Q: Some of my staff are happy to be paid overtime, but others prefer time off in lieu. What are the rules around this?

A: Firstly, check the conditions of employment in the relevant award or enterprise agreement. If there is nothing in there in relation to how overtime is to be handled, you should go by the default position of the National Employment Standards. This states that all employees must be paid for their overtime. Remember it is you or your manager’s responsibility to approve all overtime before it is worked.

Generally, employees covered by the same employment instrument (an award or an enterprise agreement) should be treated the same way: either they all get paid overtime or they all get access to time in lieu. Obviously what works for one employee may not work for another. You can offer both options to your employees. Just remember you will need to keep separate records for those who are paid overtime and those who receive time in lieu. So only do this if you are prepared to do so.

Time off in lieu is calculated at the ordinary time rate. For example, an hour of overtime equals to an hour off work. However, some of the modernised awards, employees are to be given up to two hours of time off for each hour of overtime worked. To look up the detail of the award covering your employees, for to www.fwa.gov.au which is the website of Fair Work Australia, the national workplace relations tribunal.

Length of time the flood levy will be in place

The Government will apply a flood levy to help fund reconstruction in flood affected areas. The flood levy will apply to individual’s taxable income only in the 2011-12 financial year.  

Amount of the flood levy

A levy of 0.5 per cent will be applied on that part of an individual’s income between $50,001 and $100,000 and a levy of 1.0 per cent will be applied on that part of the taxpayer’s taxable income above $100,000. No levy is payable where the person has income of $50,000 or less.

For example, for someone who has an income of $80,000 this means the cost of the levy to them will be $2.88 per week.

Exemption from the flood levy

Where the person has received an Australian Government Disaster Recovery Payment in relation to a flood event in 2010?11 they will be exempt from the levy.  

Payment of the flood levy

Taxpayers will not have to do anything extra to pay the levy. People will make their levy payments through the tax taken out of their regular pay in the same way that people pay the Medicare levy. This will help prevent taxpayers from receiving a tax bill at the end of the financial year.

Pay As You Go (PAYG) Instalment taxpayers will have the levy charged in their PAYG instalments. People who received an Australian Government Disaster Recovery Payment can seek a variation to their instalment payment so that they don’t have to pay the levy. The ATO is also investigating the possibility of automating
PAYG Instalment amounts so that people who don’t have to pay the levy are not charged an amount in their PAYG instalments.

Employees who are exempt from the levy ask their employer to not have the levy withheld from their regular pay with other tax withheld. Alternatively, at the end of the year the ATO will assess taxpayers’ tax liability taking into account the exemption from the levy. 

Impact on businesses

Businesses will need to apply a new withholding schedule to their employees to withhold levy payments. 

Businesses will not be required to pay the levy. The levy will be applied to individual taxpayers.

What employers need to know about pay-as-you-go (PAYG) withholding.

Getting the help you need:

As an employer, you have certain tax and super obligations you need to be aware of. These obligations include:

• pay as you go (PAYG) withholding
• Super
• fringe benefits tax (FBT)

Running a business or a non-profit organisation gets more complex when you have employees or independent contractors. When you make payment to employees or contractors, you may be required to withhold an amount and send it to the ATO at regular intervals. The ATO calls this process PAYG withholding.

To comply with your PAYG withholding obligations you need to:

• register for PAYG withholding
• work out the status of your workers
• become familiar with the types of payments you need to withhold from
• work out the amount to withhold
• report and pay withheld amount to the ATO
• provide payment summaries and lodge an annual report at the end of each income year.

Under the PAYG withholding system:

• the business, non-profit organisation or individual making the payments is called the payer, and
• the individual being paid is called the payee.

What you need to know about PAYG withholding.

Register for PAYG withholding -

You will need to register for PAYG withholding as soon as you know you need to withhold. You can register:

• online at www.ato.gov.au/onlineservices
• by phoning 13 28 66 between 8:00am and 6:00pm Monday to Friday
• by completing an Add a new business account (NAT 2954) form

Work out the status of your workers -

You have different obligations depending on whether your payee is an:

• employee, or
• independant contractor.

The status of your worker depends on your working relationship and is usually worked out by the contracual arrangements made between the two of you.

NOTE: To help you work out the status of your workers, the ATO have developed a decision making tool. To use the decision tool, visit www.ato.gov.au/employers and selecct ‘Contractor or employer?’ – ‘Employee/contractor decision tool’.

Work out the amount to withhold.

The ATO produces tax tables to help you work out how much to withhold from your payments to your payees.

These PAYG withholding tax tables are available for weekely, fortnightly, monthly and quarterly pay periods. You can also get tax tables for particular types of payments, such as payments made under voluntary agreement.

NOTE: The ATO has an electronic calculator to help you work out the withholding amount and the employment termination payment withholding amount. To use the calculator, visit www.ato.gov.au/employers and select:

• tax withheld calculator - this calculator will help you work out the correct amount to be withheld, and
• employment termination payment calculator – this calculator will help you work out the tax-free and taxable amounts of an employment termination payment made on or after 1 July 2007.

To work out how much to withhold, use information your payee gives you on their Tax file number declaration (NAT 3092) and, if applicable, Withholdong declaration (NAT 3093). For example, they may be claiming the tax-free threshold that is shown on their Tax file number declaration, or they may be entitled to a dependent spouse tax offset that is shown on their Withholding declaration.

If your payee is under a voluntary agreement, use the information provided in the agreement to work out the amount to withhold.

Report and pay the withheld amounts.

How often you report and pay amounts depends on whether you are a small, medium or large withholder.

The ATO will tell you what type of withholder you are after you register.

Prepare payment summaries and lodge annual report.

Within 14 days after the end of each financial year (30 June), you need to give each of your payees a payment summary that shows how much you:

• paid, and
• withheld.

You need to also provide the ATO with a PAYG withholding payment summary annual report and you can print the individual payment summaries on plain paper.

If you don’t report electronically, the ATO will give you blank payment summary forms and a personalised PAYG payment summary statement to use.

NOTE: The ATO will send this stationery to you around May each year.

Payment summaries.

There are different payment summary forms depeding on the type of payment. Examples include payment summaries for:

• individual non-business payments
• labour hire and other specified payments
• voluntary agreement payments
• employment termination payments
• personal services attributed income payments
• payments where ABN not quoted.

It’s important you use the appropriate payment summary.

NOTE: To order payment summaries:

• visit the ATO website at www.ato.gov.au and select ‘Find a form od publication’ – ‘Online ordering’, or
• call the ATO’s automised self help ordering service on 13 72 26 and press 4. You’ll need your Australian business number (ABN) and the names of the publications you wish to order.

The ATO provides instructions for completing these payment summaries. To obtain copies, visit the ATO website

PAYG withholding payment summary annual report.

If you have payroll software that meets the ATO’s specifications, you can submit your PAYG withholding payment summary annual report using electronic commerce interface (ECI).

If not, use the stationery the ATO send you so you can provide them with the following:

• a completed personalised PAYG payment summary statement (NAT 7885)
• the originals of all the payment summaries you issued for the financial year.

If you misplace your personalised payemnt summary statement or it contains an error, you can use a generic PAYG payment summary statement.

Thinking of starting a business.

If your thinking about starting your own business there are important decisions you need to make.
For example;

• what type of business should you start?
• will it be a business or just a hobby?
• what do you need to do before you start?
• do you need a business plan?
• are you really ready to start a new business?
• what financial information do you need?
• will you need an Australian business number?
• will you have a tax responsibilities?

At this stage of your business life cycle, it’s important to think about, understand and plan your business tax needs. Time spent now will help you manage your tax obligations when you start your business and make the right decisions.

Starting your business.

When you start your business, you need to consider tax to get your business off to a good start. For example, do you know:

• what records you need to keep and how to set up a record keeping system?
• how goods and services tax (GST) works?
• what you need to report in your tax return?
• what deductions you are entitled to claim?
• how often you have to lodge you business activity statement (BAS)?
• how to pay your tax?
• how working from home may affect your tax?

 
Running your business.

As your business grows and changes you need to be aware of how your tax obligations may also change. For example, do you know:

• how to change your business structure?
• what changes when you have employees?
• how pay as you go (PAYG) withholding works?
• you have to pay super for employees?
• how to pay fringe benefits tax (FBT)?
• how to treat payments you make to independent contractors?
• how to work with the ATO electronically?

 
Ceasing your business.

You need to tell the ATO if you’re affected by the following:

• you have ceased trading altogether
• you are registered to operate a business but you’ve never traded
• you have sold or transferred ownership of your business

To tell the ATO you’re no longer in business:

• phone the ATO on 13 28 66 between 8:00am and 6:00pm, Monday to Friday, or
• If you have a digital certificate, you may cancel your ABN online at www.abr.gov.au

Online cancellation is fast and secure, and your cancellation details will usually be updated within 24 hours.

What to do next.

Contact Taxwise on 9248 8124

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article. 

Overview

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

Different rules apply for income periods up to 30 June 2008.

You can claim a tax offset for the foreign tax you have paid on income or gains (including gains of a capital nature), that are included in your assessable income. In some circumstances the offset is subject to a limit.

To be entitled to a foreign income tax offset:

• you must have actually paid an amount of foreign income tax, and
• the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes.

Differences between the Australian and foreign tax systems may lead to you paying foreign income tax in a different income year from that in which the income or gain is included in your assessable income for Australian income tax purposes. You could have paid the foreign tax in an earlier or later income year; however, the offset can only be claimed after the foreign tax is paid.

If you paid foreign income tax after the year in which the related income or gains have been included in your Australian tax return, you can claim the offset by lodging an amended assessment for that year. You have up to four years to request an amendment to your assessment from the date you paid the foreign income tax or there was an increase or reduction in the amount of foreign income tax you paid that counts towards the offset.

The foreign income tax offset applies to foreign income tax imposed on all forms of income, profits and gains, (including gains of a capital nature) and all taxpayers, whether individuals or other entity types. Note that:

• While the offset mainly applies to Australian resident taxpayers, in the limited circumstances where the foreign income of a foreign/non-resident is taxed as assessable income in Australia, they may be able to claim the offset.
• In very limited circumstances, foreign tax imposed on Australian source income may count towards a foreign income tax offset.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

Making a claim

When you can make a claim

In most situations, you can claim deductions for work-related expenses as long as your claim meets the following conditions:

• you incurred the expense in doing your job
• the expense is not private (for example, travel to and from work, and most meals)
• you can show you incurred the expense by producing receipts or other written evidence unless an exception applies.

However, there are some instances where you have to meet other conditions, some of which are mentioned below.

Claim the correct amount for the year

You must have incurred the expense in the year you are claiming the deduction, unless the expense relates to the decline in value (depreciation) of tools or equipment you purchased.

When claiming the decline in value of your tools or equipment, you must have used them or had them available for use in the year you are making the claim.

You can only claim that part of an expense that relates to your work.

Remember

• When you complete the declaration on your tax return you are declaring that everything you have told us is true and you can support your claims with written evidence.
• You are responsible for providing proof of your expenses, even if you use a registered tax agent.

 
Reimbursements and Allowances
   
If your employer or any other person reimburses you for expenses you have actually incurred, the payment is called a reimbursement. An allowance is not considered to be a reimbursement.
    
You cannot claim a deduction for expenses you incur if those expenses are reimbursed to you by your employer – you do not include a reimbursement on your tax return.
   
If you claim your motor vehicle expenses from your employer using the cents per kilometre method, the amount you receive is considered to be an allowance.
   
Regardless of the amount of an allowance you receive, you can only claim a deduction for the expenses you paid. That is, if you paid $80 in work-related expenses and you received a $100 allowance for those expenses, you can still only claim $80.
    
Note: If you receive a car allowance or an award transport payment from your employer, you must record the amount you received on your tax return as income at item 2.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

As an employee, there are things you need to know to meet your tax obligations and claim your entitlements correctly.

Income

Did you know…

Even if you didn’t receive a payment summary, you need to include your total income from all of your jobs on your tax return. It doesn’t matter if you worked full-time, part-time or on a casual basis.

Income includes;

• salary and wages
• commissions
• bonuses
• tips
• gratuities
• jury attendance fees
• income from sickness and accident insurance policies
• income from Centrelink
• investment income from bank deposits and shares.

Expenses

Did you know…

• travel between your home and your workplace
• expenses for a uniform consisting of conventional clothing like a black skirt and white shirt or blouse
• self-education expenses where the course you are undertaking does not have sufficient connection to your current employment.

• paper or electronic copies of documents, such as invoices, receipts or delivery notes
• statements from financial institutions, such as credit card statements
• BPAY® receipt numbers
• PAYG payment summaries
• warranty documents.

Why do we pay tax?

Tax is money people and businesses pay to the government to provide services to the community such as health, education, defence, roads and railways, social security and welfare.

We collect Commonwealth taxes for the government such as income tax. However, state and local government organisations collect other taxes and rates for each Australian state or territory.

Tax rates for individuals.

These are the rates of income tax you have to pay if you’re:

• An Australian resident for the full 2009-10 income year (1 July 2009 – 30 June 2010), and
  
• Entitled to the $6,000 tax-free threshold.

If you’re an Australian resident for tax purposes, you must declare all income you earn both in Australia and internationally. To help work out if you’re a resident for tax purposes contact Taxwise on 9248 8124.

Tax file numbers.

A tax file number (TFN) is a unique number the ATO gives to individuals and organisations for identification and record-keeping purposes.

If you plan to earn money in Australia, we recommend you apply for a TFN, regardless of your age. If you don’t give your TFN to your employer within 28 days of starting your new job, your employer will have to pay 46.5% of the money you earn from them to the ATO.

Remember: You should only give your TFN to your employer after you start working for them. Never give your TFN when you fill out a job application or when you apply for work on the internet or over the phone.

Also, make sure your super fund has your TFN. If they don’t, they’ll have to pay extra tax on some of the super paid into your account and they won’t be able to accept some types of super contributions. This means they may take the extra tax out of your super account.

To find out whether your super fund has your TFN, check your statement from your fund or contact them.

How to apply for a TFN.

If you’re a secondary school student, you can apply for a TFN through your school if it participates in the ATO’s School Education Program. You can also obtain an application from:

• One of the ATO’s shopfronts
• The ATO website: http://www.ato.gov.au/youth/content.asp?doc=/content/40962.htm
• A Centrelink office.

When you apply, you need to provide original, unaltered documents proving your identity. The TFN application lists the types of documents that are accepted.

If you apply in person or by mail, it will take up to 28 days for the ATO to process your application and send your TFN to you.

Tax returns.

A tax return is a form you use to report your income to the ATO. Your income includes any of the following for an income year:

• capital gains
  
• tax withheld from payments your receive
  
• deductions and tax offsets.
  
• As an individual, you need to lodge an income tax return if:
  
• you pay tax during the income year
  
• your taxable income is more than
  
  • $6,000, if you’re an Australian resident for tax purposes for the full year
    
  • $3,000, if you’re under 18 years of age at 30 June 2010 and your income was not salary or wages
    
  • $1, if you’re a non-resident and you have income taxable in Australia – excluding income that had non-resident withholding tax withheld from it 
    
• you receive a Centrelink allowance or payment (other than a pension or pension-type payment) and you receive other income, and your taxable income was more than $14,000.

Once the ATO receives and processes your tax return, they will send you a Notice of Assessment to let you know the outcome of the assessment.

When to lodge a tax return.

You only have from 1 July to 31 October to lodge your tax return unless Taxwise prepares and lodges it for you.

If, due to circumstances beyond your control, you cannot lodge your tax return by 31 October, phone Taxwise on 9248 8124 as soon as possible (before 31 October) to find out if we can lodge for you at a later date.

The ATO only considers your tax return to be lodged on the day they receive it if it’s complete. If it’s incomplete – for example, if you don’t sign it – they may send it back to you.

Remember, if you don’t lodge your tax return on time, you may incur a penalty.

Ways to lodge a tax return.

Contact Taxwise on 9248 8124 to organise a tax specialist to help you pay less tax.

Claiming work-related expenses.

You may be able to claim some of your work-related expenses as a deduction on your tax return. However, you can only do so if you can show:

• you incurred the expense in the course of earning your assessable income, and
• how you worked out the amount you’re claiming.

If you make a mistake on your tax return.

If you complete and lodge your tax return and then later find you made a mistake after the ATO sent you your Notice of assessment you can write to them and ask the ATO to amend your assessment. This usually takes a maximum of 56 days (about eight weeks) to process.

You can ask the ATO to amend your assessment if you:

• forgot to include some assessable income – for example Centrelink payments
• forgot to claim an allowable deduction
• filled out a question incorrectly
• forgot to fill out a question.
  

Record keeping.

You should keep all the records you used to prepare your tax return including:

• payment summaries from employers or organisations you receive money from, including Centrelink
• bank statements showing bank interest you received
• dividend statements.
  

If you claim deductions, you also need to keep written evidence to prove claims for those deductions.

You need to keep your records for five years from when you lodge your tax return.

More information.

Contact Taxwise on 9248 8124.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

The Tax Office is reminding employers to use new personal income tax threshold rates from 1 July 2009.

Implementation