If you are small business owner, a year end procedures can be quite overwhelming. We have listed down some of the financial ‘house-keeping’ items you should be aware about:
Before rolling over your accounting software for the new financial year, make sure you:
- Prepare your financial year end accounts. This way, any problems can be rectified and you have a ‘clean slate’ for the 2015/2016 year. Once rolled over, the software cannot be amended.
- Do not perform a Payroll Year End function until you are sure that your payment summaries are correct and printed. Always perform a payroll back-up before you roll over the year.
PAYG payment summaries
You need to provide all of your staff with their PAYG Payment Summary on or before 14 July 2015. This includes any staff that left your employment during the 2014/2015 financial year.
If we prepare your Payment Summaries for you, please email us the data file from your accounting software.
The ATO imposes penalties of up to $2,750 for the late lodgement of PAYG Payment Summary Statements.
The annual PAYG Payment Summary Statement for the year ending 30 June 2015 needs to be lodged with the ATO on or before 14 August 2015. However, if we are preparing your Payment Summary for you and you only employ family members in your business (closely held employees), you may be eligible for an extension.
Reportable Fringe Benefits on PAYG Payment Summaries
Where you have provided fringe benefits to your employees in excess of $2,000 then you need to report the FBT grossed-up amount on their PAYG Payment Summary. This is referred to as a `Reportable Fringe Benefit’ (RFB) amount and a label is included on the PAYG Payment Summary for this purpose.
Shareholder loan accounts
If your company has advanced funds to a shareholder or related party, paid expenses or allowed a shareholder or other related party to use assets owned by the company, then this can be treated as a taxable dividend.
The regulators expect that top-up tax (if any applies) should be paid by shareholders at their marginal tax rate once they have access to these profits – which will also include the 2% debt tax from 1 July 2014 for those with a taxable income above $180,000. This is unless a complying loan agreement is in place.
As the tax rules in this area can be extraordinarily complex and can lead to some very harsh tax outcomes, it is important to talk to us as soon as possible if you think your company has made payments or advanced funds to shareholders or related parties.
If you have any shareholder loan accounts from prior years that were placed under complying loan agreements, the minimum loan repayments need to be made by 30 June 2015. It may be necessary for the company to declare dividends before 30 June 2015 to make these loan repayments.
You might not need to do a stocktake – using the simplified trading stock rules
Small Business Entities (operational businesses with an aggregated turnover below $2 million) have access to a range of tax concessions. One of these concessions is the simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes if there is a difference of less than $5,000 between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year. You will need to record how you determined the value of trading stock on hand.
If you would like to take advantage of the simplified trading stock rules, call us today to make sure you are eligible to use the simplified rules and to talk through how to use them properly.
Beware of arrangements involving contractors
Superannuation guarantee and other tax obligations
The ATO rarely loses a case when they challenge the employment status of contractors. The implications are enormous for employers that misclassify workers as contractors.
Despite this reality, many businesses are failing to give adequate attention to the risk of misclassifying employees as contractors for tax purposes. What the parties decide to call the relationship is irrelevant for superannuation guarantee, payroll tax, or workers compensation – it is the characteristics of that relationship that determine liability.
Where a business engages contractors and misinterprets the relationship, they can face significant liabilities and exposure to penalties and interest.
As a general rule of thumb, businesses that hire independent contractors are not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, the ATO’s strict position on what is an employee for tax purposes has been upheld in a number of court cases to the detriment of the employer involved. Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time.
Personal services income
If your company conducts a business that relies on your personal effort and skill to generate income, then you need to be aware of the rules applying to the diversion of personal services income.
If the company earns personal services income, the ATO will treat the income as having been derived by you personally (rather than the company) unless certain tests can be satisfied. This means that your personal tax rates will apply to the business income and you will be denied access to a range of tax deductions normally available to businesses.
Even if the rules haven’t affected you in the past, this is an annual test and you might be caught if your circumstances have changed.
If you are concerned about your position, talk to us today for clarification.