Tax is in Australia is complicated, that’s why we have one of the highest rates of tax agent dependence in the world, but even that doesn’t stop these mistakes from happening and with the tax office’s super smart algorithms tracking your every interaction and building a risk profile about your business and its directors, you can’t afford to make these mistakes any longer.
Easily the biggest mistake made, whether unintentionally – got busy, forgot to push the button to submit it, waiting on people to give you info – whatever it may be, late lodgements of Business Activity Statements (BAS) and Income Tax Returns are at the top of the list. Lodging late consistently is a sign that you haven’t got proper processes and controls around your accounting and tax. The more you lodge late, the earlier and more severe the intervention from the ATO will be. Failure to Lodge Penalties, not allowing payment arrangements, and higher risk of desktop reviews. The ATO is keen to intervene before you spiral out of control.
But it’s not just the risk profile you’re damaging here. Late lodgements, can expose directors to Director Penalty Notices – automatically making them personally liable for the Pay As You Go Withholding (PAYGW) .
Hand in hand with late lodgements, late payments are a sign that your business isn’t in the best financial shape or payment processes are a bit sloppy. Both of these add another mark to the risk profile the ATO is building about your business, and its directors. Continual late payments will see more difficulty establishing a payment arrangement (if ever needed) as there is less certainty that the business will meet the payment timelines.
Employee contributions but no Fringe Benefit Tax (FBT) registration or Fringe Benefit Return.
A common error where you’ve got the business paying for something like a motor vehicle, but it’s not 100% for work. So you know you can’t claim a tax deduction for the non-business use, but how is it dealt with? Well your accountant could be doing what is known as a “cash out” that is they are accruing a reimbursement from you to the business. This is income to the business on which it collects GST and this income offsets the non-business use expenses. In the business tax return, this income item goes in a special label “employee contributions”.
Now all of this is fine and dandy from an income tax perspective, but commonly the Fringe Benefits Tax implications are ignored. If you’re providing a benefit to an employee like the use of a car (or paying the car expenses not related to work), the business should be registered for FBT and prepare an annual Fringe Benefit Return. Now the return might end up being $0, but not going through the process is leaving your business open for an Fringe Benefit Tax review – forever. Huh?
That’s right, if you don’t submit an FBT return, the ATO has unlimited time to review your FBT liabilities, calculations and obligations.
But if you had registered for FBT and submitted the return – even if it ends up being $0 after doing the calculations, they only have a 4-year window to review and/or amend your FBT position.
Late super payments and no super guarantee forms
With the introduction of Single Touch Payroll on 1 July 2019 for most businesses in Australia, this is only going to get easier for the ATO to check. At the moment, if they want to check you are paying super on time, they need to do a bit of digging with the various super funds, and electronic clearing houses. But once STP is in place, they will be able to easily view information for each employees superannuation entitlements on each pay period you process (weekly, fortnightly, monthly etc).
So what? Well late payment of superannuation has a number of consequences;
- You don’t get an income tax deduction for any amount of super you pay late (surprise!)
- You are obligated to prepare and submit a superannuation guarantee charge statement to the ATO – failure to do so can result in a penalty being imposed.
- Upon lodgement of (2) to the ATO, you are required to pay
- $20 administration penalty per employee plus
- 10% interest to the employees super fund as compensation of their lost earnings.
- SG shortfall amount
- If you can’t pay the super on time even after lodging the SGC statement. General Interest Charges will be applied to the outstanding amount until it is paid to the ATO.
- Not lodging an SGC form leaves the directors personally liable for the unpaid superannuation of the business – voiding your asset protection strategy.
So if you want the ATO to leave you alone, keep your house in order by eliminating these 4 common mistakes.