Regulatory Roundup Aug 2015

Relief for many small businesses as Single Touch Payroll put on back burner

Since the announcement of Single Touch Payroll late in 2014, the government says it has been working closely with both software developers and businesses to help it understand the affects the initiative will have in the real world.

Feedback to date has informed government that the proposed start date of July 2016 will simply not be achievable, especially for small and medium sized businesses. There were also concerns regarding resulting cash flow issues.

Small business minister Bruce Billson says the government will now undertake further consultation on the issue to iron out the concerns of the business community. “We want to make sure we get this right because we understand Single Touch Payroll will be a large change for all businesses, especially small business,” Billson says.

Under Single Touch Payroll, it is envisaged 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 government aims to streamline Tax File Number (TFN) declarations and Super Choice forms by providing digital services to simplify the process of bringing on new employees.

Given this, the government says it will be consulting with industry groups and small business on a revised proposal to test:

  • real time compulsory reporting of payroll information to the Tax Office
  • voluntary real time payment of PAYGW and Super Guarantee as an option
  • running pilots with small business (starting July 2016) to test various scenarios, including simplifying the process of bringing on new employees with streamlined TFN declarations and Super Choice forms, and the timing for implementation.

Why you need to disclose a business industry code for your tax return

The Tax Office has re-released its business industry code (BIC) tool to help small businesses speed up their tax return lodgement.

The BIC is a five-digit number required for tax returns and schedules. Using the correct code helps businesses avoid delays by ensuring their return is lodged in the correct category. It is derived from the Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

It provides information, advice, and a comparison framework against specific small business benchmarks.“Being inside the benchmarks means you’re less likely to be contacted by us,” the Tax Office said on its website.

Individuals with more than one business can indicate on their tax return they are operating multiple entities, but the code will apply to the activity from which the businesses derived the “highest gross income or incurred the smallest loss”.

Businesses looking for their BIC can search by business description.According to the Tax Office, it works as follows:You can try typing in an exact description of your main business activity. For example, if you type ‘Poultry meat packing’ into the search box and select ‘search’, you will get the BIC ‘11120’.If you don’t know the exact description of your main business activity or you are presented with an error message, try typing in a single key word that best describes your primary business activity.For example, if the business is abalone fishing, search under the keyword ‘abalone’ to find BIC ‘04191’.

Businesses can also search by inputting full or partial ANZSIC or BIC codes.

According to Andy Nguyen, Tax Technical Manager at Taxpayers Australia, the business codes shown in the tax return can be used by the Tax Office to undertake sophisticated bench marking and data matching.“For example, if you run a cafe, the Tax Office will be able to collate financial information, such as profit and loss and balance sheet information from your tax return, and assess this against other businesses in this industry,” he said.

The Tax Office’s business industry code tool is available for free here.

Telstra’s 2014 share buy-back: Tax Office flags its impact on 2014-15 tax returns

In 2014, Telstra announced that it would undertake an off-market share buy-back, with the buy-back results announced on October 6, 2014.

The Tax Office says participating shareholders are taken to have disposed of their shares accepted under the Telstra buy-back at that date (CGT event A1). It has released a fact sheet giving advice for Australian resident investors who hold their shares on capital account and that are subject to the CGT provisions.

Investors received a payment of $4.60 per share they sold. This amount consisted of a:

  • fully franked dividend of $2.27 per share;
  • capital component of $2.33 per share.

For CGT purposes, the Tax Office says participants in the buy-back are deemed to have received $2.77 as the capital component of the buy-back price. For more details, see this class ruling on the Tax Office’s legal database.

According to the Tax Office, there are two tax consequences:

  • investors must include the dividend and the franking credit in their assessable income for 2014-15; and
  • the sale of their shares (to Telstra) is a CGT event that may have resulted in a capital gain (or capital loss) for the investor. Depending on the outcome, investors may have to include some details on their 2014-15 tax returns.

See the fact sheet for more details on dividend treatment and capital gains consequences, or ask your tax professional.

Tax Office reviews discretionary trust distributions

The Tax Office recently completed a review of SMSF annual returns where distributions from a discretionary trust had been reported. It says a similar review is planned for next financial year.
A discretionary trust is one in which the trustee has a discretion to determine the amount of trust income to distribute to each beneficiary.

In the review, trustees were asked to check the trust deed of the distributing trust – and any resolutions – to determine whether the amount reported at label 11M (gross trust distributions) was non-arm’s length income.

The Tax Office reminded SMSF trustees that distributions from discretionary trusts are considered to be non-arm’s length income, which is taxed at the highest marginal rate. It says these amounts should be reported at Section B: Income, label U2 on the SMSF annual return.

Trustees were also reminded to ensure distributions from discretionary trusts are correctly reported in the SMSF annual return.

For more information, refer to the Tax Office’s web pages “Non-arm’s length income” and “SMSF annual return instructions” for guidance.

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