In an ever changing world, Rettore & Associates wants to ensure that you have access to the latest information available, that will affect your financial health. We therefore want to share as much information as possible for your perusal and information. Whilst we take responsibility to ensure the best outcomes for you, you may be alerted to information that effects a position we are not yet aware of.
Businesses use activity statements to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Non-business individuals who need to pay quarterly PAYG instalments also use activity statements.
Activity statements are personalised to each business or individual to support reporting against identified obligations.
Activity statements for businesses may be due either quarterly or monthly. Generally, businesses can lodge and pay quarterly if annual turnover is less than $20 million and total annual PAYG withholding is $25,000 or less. Businesses that exceed one or both of those thresholds will have at least some monthly obligations. Non-business individuals are generally required to lodge and pay quarterly.
The Australian Taxation Office (ATO) website provides instructions on lodging and paying activity statements.
The Australian Business Number (ABN) is a single business identifier that allows businesses to deal with the ATO and other government departments and agencies with one identifier.
An ABN is not compulsory and not everyone is entitled to an ABN. The following entities will need an ABN to comply with other tax obligations:
Other eligible entities may choose to register for an ABN:
If an entity makes supplies of goods or services to a business, the supplier generally needs to quote an ABN. If the supplier does not quote an ABN, the payer may need to withhold tax from the payment.
Deductions for the decline in value of depreciating assets are available under the Uniform capital allowance (UCA) system. In addition to the rules for depreciating assets, deductions are allowed for certain other capital expenditure. Small business entities have the option of choosing simplified depreciation rules. Land, trading stock and most intangible assets (excluding exceptions such as intellectual property and in-house software) are not depreciating assets.
The decline in value is calculated by spreading the cost of the asset over its effective life, using one of two methods:
For most depreciating assets, taxpayers can either self-assess the effective life, or use estimates published by the ATO. Taxpayers can recalculate, either up or down, the effective life of an asset if the circumstances of use change and the effective life initially chosen is no longer accurate. An improvement to an asset that increases its cost by 10% or more in a year may result in an obligation to recalculate the effective life of the asset.
Decline in value of cars is restricted to the car limit. From 1 July 2017 the depreciation cost limit is $57,781. The luxury car tax threshold for luxury cars increased for 2019 to $75,526 for fuel efficient cars or $66,331 for others. Luxury car leases are treated as a notional sale and purchase, with decline in value restricted to the car limit.
The decline in value of certain depreciating assets with a cost or opening adjustable value of less than $1,000 can be calculated through a low-value pool. The decline in value for depreciating assets in the pool is calculated at an annual diminishing value rate of 37.5%.
Capital gains tax (CGT) generally applies to CGT events that happen to CGT assets acquired after 19 September 1985. CGT is not a separate tax, it forms part of income tax.
The most common CGT event is the disposal of an asset by selling it or giving it away.
A CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include:
Where a taxpayer owns an interest in a CGT asset and then acquires a further interest, the interests remain separate CGT assets. Buildings, structures and other capital improvements to land may be treated as separate CGT assets to the land. A car is a CGT asset, but any capital gain made from it is exempt from CGT (the gain may be taxable under other provisions).
For most CGT events, a capital gain arises if the capital proceeds from the CGT event exceed the cost base of the CGT asset. Conversely, a capital loss arises if the reduced cost base of the CGT asset exceeds the capital proceeds from the CGT event.
The amount of a capital gain is reduced by the CGT discount if the taxpayer is an individual, trust or complying superannuation entity, and the taxpayer acquired the CGT asset at least 12 months before the CGT event. The discount percentage is as follows:
Taxpayers can choose the indexation method, rather than the CGT discount, if that results in a lower capital gain. Companies are generally not eligible for the CGT discount, but can use the indexation method. Discount capital gains made by trusts can generally be passed through to presently entitled beneficiaries, who can claim the discount percentage as above. Where the trustee is taxed on a capital gain, the availability of the discount depends on the particular circumstances of the trust.
Capital losses can only be offset against capital gains, they cannot be offset against other income. Care should be taken when applying capital losses to ensure the optimum reduction of capital gains for the CGT discount and small business CGT concessions. A net capital loss in an income year is carried forward to be offset against capital gains in later income years.
Fringe Benefits Tax (FBT) is paid on particular benefits employers provide to their employees or their employees’ associates instead of salary or wages. Benefits can be provided by an employer, an associate of an employer, or a third party by arrangement with an employer. An employee can be a former, current, or future employee.
FBT is separate from income tax and based on the taxable value of the various fringe benefits provided. The rate corresponds to the top marginal income tax rate for individuals, including the Medicare Levy (47% for the FBT year ending 31 March 2018). A complicated gross-up factor is applied in calculating the tax – the general principle is that the FBT payable should equal the income tax otherwise payable by an employee on the top marginal tax rate, on the cash salary needed to purchase the benefit (including GST) from after-tax income.
The FBT year runs from 1 April – 31 March. Annual FBT returns must be lodged and tax paid by 21 May each year. Returns lodged through tax agents may qualify for extended due dates. Annual FBT liabilities of $3,000 or more are paid by quarterly instalments as part of the employer’s business activity statement.
If the taxable value of certain fringe benefits provided to an employee exceeds $2,000 in an FBT year, the ‘grossed-up’ taxable value must be reported on the employee’s payment summary for the corresponding income tax year. The following categories of fringe benefits apply, with specific valuation methods applicable to each category:
Concessional valuation rules apply to ‘in-house’ fringe benefits. The taxable value of certain fringe benefits can be reduced by employee contributions towards the cost of the benefit. Making such contributions can result in a lower overall tax liability, depending on the particular employee’s tax situation and the valuation method that applies to each benefit received. See the ATO website for more on FBT Categories.
Goods and services tax (GST) is a tax of 10% on most goods, services, and other items sold or consumed in Australia. The general principle is that only the end consumer bears the economic cost of GST. Registered entities bear the liability of collecting GST in the price of sales to their customers, but can offset credits for GST included in the price of business purchases.
An entity (including an individual) must register for GST if the entity’s annual turnover is $75,000 or more ($150,000 for non-profit organisations). An entity may choose to register if the entity’s turnover is below the threshold. Related entities may form a GST group and be treated as a single entity for GST. A single entity may register separate branches for GST.
A registered entity is generally required to charge GST on all sales of goods and services in Australia, unless a supply is GST-free or input taxed. The entity must provide its customers with a tax invoice for all taxable sales above a threshold of $82.50 ($75 + GST).
A registered entity can claim an input tax credit for GST included in the price of goods or services purchased for the entity’s business. A credit cannot be claimed for:
The reporting periods for GST are called tax periods and can be quarterly or monthly. GST is reported and paid on the entity’s activity statement for its tax period. Entities with an annual turnover of less than $20 million generally have quarterly tax periods, but can choose to have monthly tax periods. Entities with an annual turnover greater than $20 million are required to have monthly tax periods and lodge their activity statements electronically.
In limited circumstances, entities can choose to report and/or pay GST annually. This may involve quarterly instalments plus an annual GST return to reconcile actual transactions for the year.
The rules for attributing GST payable and input tax credits to tax periods differ according to whether GST is accounted for on a cash or accrual basis. An entity can account for GST on a cash basis if any of the following applies:
Income tax is levied on taxable income, which is calculated as assessable income less allowable deductions. Gross tax on taxable income is reduced by tax offsets, to arrive at net tax payable or refundable.
The Australian Taxation Office (ATO) publishes lists of assessable income, allowable deductions and tax offsets for individuals. Sole traders declare business income in their individual income tax return, they are not required to complete a separate return for their business. Tax on individuals is charged at marginal rates. You can use the tax tables to determine how much you are taxed.
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | $0 |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $90,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $90,001 – $180,000 | $20,797 plus 37c for each $1 over $90,000 |
| $180,001 and over | $54,097 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%. The above rates include changes announced in the 2018-19 Federal Budget.
| Taxable income | Tax on this income |
|---|---|
| $0 – $90,000 | 32.5c for each $1 |
| $90,001 – $180,000 | $29,250 plus 37c for each $1 over $90,000 |
| $180,001 and over | $62,550 plus 45c for each $1 over $180,000 |
The above rates include changes announced in the 2018-19 Federal Budget.
See the ATO web site for more information on Individual Income Tax Rates.
A company is a distinct legal entity with its own income tax liability, and is required to lodge a Company income tax return. The company tax rate is generally 30%. Special rates apply to certain types of companies, or companies in certain industries.
A partnership carrying on a business must complete a Partnership tax return to show all income earned and deductions claimed for the income year, and how the net income or loss was shared between the partners. The partnership itself is not a taxable entity. Rather, each partner includes a share of the partnership’s net income or loss in the partner’s taxable income. Partnerships where the only income is from joint investments (for example, jointly owned shares or rental properties) are not required to lodge a Partnership income tax return. Rather, each partner’s share of the joint income is declared in the partner’s own tax return.
Where a beneficiary (not under a legal disability) is presently entitled to a share of net income of a trust, the trustee is not taxable. Rather, each such beneficiary includes a share of the trust’s net income in the beneficiary’s taxable income. A trust cannot distribute a net loss to the beneficiaries, the loss is carried forward to offset against net income in later years. Where a presently entitled beneficiary is under a legal disability (for example, under 18 years of age, a non-resident, or incapable of managing his/her own affairs), the trustee is taxable on the beneficiary’s share of the trust’s net income. The tax rates correspond to the tax rates that would otherwise be payable by the beneficiary. Where no beneficiary is presently entitled to part of the trust’s net income, the trustee is taxable. The tax rates depend on the trust’s particular circumstances, for example income of deceased estates attracts a different tax rate depending on the stage of administration of the estate.
A superannuation fund is a distinct legal entity with its own income tax liability and is required to lodge an income tax return. Different income tax return forms are used by self-managed superannuation funds and other superannuation funds. The superannuation fund tax rate is generally 15%. Higher rates apply to net non-arm’s length income, and contributions by or on behalf of a member who has not quoted his/her tax file number to the trustee.
The Medicare Levy is a tax Australian residents pay to cover health care charges. It is payable on taxable income, in addition to income tax. Individuals and families on higher incomes who do not have an appropriate level of private hospital cover may have to pay the Medicare levy surcharge.
For the 2014-15 and later income years, Medicare Levy is usually calculated at 2% of taxable income. A reduction in the rate is available for people on low incomes and an exemption is available for people in certain categories.
A Medicare Levy Calculator is available on the Australian Taxation Office (ATO) web site to help you work out your obligation.
See the Medicare Levy Essentials section of the ATO web site.
Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards an entity’s or individual’s expected tax liability on business and investment income. The actual tax liability is worked out at the end of the income year when the annual income tax return is assessed. PAYG instalments paid during the year are credited against the assessment to determine whether the entity or individual owes more tax, or is owed a refund.
The Australian Taxation Office (ATO) will contact entities and individuals who are required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the last assessed income tax return. PAYG instalments may be included as part of an activity statement, or a separate instalment notice may be issued.
The default option is for the instalment to be calculated as the instalment rate multiplied by business and investment income for the instalment period. The main advantage of this method is that instalments are based on income as the entity or individual earns it, instead of a projection based on the previous tax situation. Some entities, and all individuals, may however choose to pay an instalment amount calculated by the ATO, which is based on the most recent tax assessment plus an uplift factor. This decision needs to be made before the due date for payment of the first instalment for each income year, and then applies for the remainder of that year.
Entities and individuals can vary an instalment if they believe the instalment rate, or the ATO calculated instalment, will result in paying more or less than the expected tax liability for the year.
PAYG instalments for individuals are generally paid quarterly. Where the most recent annual tax liability on business and investment income is less than $8,000 and certain other conditions are met, individuals can choose to pay an annual instalment. For more information see Introduction to annual PAYG instalments. A special two instalment option is available to some primary producers and special professionals (e.g. sportspersons, artists, inventors and authors).
Partnerships and trusts are generally not required to pay PAYG instalments. However, special rules apply to partners and beneficiaries when calculating their own PAYG instalments.
Corporate tax entities with annual turnover above a threshold are required to pay monthly PAYG instalments. The threshold is $1 billion from 1 January 2014 and $100 million from 1 January 2015. Other corporate tax entities are required to pay quarterly instalments. Companies can choose to pay an annual instalment if they meet the criteria that apply to individuals noted above, plus some additional conditions.
PAYG instalments for superannuation funds are generally paid quarterly. Superannuation funds can choose to pay an annual instalment if they meet the criteria that apply to individuals noted above.
Pay as you go (PAYG) withholding is a system for withholding amounts from payments to employees and businesses. An entity will have withholding obligations if the entity:
If you are an employer or run a business and withhold amounts from payments, you need to:
Payroll tax is a state tax on the wages paid by employers when the total wages exemption threshold is exceeded. Exemption thresholds vary between states. The definition of wages generally includes employer superannuation contributions and fringe benefits, although the definition also varies between states.
NOTE: Payroll tax is not the same as PAYG withholding tax collected by the Australian Taxation Office (ATO). PAYG is the tax deducted from an employee’s income and forwarded to the ATO.
The following organisations are generally exempt from payroll tax, provided specific qualifying conditions are met:
All landowners, except those in the Northern Territory, may be liable for land tax. In the Australian Capital Territory land tax is levied on lessees under a Crown lease, because land generally cannot be acquired under freehold title. Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds (excluding the ACT).
In some states, deductions and rebates are available, depending on how the land is used. Principal places of residence are generally exempt from land tax, however this depends on particular qualifying criteria (these vary between jurisdictions).
Land owned and used by the following types of organisations might be exempt from land tax:
Stamp duty is levied on particular written documents and transactions, including:
The stamp duty rate varies according to the type of transaction and its value. Depending on the nature of the transaction, certain concessions and exemptions may be available.
Particular deductions and exemptions vary between states for all duties. For additional state-specific information, visit the applicable state web site:
In addition to employees’ salaries and wages, employers are required to pay superannuation contributions on behalf of all eligible employees. This compulsory contribution is called the superannuation guarantee. The definition of employee for this purpose includes certain contractors. The minimum contribution from 1 July 2014 is 9.5% of each eligible employee’s earnings base (usually their ordinary time earnings) and must be paid within 28 days after the end of each calendar quarter. Employers must also provide employees with a choice of superannuation fund.
The minimum contribution rate will remain at 9.5% until 30 June 2021. After that date, the rate will increase by 0.5% each financial year until it reaches 12% from 1 July 2022.
Employers are generally required to pay superannuation contributions for employees if they are:
If an employer fails to make the minimum contributions for a quarter by the due date, the employer is liable for the Superannuation Guarantee Charge (SGC). The SGC comprises the unpaid contributions calculated on a higher earnings base, plus an interest charge (which is credited to the employee’s superannuation account) and an administration fee. The employer cannot claim an income tax deduction for the SGC.
The Australian Taxation Office (ATO) provides the following tools to help you understand and meet your obligations:
Taxpayers who do not meet their tax obligations may face penalty or interest charges. To avoid these charges, ensure you pay the full amount of tax you owe by the due date.
The main charges for failing to meet tax obligations are the:
Additional penalties include failing to:
If a taxpayer is audited and an amended assessment is raised, further penalties of up to 75% of the additional tax levied may be applied, depending on the severity of the offence. Examples include making a false or misleading statement, not taking reasonable care, or taking a position that is not reasonably arguable in a tax return or other document.
