Starting a new business can be an exciting but also daunting time for individuals apprehensive of their newfound tax obligations and responsibilities.

For instance, an important responsibility of individuals working for themselves is to calculate, withhold and remit tax on their assessable income to the Australian Taxation Office (ATO), whereas employees can rely on their employers to do so.

Businesses report and pay their estimated tax obligations during a year through the ATO’s pay as you go instalment system, which are referred to as PAYG tax instalments. Depending on a business’s income threshold, the instalments will be reported annually, quarterly or monthly. Taxpayers can either voluntarily enter the ATO’s PAYG instalment system, or alternatively will be automatically entered into the system where a previously lodged tax return’s liability exceeds certain thresholds.

Another important tax consideration for a new business is goods and services tax, which is commonly abbreviated to GST. Businesses who earn or expect to earn gross income of $75,000 or more in a year must register for GST. Again, GST will be reported to the ATO annually, quarterly or monthly depending on income thresholds. GST is calculated as 1/11^th of your applicable business income and expenses.

The task of calculating the correct tax and GST to report to the ATO each period can often prove difficult and time consuming, especially where a business’s profit fluctuates. The easiest way to stay on top of these tax obligations is to maintain an appropriate record-keeping system such as accounting files like Xero or MYOB. This is due to the file’s ability to produce reports such as GST reconciliations and profit and losses, which will evidently present the relevant information for ATO reporting.

In addition to the reporting benefits of an accounting file, the software will often offer other business-related services, such as their own invoicing and payroll systems. The benefit of amalgamating all aspects of your business into one system should not be understated, as it will likely save yourself time and perhaps accounting fees.

There are of course many other factors to consider before starting your business, however with regard to taxation, the aforementioned points are the most imperative. To read on other non-tax related considerations please see the following checklist from the Australian Government https://business.gov.au/planning/new-businesses/starting-a-business-checklist

Other related blogs:

Is it a business or a hobby?
How do I register a business name?

Author: Amy Murphy
Email: amy@faj.com.au

 

Starting June 30, 2024, the Australian Taxation Office (ATO) has introduced new NFP annual reporting requirements that will affect all not-for-profit organisations (NFP). This new mandate requires NFP’s to annually confirm their eligibility for tax exemption status using a specific self-assessment tool provided by the ATO.

Understanding and adapting to these changes can be challenging, especially with the technical aspects of tax laws and compliance demands. To help clubs manage these new requirements efficiently, registered company auditors are now offering their expertise.

Francis A Jones is equipped to assist NFP’s with the following tailored services:

• Assistance with the Self-Assessment Tool: We will help ensure that your organisation correctly completes and submits the required information to maintain its tax-exempt status.
• Lodgement Services: We can take care of documentation filing with the ATO, ensuring accuracy and timeliness.
• Guidance on Self-Review: We offer advice and support to help your club understand the new NFP annual reporting requirements and establish best practices for ongoing compliance.

These new ATO reporting requirements are crucial for NFP’s to understand and implement. By engaging a professional auditor, the NFP can simplify this process and ensure that your NFP remains focused on its primary activities and community contributions, rather than getting bogged down with tax compliance issues.

For further information or to arrange a consultation, NFP’s are encouraged to get in touch. Let us help you navigate these new requirements, making the transition as seamless as possible and allowing you to keep your attention on what matters most — your members and your community.

If you would like to discuss your auditing needs in more detail, please contact Daniel and the FAJ audit team directly on 9335 5211 or at daniel@faj.com.au.

Author: Daniel Papaphotis
Email: Daniel@faj.com.au

Here’s what you need to know about your student loan – tax edition

For many Australians the HECS-HELP scheme allows you to defer the cost of your higher education until you start earning a stable income. It is often not thought about while you complete your study. However, if you have now entered the work force it can be beneficial to know the requirement to pay this loan back and how it is administered.

How the repayments are calculated?

The repayment of your HELP loan is compulsory once your “repayment income” is over the relevant threshold. For the 2023-24 financial year the first threshold is from $51,550 to $57,729. If your repayment income is between this threshold, 1% of your income goes towards repaying your HELP debt.

For example, if you earned $55,000 of repayment income in the 2023-24 financial year, $550 would be repaid off your overall loan. As your repayment income increases, the repayment percentage required also increases.

You can click here to determine your relevant repayment percentage.

Note that the repayment rate is not based on taxable income, it is based on “repayment income”. Repayment income is calculated by adding your taxable income, net investment losses, reportable fringe benefits, reportable super contributions and exempt foreign employment income for the financial year.

How are repayments made?

HELP repayments are made through the tax system and the repayment automatically occurs once you lodge your tax return. Although you may see a HELP repayment amount coming out each pay period, this is not being paid directly against your HELP debt. It is being paid to the ATO as part of your overall tax withheld. Only once you lodge your tax return will the ATO assess your repayment income and make the necessary HELP repayment for the financial year. Therefore, you will not see your HELP debt decreasing throughout the year but rather after your return is lodged.

Employers should withhold additional tax from your salary each pay period to cover the HELP repayments. When you start a new job, you are required to complete a Tax File Number (TFN) declaration form which includes an option to notify your employer that you have a HELP debt. If you select “yes” your employer will then withhold the appropriate amount from your pay so you don’t get a nasty HELP bill when it comes time to lodge your tax return.

If you are an ABN income earner you will not have an employer to withhold tax on your behalf. Therefore, it is important to keep in mind that you may not only have tax to pay at the end of the financial year but also potentially a HELP repayment as well. Speak to your accountant on how much you may need to budget if you are unsure.

Why is my HELP debt increasing?

Although HELP is essentially an interest free loan, your outstanding HELP balance is adjusted by indexation every year on the 1^st of June. The indexation rate (or the rate your loan will increase) is based on the Consumer Price Index (CPI) in order to keep the debt in line with inflation.

You can choose to make voluntary repayments against your HELP loan if you wish. However, these additional repayments are non-refundable and not tax deductible. If you decide to make a voluntary repayment, this should ideally be made prior to the 1^st June of the financial year to reduce the impact of indexation.

Related blogs:

Self-Education Expenses

Author: Kurtis Maclennan
Email: kurtis@faj.com.au

 

 

With the Fringe Benefit Tax year-end upon us we thought we’d share with you what’s new in FBT.

Employer cars repaired at a workshop.

Does an employer provide a car fringe benefit to an employee on a day which the car is garaged at a mechanic’s workshop for repair?

ATO factsheet, Fringe Benefits Tax QC71121 has confirmed that a car being held at a workshop for “extensive repairs” is not being applied for private use and is not held by the provider during these periods, therefore no fringe benefit will occur in relation to these days.

What does this mean for me?

As employers, the number of days provided can be reduced if using the statutory method or if using the operating cost method, any costs relating to the vehicle during the repair period can be excluded. This includes a proportion of annual expenses such as insurance and registration.

Extensive repairs relate to where the car is being repaired after an accident or where the car is currently unroadworthy and housed at the mechanic.  This concession does not extend to minor repairs or routing servicing as the user still has the ability to cancel the repairs and drive the car away.

Logbook requirement

The ATO has confirmed that the operating cost method may still be used where a valid logbook has not been maintained for the car.  A private percentage of 100% can be used to compare with the statutory formula and the lower may be used.  This may produce a lower FBT liability if the car was purchased a number of years ago or the running costs of the car are low.

FBT Trap – cars with signage

Many businesses now provide cars with custom signage, allowing the business to be advertised when the car is being driven or in a public area.  Confusion stems relating to whether this is considered advertising and a business use of 100% can be used in relation to FBT.  ATO have updated guidance confirming that private use is “everything else other than the exclusive course of working, running a business or otherwise earning income.”  Therefore these cars have a dual purpose and will still be available for private use under the definition in relation to FBT.

Electric Cars & Plug-in Hybrids

Qualifying electric cars are exempt from FBT from 1 July 2022. This is a huge exemption and benefit for employers in terms of FBT, but don’t get too excited too quickly.  Whilst this is a great development, the compliance requirements surrounding these vehicles remain.  Employers are still required to include the value of an exempt FBT electric car when determining if an employee has a reportable fringe benefits amount to be declared on their payment summary.

The ATO has released PCG 2024/2 to provide a short cut method in determining the cost of charging an electric car at home, being:

Electric vehicle home charging rate x total number of kilometres travelled by the car in the FBT year.

Note that:

• The rate for 2023 and later years is 4.20 cents per kilometre
• Employers must disregard any costs at a commercial charging station
• Plug in hybrids cannot use this method
• This method is not compulsory

Whilst electricity costs are a car expenses the provision of the electric vehicle charging station itself will be regarded as an expense payment benefit and is subject to FBT.

Crackdown on utes and other work-horse vehicles

Eligible vehicles are exempt from FBT if regarded as a work-horse vehicles and any private use is limited to ‘work-related travel or is ‘minor, irregular and infrequent’.

But what is limited private use?

• Travel to and from home
• Travel incidental to employment related duties (eg. Stopping for coffee for a business meeting)
• Minor, irregular and infrequent.

ATO’s PCG 2018/3 guides that total private use of the vehicle (other than home to work) in the FBT year should be no more than 1,000kms with no single private journey exceeding 200kms.

The ATO data matching program has been extended to monitor registration records until the end of 2025 regarding makes, models, engine size and carrying capacity of vehicles.

Whilst special records are not required to ensure eligibility of the above.  It is advised that odometer records are kept to ensure that usage is within the expected private use between home and work travel during the period.

Any vehicles not meeting this criteria will have a residual fringe benefit.

Other related blogs:

Tax consequences of buying a work vehicle
Deductibility of electric vehicle used for work
Claiming vehicle expenses using a log book method

Author: Stacey Walker
Email: stacey@faj.com.au

 

 

Determining whether you are running a business or a hobby can be difficult. Generally, a hobby is an activity performed in your spare time with the single purpose of enjoyment.  If, however, the hobby earns income and begins to make a profit, should it be considered a business?

Whether a taxpayer carries on or business is not defined by law, but is a question of fact and degree. Unfortunately, there is no single factor when making this determination, but the following points need to be considered:

1. Do you intend to be in business?
2. Have you decided to operate in a business-like manner? This may include an application for a business name or ABN, writing a business plan or opening a bank account.
3. Do you intend or genuinely believe you will make a profit from your activities?
4. Is the activity repeated and continuous?
5. Have you obtained relevant licences and/or permits?
6. Are you advertising your goods and services to the public?
7. Do you have a business premises?

If the answer is yes to many of the above, then the likelihood is that you are considered a business for income tax purposes, which of course comes with certain obligations.

There are different types of business entities to choose from, and deciding which best suits your situation will determine what you need to report and how you lodge a tax return. There may also be restrictions on your ability to utilise any losses made, or offset these against other personal income.

As a business you are required to record all items of income and expenditure and regardless of whether a profit has been made, report this to the Australian Taxation Office by lodging an income tax return.

Businesses can be registered as Sole traders, Partnerships, Companies or through Trusts.

Your accountant will be happy to discuss your requirements with you, and together determine which entity best suits you and guide you through all ATO and business requirements.

Further references:

https://business.gov.au/planning/new-businesses/difference-between-a-business-and-a-hobby
https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/are-you-in-business

Other related blogs:

Content creators – Income and GST considerations
What is a non commercial loss?

Author: Jessica Jones
Email: jessicaj@faj.com.au