-filling).
The ATO will send a notification to an employee’s myGov inbox when all of their income statements are ‘Tax ready’.
Note that tax agents will be able to access employees’ payment summaries or income statement information (once marked as ‘Tax ready’) through their software or the Tax Agent Portal (this has not changed).
TAX OFFICE TO DOUBLE AUDITS OF ‘DODGY’ RENTAL DEDUCTIONS
Rental property owners are being warned to ensure their claims are correct this tax time, as the ATO has announced it will double the number of audits scrutinising rental deductions, with a specific focus on:
- over-claimed interest;
- capital works claimed as repairs;
- incorrect apportionment of expenses for holiday homes let out to others; and
- omitted income from accommodation sharing.
Assistant Commissioner Gavin Siebert says that, this year, the ATO has made rental deductions a top priority: “A random sample of returns with rental deductions found that nine out of 10 contained an error. We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year.”
The Government recently allocated additional funds to the ATO to extend its program of audits and reviews of rental properties.
When it comes to dodgy claims, the ATO’s detection methods are becoming more advanced.
“We use a range of third-party information including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.
“Once our auditors begin, they may search through even more data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they’ve made,” he said.
While no penalties will apply for taxpayers who amend their returns due to genuine mistakes, deliberate attempts to over-claim can attract penalties of up to 75% of the claim.
In the 2017/18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions.
The ATO audited over 1,500 taxpayers with rental claims, and applied penalties totalling $1.3 million; including the following:
- In one case, a taxpayer was penalised over $12,000 for over-claiming deductions for their holiday home when it was not made genuinely available for rent, including being blocked out over seasonal holiday periods.
- Another taxpayer had to pay back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.
“This tax time, our message to taxpayers is clear. If you are renting out a room or a property, any money you earn must be declared as income and any deductions you claim may need to be apportioned for private use,” Mr Siebert said.
Key issues the ATO is checking this tax time
Is loan interest being claimed correctly?
If a taxpayer took out a loan to purchase a rental property, they can claim interest (or a portion of the interest) as a deduction.
However, if they use some of the loan money for personal use, such as paying for living expenses, buying a boat or going on a holiday, they cannot claim the interest on that part of the loan; they can only claim the part of the interest that relates to the rental property.
The difference between capital works and repairs
Repairs or maintenance to restore something that is broken, damaged or deteriorating are deductible immediately.
Improvements or renovations are categorised as capital works and are deductible over a number of years.
Initial repairs for damage that existed when the property was purchased, such as replacing broken light fittings or repairing damaged floor boards, cannot be claimed as an immediate deduction, but may be claimed over a number of years as a capital works deduction.
Does the taxpayer have a holiday home?
A holiday home is different to a rental investment property – a holiday home is generally a private asset used for family holidays, for which the taxpayer cannot claim expense deductions.
However, if a taxpayer lets their property out at ‘mates rates’ (i.e., below market rates to family and friends), they can claim expenses up to the amount of income they receive.
If the property is genuinely available for rent – which means making it available during key holiday periods, keeping it in a condition that people would want to rent it, and not unreasonably refusing tenants – it becomes more like a rental investment property, and the taxpayer can claim deductions for the days it is either rented or is genuinely available.
Has the taxpayer kept records?
The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim.
Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.
Dealing with disasters – Damaged or destroyed property
For taxpayers whose income-generating investment properties are damaged during a natural disaster, the ATO has a range of support, advice and guidance available.
If personal assets – such as a taxpayer’s home or household goods – are damaged or destroyed in a disaster, there will generally be no tax consequences if they receive an insurance payout.
However, if an income-producing asset, such as an investment property, is damaged or destroyed, the taxpayer will need to work out the correct tax treatment of insurance payouts they receive and their costs in rebuilding, repairing or replacing the assets.
The impacts of a natural disaster may affect the types of expenses taxpayers can claim and the income they need to declare for their rental property.
REMOVAL OF TAX DEDUCTIBILITY FOR NON-COMPLIANT PAYMENTS
In November 2018, legislation passed the Parliament removing the tax deductibility for payments to their employees (e.g. for salary) or contractors (e.g. for them failing to provide you with an ABN) where they have not withheld any amount of PAYG from these payments, despite being required to do so by law. This comes into force on 1 July 2019.
In addition to not being permitted to claim a tax deduction for these amounts, directors of companies that fail to pay employee PAYG withholding amounts to the ATO or no ABN withholding amounts by the due date may also be held personally liable for these amounts under the Director Penalty Notice (DPN) regime.
SCAMMERS IMPERSONATING TAX AGENTS
The ATO has received increasing reports of a new take on the ‘fake tax debt’ scam, whereby scammers are now impersonating registered Tax Agents to lend legitimacy to their phone call.
The fraudsters do this by coercing the victim into revealing their Agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered Tax Agent or someone from the tax agent’s practice.
As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘Tax agent’, victims have been falling for this new approach.
In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.
The ATO is reminding Tax Agents and their clients that they will never:
- demand immediate payments
- threaten them with arrest or
- request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency.
Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their Tax Agent to confirm the status of their tax affairs and verify the call.