Welcome to: FNSBKG404 Carry Out Business Activity and Instalment Activity Statement Tasks

Transcription

1 Welcome to: FNSBKG404 Carry Out Business Activity and Instalment Activity Statement Tasks Lisa Genna Monday Room H G.09-6:00 pm to 9:00 pm 1

2 Lesson 3 FNSBKG404 Carry Out Business Activity and Instalment Activity Statement Tasks 2

3 Overview 1. The Instalment Activity Statement (IAS) 2. What is PAYG? 3. The PAYG withholding system 4. The PAYG instalment system (next week) 3

4 1. The Instalment Ac0vity Statement (IAS) 4

5 Types of Ac/vity Statements There are two (2) types of activity statements: The Business Activity Statement (BAS), which must be completed by those taxpayers who are required to report GST in that activity statement period. The Instalment Activity Statement (IAS), which applies to those not registered for GST, taxpayers with investment income and GST-registered businesses that have to report GST on a quarterly basis and other obligations on a monthly basis. 5

6 Who should use an IAS? The IAS mainly applies to: Individual taxpayers with investment income (e.g. rental, interest or dividend income) and/or business income. Trustees with business income. Businesses (including companies) not registered for GST (i.e. they have an annual GST turnover below the minimum GST registration threshold of $75,000). Some GST-registered businesses on a monthly reporting cycle for PAYG (e.g. the business must complete a quarterly BAS to report GST and a monthly IAS to report other items for the months in between). 6

7 The Instalment Ac/vity Statement (IAS) An Instalment Activity Statement (IAS) is a single form the taxpayer completes and returns to the ATO to report the following obligations and entitlements: Pay-As-You-Go (PAYG) amounts withheld from payments to others (lesson 3) PAYG instalments (lesson 4) Fringe Benefits Tax (FBT) instalments (lesson 7) 7

8 Preparing an IAS The ATO sends the IAS to taxpayers before they need to lodge it. The statement is personalised, with some parts already completed to save time and effort. Each activity statement has a unique document identification number, which is shown on the front of the IAS. The document ID is used by the ATO s systems to identify the activity statement during processing. 8

9 Types of Instalment Ac/vity Statements There are four (4) different types of Instalment Activity Statements which are used for different purposes. Types of IAS IAS N IAS I IAS B IAS J Used by Taxpayers who have elected to report and pay an annual PAYG income tax instalment Taxpayers with PAYG tax withheld only (quarterly or monthly) Taxpayers with a PAYG income tax instalment obligation only Taxpayers with PAYG income tax instalment, PAYG tax withheld and FBT obligations 9

10 IAS Type N 10

11 IAS Type N 11

12 IAS Type I 12

13 IAS Type B 13

14 IAS Type J 14

15 2. What is PAYG? 15

16 What is PAYG? PAYG is an acronym for: Pay-As-You-Go 16

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18 What is PAYG? PAYG is a single, integrated system for reporting and paying: à amounts withheld (PAYG withholding system) à tax on business and investment income (PAYG instalment system) The PAYG system brings withholding obligations and income tax instalments together into one system. The system was introduced in an attempt to simplify the overall tax collection system: One set of rules One set of payment dates One form to fill in 18

19 3. The PAYG Withholding System 19

20 The PAYG withholding system The PAYG withholding system provides a single set of rules for businesses to collect income tax on behalf of the ATO. Withholding is the process by which amounts are deducted from income payments made to employees and others directly involved in the business. Amounts reported on Activity Statements include: W1 Total salary, wages and other payments. W2 Amount withheld from payments shown at W1. W4 Amount withheld where no ABN is quoted. W3 Other amounts withheld (excluding any amount shown at W2 or W4) 20

21 The PAYG withholding system Taxpayers must apply for registration for PAYG withholding before withholding any tax from payments to others. This can be done on the initial business registration with the ABR or, if you already have an ABN for your business: By phone By lodging a paper form Through your registered tax agent or BAS agent Online through the ATO s website 21

22 Taxpayers are required to complete the PAYG tax withheld section on each Activity Statement lodged to the ATO. Withheld amounts have to be sent to the ATO by the due date specified on the Activity Statement. Below is a sample of the PAYG tax withheld section of an Activity Statement. Note: all of the following items appear on both an IAS (Types I and J) and a BAS. 22

23 Withholding payment dates The dates on which withholding payments are remitted to the ATO depends on the annual amount of withholding. Note; Many non-business PAYG taxpayers (such as self-funded retirees) and some businesses will have the option of making an annual instalment. 23

24 Size of withholder Small withholders Have annual PAYG withholding amounts of up to $25,000 Frequency of payment and payment date Quarterly An amount deducted in any quarter is generally payable on the 28th of the month following the end of that quarter. The payment dates are: 28 October 28 February 28 April 28 July Medium withholders Have annual PAYG withholding amounts between $25,001 and $1 million Large withholders Have annual PAYG withholding amounts > $1 million (or is part of a group of companies that has withheld > $1 million in a previous income year) Monthly An amount deducted in any month is generally payable on the 21st day of the following month. Twice a week An amount deducted in any period commencing Saturday and ending Tuesday is payable on the following Monday. An amount deducted in any period commencing Wednesday and ending Friday is payable on the following Thursday. 24

25 Employer obliga/ons An employer s obligations regarding withholding tax include: 1.Registering for PAYG withholding 2. Notifying the ATO and paying amounts withheld using an activity statement (or electronically in the case of large withholders). 3. Providing a Payment Summary to payees at the end of each financial year. 4. Sending TFN declarations to the ATO. 5.Reporting (at least) annually to the ATO on all withholdings. 25

26 Payment Summaries At the end of each financial year, the employer who has withheld tax payments from its employees must prepare a Payment Summary for each payee (worker). The Payment Summary must be given to the payee (worker) by 14 July (or earlier if requested). The employer must keep a copy of each Payment Summary for their records. 26

27 Payment Summaries Amongst other things, the Payment Summary shows the total payments made to and the amount of tax withheld from each worker during the financial year ending 30 June. 27

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29 What is the difference between GROSS wages and NET wages? 29

30 NET PAY (amount paid to employee) = GROSS WAGES - DEDUCTIONS 30

31 Includes: Wages earned for period Gross wages (based on the hours worked and rate per hour) + Allowances e.g. overtime, sick or holiday pay (incl. annual leave loading at 17.5% of 4 weeks wages if applicable) + Incentives e.g. bonuses or commission 31

32 Deduc/ons Includes: - Tax (i.e. PAYG withholding tax) - Other statutory and employee approved deductions Deductions are withheld in a liability account until paid to the relevant 3 rd (external) party e.g. ATO. 32

33 W1 Total salary, wages and other payments Include at W1 total gross payments that usually require PAYG tax to be withheld These mostly include: Payments to employees, company directors and office holders. Payments under a labour hire arrangement. Payments under voluntary agreements. Click on the following link to see a comprehensive list what you should and should not include at W1 on an activity statement: 33

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36 W1 Total salary, wages and other payments > Payments made by a labour hire firm to workers under a labour hire arrangement 36

37 Carrying on a labour hire business If the taxpayer s business only (or partially) involves arranging for people to perform work or services for clients, the taxpayer is deemed under the PAYG legislation to be carrying on a labour-hire business. This rule does not apply if such an activity is incidental to other business activities. Key questions: What is a labour hire business? What are the implications of carrying on a labour hire business with regards to reporting PAYG amounts withheld? 37

38 Carrying on a labour hire business Labour hire arrangements typically involve at least two contracts: 1. One with a user of labour i.e. the client (e.g. Prime Constructions) and the labour hire firm (e.g. Workfast). 2. Another with the labour hire firm (e.g. Workfast) and the worker (e.g. Bob). 38

39 Carrying on a labour hire business 39

40 Carrying on a labour hire business The LHB contracts with the worker and pays the worker. Under the labour hire provisions, the LHB must deduct tax from any payments made to these workers for performing a service for its clients. There is no contract between the worker and the client. The client pays the LHB for the service provided. If the LHB is required to be registered for GST, GST will be payable on the LHB s supply to the end user i.e. the client. GST is not payable on the supply made by the worker to the LHB. Therefore, the worker cannot claim input tax credits for any GST paid for goods or services bought and used in performing the work or services provided to the client of the LHB. 40

41 What about payments to sub- contractors? Payments made by a contractor to a sub-contractor are not for the performance of work directly for a client and are therefore not subject to withholding under the labour hire provisions. 41

42 W1 Total salary, wages and other payments > Payments to contractors under a voluntary agreement 42

43 Employee or contractor? Use the ATO website decision tool htm&mnu=42711&mfp=001/003 43

44 Payments made under voluntary agreements A Voluntary Agreement is a written agreement between a business and a worker to bring work payments into the PAYG withholding system. To create a Voluntary Agreement the worker, as an individual, must: 1. Have an Australian Business Number (ABN). 2. Not be subject to any other PAYG withholding. 44

45 Payments made under voluntary agreements What does a Voluntary Agreement mean for the business? The business has to withhold tax from payments it makes to the contractor and send amounts withheld to the ATO. What does a Voluntary Agreement mean for the contractor? The contractor does not have to pay PAYG instalments for income they receive from the client their tax will be paid as they go. 45

46 Payments made under voluntary agreements The client has to withhold tax from payments it makes to the contractor and send amounts withheld to the ATO Contractor does work for client and invoices client for work done Contractor / Worker (payee) Business / Client (payer) Client pays contractor for work done 46

47 Voluntary agreements: How much to withhold? The payer has to withhold tax based on an agreed instalment amount. This is either a rate notified to the contractor by the ATO via the BAS or a flat rate of 20%. 47

48 Voluntary agreements : GST implica/ons 1. Voluntary Agreements usually fall outside the GST system, so when the contractor invoices the client, the amount will not include GST. 2. However, the contractor can still claim GST input tax credits on other business purchases. 48

49 Employment Termina/on Payments, workers compensa/on and leave payments Under the PAYG withholding system, an employer may have to withhold amounts from these payments. Separate calculation tables are available to calculate amounts withheld. The tax tables take into account personal income tax rates including, Medicare Levy, HELP and other rebates. Where the payee does not give the payer a TFN, tax must be withheld at 49% (resident employee) or 47% (foreign resident employee). 49

50 Large withholders Large withholder only need to complete field W1 on their Activity Statement. This type of taxpayer must NOT complete fields W2, W3, W4, W5 or 4 in the Summary Section of their Activity Statement because they would have electronically remitted a number of withholding amounts throughout the reporting period and therefore the ATO already has this information. 50

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52 W2 Amounts withheld from payments shown at W1 Withholding for the purposes of W2 refers to amounts deducted from income payments made to workers and includes: 1. Payments made to employees, company directors and office holders. 2. Payments made under a labour hire agreement. 3. Payments made under voluntary agreement. 52

53 How much to withhold? Withholdings from payments made to employees and others directly involved in a business should be in accordance with tax tables published by the ATO. There are various tax tables published and take into account personal income tax rates, including the Medicare Levy, HELP debt and tax offsets. Tax tables are provided by the ATO for payments made on a weekly, fortnightly, monthly and quarterly basis. 53

54 How much to withhold? Tax offsets If an employee answered YES to Questions 9 and/or 10 on the TFN Declaration form, then reduce the amount withheld from the employee s wage (refer to applicable tax table). 54

55 How much to withhold? HELP debts If an employee has a HELP debt, additional tax may need to be withheld. HELP is designed to assist students by offering four (4) types of loans. The Commonwealth Government pays the debt on behalf of the student and is repaid through the taxation system when the student begins earning a specified level of income. 55

56 How much to withhold? HELP debts If an employee answered YES to Question 11 on the TFN Declaration form, then increase the amount withheld from the employee s wage (refer to applicable tax table). Refer to additional reading 56

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58 W4 Amounts withheld where no ABN quoted If a business does not quote an ABN on their invoice, the business that receives the goods or services is required to withhold tax from the payment made to the supplier. Tax must be withheld if: You are a business making a payment for goods or services and the supplier of the goods or services has not quoted their ABN. You think the ABN quoted on an invoice may be false or you think it is not the real ABN of the supplier. The supplier has made a written, signed statement that the supply is of a private or domestic nature or that it relates to a hobby, but you have reasonable grounds to think the statement is false. 58

59 How much to withhold? The amount withheld from the payment should be at the top marginal rate plus the Medicare Levy and Temporary Budget Repair Levy (i.e. currently 49%). The supplier can claim this withheld amount as a credit on their next income tax return. 59

60 How much to withhold? Exceptions to the rule Tax does not have to withheld from a payment made to a supplier EVEN IF NO ABN HAS BEEN QUOTED if: 1. The recipient is an individual and the payment is wholly private or domestic in nature. 2. The payment is not > $75 (not including GST). 3. The entire payment is exempt income of the supplier (for example, if the supplier is a charity). 4. You are already withholding tax from the payment because you are an investment body paying an amount for which no TFN has been quoted. 60

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62 W3 Other amounts withheld At W3, the taxpayer must include amounts (if any) withheld from any of the following payments: ü Interest, dividends, unit trust or other investment distributions made, where the person paid has not completed a TFN declaration form or otherwise provided the taxpayer with a TFN (includes a non-resident). ü Interest, dividends or royalty payments made to a non-resident. ü Any Departing Australia Superannuation Payments (DASP) made. ü Any payments made to foreign residents, for any of the following: Entertainment and sport activities Construction and related activities Arranging casino gaming junket activities 62

63 Non- resident withholding Tax must be withheld from interest, unfranked dividends and royalties paid to an individual, company, partnership, trust or superannuation fund that is not a resident of Australia. Payment type % to be withheld from the gross amount Interest 10% Unfranked dividends (or the unfranked component of a dividend) 30% Royalties 30% *Franked dividends have already had tax withheld from them when paid which is why they are not subject to further withholding 63

64 What is the difference between a franked dividend and an unfranked dividend? 64

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66 W5 Total amounts withheld Include at W5 the total of W2 + W4 + W3 This amount needs to be copied to field 4 of the Summary Section of the activity statement* Do not include W1 in the W5 total *If the activity statement only asks you to report PAYG withholding, the activity statement won t have a summary section. The total withholding will be reported at field 9 of the Payment or Refund section of the activity statement. 66

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68 Working out how much tax to withhold from an employee s gross pay Refer to CLASS ACTIVITY You can use the following ATO calculator to work out how much to withhold from an employee s gross pay: anchor=twc&anchor=twc#twc/questions Click here for a list of all the different types of tax tables: 68

69 This week s homework Read the relevant chapter(s) (ref. DELIVERY & ASSESSMENT GUIDE) Complete all assigned activities.

70 You are now ready to start the next lesson on: PAYG Instalments 70