Tax - Jigsaw Tax

Using the HowNow System

Our new HowNow system makes it easier for you to sign and send through your documents. You might need to use HowNow to exchange things like tax returns, Business Activity Statements and DFRs with us. Here’s what you need to know about using it.

You will receive an email inviting you to activate your HowNow account. Click on the link in the email to set up your account. You will be directed to select a password of your choosing.
When the account is set up, you can go back to your email. If there is an email from us with a document which needs to be signed, you will be able to use the link in the email to open that document in HowNow.
The document will have highlighted sections where you need to sign or enter any information. Fill in any relevant fields, including ticking highlighted boxes.
You will be able to sign the document by clicking the box on the document where the signature is supposed to go. This automatically brings up a digitally generated signature, which you can either use or replace with a digital signature that you draw yourself. Click “Apply” when you are happy with the signature.
Finalise and send off the completed document by pressing the blue “Click to sign” icon. This will automatically send us a copy of the document, and give you the option of downloading a copy for your own records.

23 November 2018/by JigsawReview

Small business, Tax

Wages – Cash or on the Books?

Many businesses continue to pay their staff cash wages for a variety of reasons – but what’s in it for you – the employer?

Advantages of paying your staff with cash wages

When reviewing wage expenses, and we identify cash wages, we hear all sorts of excuses – some potentially valid and some purely to minimise employer obligations:

“It’s easier to calculate an hourly rate, and not worry about tax and everything else” – a common issue is that employers are saddled with burdensome regulations: PAYG/W, Superannuation, Workers Compensation, cash flow on withholding tax etc. and so paying staff out of the till is seen as an easy alternative
“Super is too much of a hassle” – like a lot of things in running a business, Superannuation can be a hassle – especially when each staff member had their own superannuation fund
“I don’t believe in/want to pay super” – this one is quite common but is a legal employer obligation. Superannuation and PAYG/W are the 2 areas where all directors are jointly and personally liable, even in insolvency. Read that bit again, if you enjoy owning your home!
“It’s how everyone in the industry gets paid” – while common a decade ago, young workers these days need to show regular income and payslips to be able to apply for credit cards, car loans and home loans. Not many industries use cash payments, and ATO compliance activities in those industries is shrinking the amount of cash wages.
“My staff want me to pay them cash” – we don’t know the situation of our staff’s personal lives. There could be various reasons staff would request cash: divorce/child care payments, claiming Centrelink or pension cards, underpaying tax. Do you want to be involved in that, and if you have knowledge – are you being complicit in the defrauding in Centrelink were to question it?
“Keeps my workers comp down” – while you can’t argue with that, what happens when that staff member is injured at work and makes a long-term claim?

There is never a good reason to pay cash – as the disadvantages ALWAYS outweigh the advantages

Disadvantages of paying your staff with cash wages

These stories are based on experience working with clients and also as an auditor in the ATO.

No deduction available for cash wages: “Employer paid staff cash for over 10 years, mostly non-residents (Backpackers as labourers); ATO audit deemed that no deduction was allowed as no paper work was provided, and non-residents had left country” – the individual sole trader was left with a $650,000 tax debt and an overall debt of over $900,000 after penalties and interest, as they could not satisfy record keeping requirements and therefore could not claim any deduction for wages (50% of his total costs). Period of review limitation of 2 or 4 years does not apply for cases of Fraud or Evasion – in this case as there was clearly an evasion of tax, ATO had unlimited period of review. Remember that for every $1 of cash wages you pay, you are the one losing deduction, not the employee.
PAYG Withholding grossed up: “Employer and employee agree to $700 cash per week; ATO audit deemed the $700 as a cash component of a gross wage and assessed the client on an additional $200 PAYG/W and 9% superannuation on $900/week” – the employer and employee were together in agreement that they would be satisified with $700 per week, to include their wage and superannuation. During a regular ATO review, the cash wages were identified (even though no tax deduction was claimed) and a subsequent audit ensued. The client was reviewed over 2 years with the advised outcome and was required to amend 8 x BAS with a 25% penalty and 8 x Quarterly Superannuation Guarantee Charge statements with penalties, interest and no deduction allowed.
Superannuation claimed twice by employee: “Employer and employee agreed to pay the superannuation as cash bonus, rather than to Superannuation Fund; after 5 years of working together, employee was dismissed; employee ‘dobbed-in’ employer for non-payment of superannuation guarantee” – in this case, both the employer and employee were in agreement about the superannuation component; but after being dismissed, the aggrieved ex-employee called the ATO and advised that there was a non-payment of superannuation. As all employer obligation breaches MUST be reviewed by the ATO, eventually the ATO caught up with the employer some 2-3 years after the employee left and was required to lodge Superannuation Guarantee Charge Statements with interest, penalties and no deduction.

These stories aren’t particularly uncommon and with ATO deploying specialist teams into cash economy businesses (cafes, primary production, transport etc.), there is little upside for employers to pay wages in cash. All risk is borne by employers, while the employee potentially obtains benefits from Centrelink, overall tax debt, HECS repayment relief etc.

What can I do?

In some industries and personal employment agreements, cash remuneration is deeply entrenched such as tips, cash/meals for overtime, etc. to staff fully employed on cash wages. The first thing is to tell yourself as an employer – enough is enough and there will be no more cash wages. The risk of potential liability (remember, that as a director you’re personally liable for superannuation and PAYG/W of your staff, even if the company is liquidated, with no period of review time limit) should be enough for most. The advantage of obtaining additional deductions should help the financial situation.

The next steps will depend on your business but will involve:

Understanding the award for employees. While you may have the best intentions and paying staff over the minimum wages, various Modern Award require allowances and loading that are complex meaning you may be underpaying or overpaying your staff. E.g. Did you know the Modern Award “General Retail Industry Award MA000004” requires a $1.25 for every shift worked; but does not form part of your Superannuation Guarantee obligation?
Staff education. If staff are resistant and are willing to subvert federal tax laws, maybe they shouldn’t be handling your stock and cash?
Invest in a good accounting system. Most accounting software packages receive regular updates, including the latest PAYG/W tax tables, integrate into you online bank to allow you to process wages quickly and securely and streamline superannuation with only a few clicks. Apps and advanced integrations allow for modern award updates, self-service kiosks, rostering and timesheets, SMS staff about next shift, and the ability to plan and budget ahead.
Have a skilled book-keeper assist you with regular payroll processing
Talk with an employment relations expert, to create contracts, policies and ensure you’re FairWork compliant

As a business owner, you are responsible for all Employer Obligations – and with more data matching becoming available to the ATO, Centrelink, Dept of Immigration and Citizenship, Workers Compensation, banking institutions, superfund reporting – you can’t afford to be paying cash wages any more.

For more information, check out:

http://www.fairwork.gov.au/pay/paying-wages

https://www.ato.gov.au/Business/Your-workers/In-detail/Employer-obligati…

http://keypay.com.au/quickbooks/

https://www.xero.com/au/accounting-software/payroll/

https://tailoredaccounts.com.au/

http://employsure.com.au/

14 November 2018/by JigsawReview

Security, Tax

Cryptocurrency: how tax affects blockchain currencies

For decades, accountants and tax authorities have grappled with how to value, trade and eventually tax intangibles. Over time, we’ve come up with ways to effectively manage intangibles such as brand names, rights, trademarks, systems and even how much a business is valued by an owner, over and above the tangible assets – goodwill.

Cryptocurrencies have create another shift in the world of financial, tradeable and intangible assets. Banks, regulators, market participants are all starting to adapt to the emergence of various cryptocurrencies.
Thankfully, the Australian Taxation Office, never wanting to miss an untaxed profit, has provided some initial guidelines (note that this has not been tested in court, and the final outcome may be different to the ATO’s view).

Here’s a summary of the most common scenarios:
– If you purchase and operate a cryptocurrency business (Am I in business?) then all gains and losses will be taxable under normal income rules. This would be similar to a day trader who has a volume of transactions
– If you pay for goods using Bitcoin, any gain or loss will be disregarded if you total investment is under $10,000.
– If your holdings are over $10,000, then you will need to declare the gain/loss under the Capital Gains Tax regime. If you’ve held the cryptocurrency for over 12 months, you may be entitled to the 50% CGT concession or apply against capital losses.
– In some circumstances, an SMSF may invest in cryptocurrency as a medium/long term asset, but additional regulations apply. The current rule of thumb is that cryptocurrency should not be more than 3-5% of the SMSF’s total investment portfolio – a financial planner will need to be consulted to review and amend your investment strategy.

Each situation must be treated on its own merits and some may require clarification from the ATO:
– does the $10,000 limit count towards a specific currency (Bitcoin, Etherium, etc.) or across the whole portfolio;
– what if I buy lots from Kogan using BTC, do I need to pay tax on the gain?
– what if I purchase a currency in my testamentary trust?
We hope that ATO will continue to work with accountants to answer some of these questions – but it is clear that the ATO will be taxing some of the large 2017/18 profits.

Compliance
One question is how will the ATO know, if cryptocurrencies are anonymous – remember there is always a paper trail when you convert to AUD via your bank/Austrac for international transfer. The simple answer is, that the ATO can find you – which is especially concerning since the ATO advised 2 weeks ago of a specialist audit team:
http://www.afr.com/news/policy/tax/ato-creates-specialist-task-force-to-…

14 November 2018/by JigsawReview

Small business, Tax

Is This the End of Cash Being King?

One of the ATO and Commonwealth’s key focuses in recent times has been the cash and hidden economy.

Particularly, the ATO is concerned about businesses who advertise ‘cash-only’ or deal mainly in cash. We can see that the ATO and the Commonwealth are both pushing for more transactions to be electronic – by regulating merchant fees to be capped; RBA’s Fast Settlement Service to clear funds between institutions nearly instantly; Single Touch Payroll for all wages and a framework supporting businesses migrating to electronic commerce. The private sector is also joining the rush to assist businesses in transacting online for quicker, safer and easier to manage sales.

The ATO is working collaboratively with business operators, business chambers and industry associations to highlight the following key messages:
• the benefits of electronic payment and record keeping facilities
• community expectations of paying by card
• making sure businesses are registered correctly
• ensuring all businesses pay the correct amount of tax and super by declaring all their income and knowing what expenses they can claim
• lodging their tax returns and activity statements
• meeting their obligations and if they are struggling, taking into account specific circumstances, and helping them get back on track
• any other help they may need.

The ATO regularly undertakes data matching to identify businesses that don’t take electronic payments from customers. These businesses will be contacted by the ATO via email or letter highlighting the benefits of investing in an electronic payment facility. Some of the benefits of electronic payment options are as follows:
• easy to set up including EFTPOS, smartphone and tablet card processing
• consumers are going cashless and expect to have a choice
• fewer mistakes – so less contact from the ATO
• quicker reconciling at the end of the day – less time in queue at the bank
• less chance of being presented counterfeit notes
• reduces the risk of theft or break-ins.

EFTPOS/Paywave machines are now evolving:

CBA’s Albert integrating into many POS like Kounta to eliminate staff fraud.

ANZ’s BladePay can integrate with Kitchen docket printers…

and phone intregated solutions like Square for Tradies on the go.

Most solutions integrate reliably with Xero or Intuit QuickBooks

If your business operates mainly in cash or is not currently using electronic payment systems, we can assist you in sourcing, implementing and maintaining the appropriate electronic payment and record keeping systems to keep the ATO at bay.

14 November 2018/by JigsawReview

Advantages of paying your staff with cash wages

Disadvantages of paying your staff with cash wages

What can I do?

Let us take the puzzle out of your tax needs.

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