In the lead up to the end of the financial year, we have put together our top tips to maximising your tax return for businesses as well as providing updates on single touch payroll reports and how global income should be declared in your tax return.
When can your business stop STP reporting?
The Australian Tax Office has identified examples where some businesses no longer need to lodge single touch payroll (STP) reports.
STP-enabled software allows your business to run payroll, pay your employees, and deliver payslips. It also sends information about salaries and wages, pay as you go (PAYG) withholding, and super liability information to the ATO. You are able to stop lodgement of your STP if you fall under the following five conditions.
- No longer employing staff
If your business is no longer employing staff then you will need to submit a finalisation declaration for all employees as part of your STP reporting. Finalisation declarations can be lodged at any time during the financial year. Once you finalise your STP obligation, you can proceed to cancelling your PAYG withholding registration to alert the ATO that your business is no longer employing staff.
- Closing a business
When ceasing trade, you must update your STP lodgements and then make a finalisation declaration for all employees. Once you do this, you can cancel your PAYG withholding registration, cancel your goods and services tax (GST) and Australian business number (ABN) registrations to let the ATO know that you have ceased trading.
- Changes to your business structure
Changes in business structure could mean that the ABN and branch you have been generating your STP reporting under changes as well. You will need to finalise your STP under the old ABN and branch and start another using your new ABN and branch. Ensure that you finalise your STP reporting before you lose access to it.
- No payments to employees for the rest of the year
You should lodge a ‘no requirement to report’ notification if you will not be making any payments to employees for the remaining financial year or for a period which is longer than your reporting obligations.
- Pausing your business due to Covid-19
There have also been arrangements made for businesses who may have had to pause business during the pandemic and are no longer employing, nor receiving JobKeeper payments. Businesses in these situations should lodge a ‘No requirement to report’ notification.
Tax deductible legal expenses for your business
Knowing what type of legal expenses are tax-deductible is valuable information when it comes to budgeting and allocating funds for emergencies.
Legal expenses that pay for business operations integral to producing an assessable income are tax-deductible. However, if the legal fee is capital, domestic or private in nature, then it will not be tax-deductible unless explicitly stated otherwise in legislation.
Legal expenses that can be claimed (lists are not exhaustive):
- Negotiating contracts with existing employees (including disputes) with respect to employment arrangements
- Defending wrongful dismissal allegations brought on from employees or directors
- Defending a defamation action
- Opposing developments in the neighbourhood that may adversely affect the business (depends on facts of the case)
- Evicting a rent-defaulting tenant
- Pursuing claims for workers compensation.
Legal expenses that cannot be claimed:
- Costs of negotiating employment contracts with new employers
- When defending driving charges (irrespective of whether driving on company business)
- Defending sexual assault charges or racial vilification that occurred within the workpace
- For the eviction of a tenant whose lease period has expired
- Challenging redundancy or seeking increased redundancy amount.
It is wise to have a basic understanding of how tax deductions work when you own a business. Even a rudimentary understanding will allow you to prepare your budget and finances to accommodate for potential legal complications.
Declaring global income in your tax returns
Australians are taxed on their worldwide income which must be declared in their tax returns. Each of the following three categories are included in foreign income and need to be declared during yearly tax returns.
- Income from employment and personal services
Income from work conducted and services provided outside of Australia should be declared as if they were earned within Australia. This may include salary and wages, directors’ fees, consultancy fees, business income, and any other remuneration. There are circumstances in which a foreign salary is exempt, and individuals should discuss this with the ATO or refer to their website.
- Income from assets and investments
Any assets or investments and their relevant returns need to be declared as if they were in Australia. This may include interest from bank deposits or bonds, dividends from shares, royalties from intellectual property, rental income from real estate, pensions, annuities and lump sums from managed funds, income streams from super funds, and some foreign government pensions.
- Capital gains on overseas assets
Upon selling an asset that you own overseas, you may have to pay Australian tax. In cases where you owned the asset prior to becoming an Australian resident, the asset is treated as being acquired at the time you became a resident. Similarly, if you cease being a resident, then the asset is treated as being disposed of at the time you cease residency. As this is a complex area of tax law, it is beneficial to keep appropriate records of the asset. You will receive a foreign income tax offset if you have already paid tax in another country. In order to be eligible for the offset, you should have paid the tax overseas and have records to prove it has been paid.
For all your tax needs or any questions you may have in the lead up to July, please do not hesitate to contact your Walshs adviser or book an appointment.