Australia has weathered the “perfect storm” (see our earlier tax snapshot Upcoming election & tax year-end planning); the Federal election has come and gone and the 2019 income tax year is about to end.
But endings also mean new beginnings – and in business jargon that means the 2020 income tax year is about to start. This tax snapshot deals with new tax changes (i.e. which have been legislated) that will apply from 1 July 2019 for the first time.
Note the proposed increases to the low and middle-income tax offset have not yet been legislated.
In a previous tax snapshot, What tax changes can we expect following the election? we analysed what tax changes we can most likely expect in the near future (i.e. pre-election tax proposals, backlog of Bills that lapsed when the election was called and proposals made during the election campaign). It will be interesting to see which of these proposals will eventually be introduced into Parliament when the 46th Parliament assembles for the first time from 2 July 2019.
The triumvirate of tax changes to apply from 1 July 2019
The three major tax changes applying from 1 July 2019 are concentrated on:
I. stricter enforcement of existing PAYG withholding obligations (i.e. “do this or else you don’t get a deduction” approach);
II. data matching more cash economy transactions (i.e. taxable payment reporting); and
III. using technology to streamline processes currently in place to capture relevant employment data and using “real time data” to improve transparency for employees, employers and the ATO (i.e. single touch payroll (STP)).
No deduction if no withholding or no reporting
When an employer makes payments to employees, directors or contractors (who have not quoted their Australian business number (ABN)), the employer needs to:
1. register for pay as you go (PAYG) withholding;
2. withhold an amount before paying the worker;
3. report the amount withheld to the ATO (through lodging a business activity statement (BAS));
4. pay the amount withheld to the ATO;
5. provide payment summaries to all employees and other payees by 14 July; and
6. provide a PAYG withholding payment summary annual report to the ATO by 14 August.
The table below sets out when these withheld amounts need to be paid to the ATO (i.e. point 4 above):
The purpose of this PAYG withholding system (i.e. “piecemeal prepayment of tax” system) is to prevent workers from having a large amount of tax to pay after they have lodged their tax returns.
As illustrated in the timeline below, up to 30 June 2019, employers could claim a deduction for salary/wages paid to their workers (regardless of whether they have met their PAYG withholding obligations or not).
However, from 1 July 2019, only employers that have complied with the PAYG withholding and reporting obligations can claim deductions for such payments. As such the deductible component will apply to the 2020 income tax return.
Because the deduction is only denied where no amount has been withheld or reported to the ATO (for example in the case of non-compliant cash wage payments), employers withholding or reporting an incorrect amount to the ATO will not lose the deduction.
However, to minimise penalties for such incorrect withholding or reporting, affected employers should make corrections (by making voluntary disclosures) as soon as possible.
I. Taxable payment reporting for road freight, IT & security providers
From 1 July 2019, road freight, information technology, security investigation or surveillance providers will also be subject to the taxable payment reporting regime (i.e. data matching of information in certain industries of payments made to contractors) and are required to lodge their taxable payments annual report (TPAR) by 28 August 2020.
Currently, only businesses providing building and construction, cleaning and courier services are subject to this taxable payment regime and must lodge their TPAR by 28 August 2019.
II. Single touch payroll (STP) for everyone
From 1 July 2019, employers with 19 or less employees are also required to use the STP reporting system whereby all tax and superannuation information will be automatically sent to the ATO when an employer runs a payroll. There are flexible options available if such employers have closely held employees (e.g. family members) that do not regularly receive a salary.
Also, employees will be able to see their year-to-date tax and superannuation information in their myGov account and this data will be updated in real time every pay day. Please see our recent publication Single Touch Payroll – Are you compliant? for more information.
How can Findex help you?
We trust you found this tax snapshot useful to highlight some tax consequences arising from various employment related issues.
If anything in this tax snapshot triggered your interest or you are a type of taxpayer (or know a taxpayer) that may need assistance with their employment taxes, please contact your Findex adviser. Let Findex help you review your systems and procedures to ensure you are compliant with all your tax obligations.
We have considerable experience advising on a variety of tax issues that may be relevant for you or your business and look forward to discussing other ways we may be able to assist.
After all, your story is our business.
Through our Tax Advisory team across Australia, we can help you identify potential opportunities that may be available for your business, while at the same time help you to manage your exposure to business risks.