The following are some examples of commonly asked questions by clients.
The list of sample questions is not exhaustive and is not meant to provide a definitive explanation of each topic.
Clients requiring more information about a topic are encouraged to contact us to obtain a better appreciation of topics.
General Taxation Administration
When do I have to lodge my taxation return?
Individual taxpayers are generally required to lodge their taxation return by 31st October each year. Taxpayers who are on a tax agents client list can, in certain circumstances, delay the lodgement of their taxation return up to May of the following year.
I am behind in lodging my tax returns, what are the consequences?
You should lodge your outstanding tax returns as soon as possible and before the Australian Taxation Office commences any action to have you lodge these tax returns. Once lodgement enforcement activities have commenced you can be forced to lodge next years taxation return early, fined or face a court conviction. The ATO instituted new lodgement penalty rules from 1st July 2001, as from 1st July 2017 this regime now provides for a penalty of $210 for every 28 days (or part thereof) (amount has increased from $110 originally) that the return is outstanding. The maximum penalty is 5 times the respective monthly amount i.e. $1050, even if you are due a refund. In addition, the ATO will charge interest (General Interest Charge) on any monies that remain outstanding after the due date for lodgement of the taxation return.
When are my Business Activity Statements / Instalment Activity Statements due?
Generally, BAS/IAS’s are required to be lodged quarterly by 28th October, 28th February, 28th April and 28th July each year. Since 1st July 2002, the ATO have commenced imposing late lodgement penalties for the late lodgement of statements. In addition, they will impose a late payment penalty is any amount is payable in respect of each statement.
If I lodge my BAS/IAS late, are there any penalties?
Yes. As from 1 July 2000 a new penalties regime has existed. The ATO will currently charge the following penalties where a quarterly (BAS/IAS) or annual return (BAS or income tax) is not lodged by the due date. A one-day error will lead to the following penalties re: Individuals - $210 per 28 days (maximum penalty is 5 times or $1,050); Small Business - $210 per 28 days (maximum penalty 5 times or $1,050); Medium Business $210 per 28 days (maximum penalty 10 times or $2,100); Large Business $210 per 28 days (maximum penalty 25 times or $5,250).
There is a common misconception that entities which lodge their BAS more than 28 days late and have to pay GST, PAYG instalments, FBT and PAYG withholding only have to pay $110 in penalties. WRONG. Under the legislation an entity could be liable to pay penalties up to 4 times that amount – once for each tax obligation on the BAS.
Can you complete my tax return if I am missing a PAYG Non- Business Payment Summary (group certificate)?
Yes. Your return can be completed using the details from a copy of the PAYG Payment Summary held by your employer, or a letter from your employer with the PAYG Payment Summary information, or by reviewing your pay slips for that period and completing a Missing PAYG Payment Summary, by applying to the ATO for a copy of the PAYG payment Summary provided to them by your employer, or by us accessing the ATO portal to obtain a copy of information provided by your Employer (for salary and wages derived in the 2007 and later financial years).
I received an additional PAYG Non-business Payment Summary after the lodgement of last year's tax return, what do I have to do?
The PAYG Payment Summary from a past year cannot be included with the current year tax return. It can only be included in the return for the year that it relates. An amended taxation return for the relevant year will need to be prepared and lodged with the ATO. If the amendment reduces your taxation liability you will receive the amount of tax plus interest as a refund. If the amendment increases your taxation liability you will be required to pay an additional amount of tax plus interest.
Do I need to bring my partner/spouse with me to an interview to complete my tax return?
No. But it is helpful as they can assist with various family details. There are a number of questions on an individual taxation return which your spouse may be able to assist you with which may limit your liability / determine your liability to certain taxes e.g. spouse taxable income, dates of birth of dependents, etc.
I have a HECS and SFSS debt, is the amount owing indexed?
Accumulated HECS and HELP debts will be indexed on June 1 each financial year. Indexation is applied to that part of the debt that has remained unpaid for 12 months or more. Clients may benefit from making voluntary repayments before the end of May, allowing time for the processing of the payment and applying it to the account before indexation occurs. Discounts for voluntary repayments were abolished from 1st July 2017.
If a relative dies, do I need to complete a tax return for them?
Yes. It is necessary to complete a tax return to the date of death, if a return has been lodged in previous financial year, disclosing all assessable income and claiming all taxation deductions to the date of death. This return will be marked as “Final”, which will update the ATO data base that no further taxation returns will be lodged. Depending on the deceased’s financial situation, it may be necessary for the Estate to lodge a taxation return/s from the date of death to the date of probate.
I am leaving to travel overseas before the end of the financial year, do I need to complete my tax return before I leave?
No, but you can choose to. It isn't necessary to complete a return before leaving Australia unless you will not be back before the due date for lodgement of your return. If you won't be back until after the lodgement date for the return, you can either lodge a return before you leave (if you have access to all the details that must be disclosed on the return) or you can apply to the ATO for an extension of time to lodge the return/s.
If you have a HECS debt and you intend to be overseas for more than 183 days in a financial year, from 1st July 2017 you must register with the ATO (through the MyGov platform) to notify them that you will be overseas and you will need to report your worldwide income to them – if your worldwide income is above the HECS repayment threshold you must make yearly repayments whilst overseas.
How can I check that a business has an Australian Business Number?
The Australian Business Register (ABR) is a database containing information provided by businesses when registering for an ABN. Limited information of same can be accessed by the public, free of charge, via the ABR Lookup Facility. This facility will allow businesses to establish whether they are dealing with a registered entity; whether the entity is registered for GST; whether the entity is a registered charity or whether any donations are tax deductible, etc. The information can be accessed via the Internet at www.business.gov.au, or by contacting the ABR Lookup Info line on 13 92 26.
How do I receive the FBT, CCB and NUP?
The Child Care Benefit (CCB), Family Tax Benefit (FTB) and Newborn Upfront Payment (NUP) & Supplements are only available as a direct payment from the FAO. The FAO is responsible for payment of these benefits. Inquiries can be made at offices of Centrelink or Medicare.
How long do I need to keep my receipts?
Generally, five years from the date of lodgement of the tax return (longer if an amendment or an objection is raised in relation to the return) in which claims for work related expenses / expenses are made.
Is a credit card slip enough documentary evidence for substantiating an expense?
Yes, provided it gives full details of the supplier and date of purchase. Taxpayer can notate on the receipt the type of goods supplied..
Do I need to keep a travel diary when making a business trip?
Yes. Even though the substantiation rules for claiming business travel expenses have been around for many years, the outcome of ATO audits indicate that people are still getting it wrong. The following is a reminder to anyone going overseas or interstate for more than 5 consecutive nights on business. They should remember to pack their travel diary along with their passport and traveler’s cheques. It is not enough to make sure you have your travel diary on your trip. If you return with a blank or half completed diary your travel expenses may be disallowed. In order to successfully claim a tax deduction for the trip you need to write in your diary regularly.
What information should be included in my travel diary?
To be accepted by the ATO your diary should contain the following features. The travel diary must record each business activity undertaken during the day. That means specifying the nature of the activity, the day and approximate time it began, the duration of the activity, and where it occurred. Each activity must be recorded as soon as possible after it ends. A pre-printed itinerary can be used as long as it records all of the above information and you sign and date each activity as soon as possible after the activity is completed. You should also record any amendments to the activities. As well as the travel diary, receipts, invoices and statements etc. are required to claim a tax deduction.
What is the PAYG Installment system?
Pay As You Go (PAYG) instalments is a system for paying instalments of your expected tax liability on your business and investment income for the current income year (replaced previous Provisional tax system).
Depending on your circumstances, you can pay your PAYG instalments liability by: quarterly instalments - everyone in the PAYG instalments system can pay quarterly; two instalments per year - for some primary producers and special professionals; or, a single annual payment - if your liability is less than $8000 you are eligible.
Companies and superannuation funds with a base assessment instalment income of $20M or more are required to work out their instalments based on their quarterly income and their instalment rate and make monthly PAYG instalment payments. For all other taxpayers the Tax Office works out the amount for you, based on your last assessed tax return. Those entities pay the amount in quarterly instalments or where eligible in two instalments.
If you prefer to pay four instalments per year, you will have to work out your own PAYG instalments based on your income and instalment rate. To do this you pay a proportion of your investment and business income for the quarter or year just gone. You work out the amount to pay using your instalment rate, which is calculated for you by the Tax Office but can be varied by you. It works like this: Instalment income ($) @ Instalment rate (%) = Instalment Amount.
Generally speaking, instalment income is your total ordinary income in the period for which you are paying the instalment. Instalment income does not include: income that is not assessable for that income year; salary and wages, or other income which was, or should have been, subjected to withholding (other than income from which amounts have been withheld for failure to quote an Australian business number or tax file number); and, imputation credits. Instalment income generally does not include capital gains as they are not ordinary income.
You can vary your instalments if you believe the amount or rate notified by the Tax Office will result in you paying more (or less) than your expected tax liability. If you pay an amount worked out for you by the Tax Office, you vary your instalment amount by estimating the tax on your business and investment income. If you're a quarterly payer using the instalment income x instalment rate method, you vary your instalment amount by varying your instalment rate. Note that you may be liable to pay interest if your varied instalment amount or rate is less than 85 per cent of the amount or rate that would have covered your actual tax liability for the year.
PAYG instalments is a system for paying instalments of your expected end-of-year income tax liability - your actual tax liability is worked out when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are owed a refund.
Should property investors obtain an ABN and register for GST?
The common view is that owners of residential premises do not need to obtain an ABN nor register for GST purposes. After all, an exclusively residential tenant will usually not be in a position to withhold 47% PAYG where the owner/landlord has not quoted an ABN. Further, residential rental income is not subject to GST and the owner/landlord is usually not entitled to input tax credits or any benefits from buying or selling property GST-free as a going concern. By contrast, owners of commercial premises are usually wise to obtain an ABN or GST registration. They face the risk that tenants may withhold 47% PAYG if they do not quote an ABN. If their annual turnover from commercial rentals and other taxable activities is $75,000 or more, they will be required to be registered for GST and charge GST on commercial rentals. By not registering, they lose potential input tax credits for the GST charged on agency fees, management fees, maintenance, etc.
An owner will not be required to obtain an ABN or register for GST where a tenant uses residential premises for some minor commercial purposes, for example, a home office. The owner is usually wise to obtain an ABN and register for GST where the property includes separate commercial premises, for example, a shop front below with a flat above it. GST would usually only be chargeable on the rental of the shop front. Care needs to be taken where the owner owns both residential and commercial premises. The owner may need to obtain an ABN or register for GST in respect of commercial rental activities, for example, even if the majority of their income is derived from residential rental. GST registration for other activities could lead to GST applying at the time of sale of residential premises. There may be merit in holding residential premises in a non-GST registered entity that does not own commercial property.