Episode 52: Lesser known taxes

April 25, 2022

We all know what income tax is, and have some idea how GST works (it’s just 10% right?) but do you know about some of the smaller taxes that apply to businesses? In this episode Trudi walks us through some of the lesser known (but no less important) taxes that exist in Australia. We talk about the what and when of Fringe Benefits Tax, who needs to be aware of Payroll Tax and when Land Tax applies. We also touch on the reporting requirements under the Taxable Payments Annual Report. Think your business is on top of all of the relevant taxes? Listen in and make sure one of these smaller taxes hasn’t slipped through unconsidered.

Podcast Transcript Available Here

Duration: 25:58

Trudi Cowan: Welcome to today's episode of the Financial Fofu podcast. Today, we're going to have a bit of a chat around some of the less well-known taxes that exist in Australia. Sarah Eifermann: Tax. Trudi Cowan: I know, my favourite topic, but not so much yours. Sarah Eifermann: It's not that it's not my favourite topic. It's just boring. Trudi Cowan: That's a great way to start for our listeners. Sarah Eifermann: It's really important though, at the same time. So, it's like unavoidable to have this knowledge as well. Trudi Cowan: Exactly. Right. And part of the conversation, I guess, today is not necessarily that all these taxes are going to apply to everyone, but more that you need to have an awareness of them and when they might apply so that you can make sure that you are actually paying attention to them and lodging them if they do become relevant to you. Sarah Eifermann: Yeah, I suppose it's a little bit like the high-income earner super tax that we went through in the other episode, because a lot of people wouldn't even know that that existed. Trudi Cowan: No. And look at it is often a surprise to my clients once they do start to hit the threshold where that kicks in for them because it's not something they've had to deal with before, and it's not really something that's widely known about. Sarah Eifermann: No. No. All right, well, let's go straight into it. What are we going to start with? Trudi Cowan: We're going to start with fringe benefits tax or which some people might just know as FBT. Sarah Eifermann: Yeah, I know it is FBT. Trudi Cowan: Yeah, because we love acronyms in the accounting world. Sarah Eifermann: Yeah. Go back to our previous episode, if you'd like to know more about *inaudible - 1:34*. Trudi Cowan: So, fringe benefits tax is a tax on employers for benefits that are non-cash benefits that they provide to their employees. So, stuff other than wages. Sarah Eifermann: Yeah. All those incentive things that you do. Trudi Cowan: There's a lot of different things that FBT can be applied to. Sarah Eifermann: I don’t like FBT. Trudi Cowan: A lot of people don't. A lot of accountants even don't cause there's a lot of rules around it for what usually comes out to actually being a very small amount of Sarah Eifermann: And in a lot of circumstances, it's like extra work and extra tax when you're trying to do the right thing as a human and as an employer and keep your staff happy and incentivize. Trudi Cowan: Yeah. Let's maybe take a step back and the whole reason FBT was introduced was that because employers were trying to find a way to remunerate their employees and give them benefits without them having to pay tax or their employees having to pay tax on those benefits. That was one of the reasons, the other reason was small business owners thinking that they could just put everything through their business and be able to take the effort and climb for it. It’s trying to catch that gap. That was the whole point of it and the really common things that you would see in small to medium businesses where FBT might apply is personal use of a motor vehicle. Yeah. It's a really common one. Sarah Eifermann: Christmas party. Trudi Cowan: Christmas party, so entertainment, and that can even include just paying for drinks for your employees down the pub every week. That still counts as entertainment. And then probably like expense reimbursements. So, you might, reimburse your staff for use of their mobile phone on as part of on the job, or you might reimburse them for some other expense that they pay for. Salary sacrificing arrangements is another one where FBT sometimes kicks in. Sarah Eifermann: Of course. Trudi Cowan: Because again, you're not giving your employee cash you're instead giving them some other benefit. Sarah Eifermann: So, when you were saying salary sacrificing, you're talking about not superannuation per se. Trudi Cowan: Yeah, so we are sacrificing a car or a laptop or other items you're making yourself. Sarah Eifermann: I mean, with the exception of the health industry that received tax-free salary sacrifice for meals and entertainment contribution to mortgage as part of their ABA or salary package. So, you know, nurses or doctors. Trudi Cowan: There's still limits and caps even for them, but yes, those types of arrangements are very common in the health industry. Sarah Eifermann: So, we're not talking about those ones when you say salary sacrifice, we're talking about more things that you get. So would a teacher who so gets a laptop through work is that FBT or is that regarded a work tool. Trudi Cowan: Well, it depends. Sarah Eifermann: Yeah. Okay. Trudi Cowan: Right. And a lot of these things depends. So, if the laptop is a work laptop and there's rules around, you're only allowed to use your laptop for work purposes and private use of the laptop is forbidden Right? Then the laptop is a work laptop, right? It's a work tool. However, if your workplace has flexible arrangements and you're allowed to take your laptops home and you're allowed to make use of them for some reasonable personal use then potentially some equity could apply. Sarah Eifermann: How does that play out now with the change in work environments we've had as a result of COVID and working from home. Trudi Cowan: For small businesses in particular, there's actually an exemption for portable devices you can provide, I think it's now three. It's definitely two. It may have got just three portables. Sarah Eifermann: So, phone and laptop at least Trudi Cowan: A phone or laptop or tablet and laptop, you can provide them without having FBT applicable on them. But home office, that's actually a good segue though, because a lot of employers have actually reimbursed chairs and desks and things like that. If there's a personal use on them, then potentially there's some equity on that reimbursement. Sarah Eifermann: So, here's the irony of this situation, right? If you don't buy your staff member, the chair or a desk it has ergonomic requirements, but if you do it, you could then have to pay Fringe Benefit Tax if they sit on that chair to eat their breakfast. Trudi Cowan: Yes, the reality is that. Sarah Eifermann: This is why Trudy is the accountant and I'm not. Trudi Cowan: most of my clients that I would do with the FBT, the two things that we're mostly looking at is your cars and your entertainment. They're the two most common ones those small businesses would pay FBT on. Sarah Eifermann: The main focus of the ATO as well like if they were really looking for stuff. Trudi Cowan: Cars definitely if you have a car in your business and you're not doing any FBT reporting, then the ATO would definitely, if I were to look at you, that would be something that I would call and ask a question about us to see log books and things like that to check. Definitely. Yes, entertainment would be another one they would look at. Now with entertainment there is an exemption for minor and infrequent entertainment, right and minor is under $300. Yeah, but it needs to be infrequent so I often have clients saying, well, I'll take the guy to the pub every Friday night. Sarah Eifermann: That's not infrequent. That’s once a week. Trudi Cowan: Right. So that doesn't fall within the exception, but say a Christmas party. Right. And maybe doing a team event mid-year, that’s infrequent. Sarah Eifermann: See I'd argue a Christmas party is annual, therefore it's frequent because it's part of frequency. Trudi Cowan: But it's not regular. Sarah Eifermann: Right? This is the nuances of the way tax laws are. Trudi Cowan: So, we're not saying he can't ever entertain his staff and that you got to pay FBT right away, we’re just saying there's some rules around how it works and rules around how much money you can spend without ever reporting FBT. So, if you've never spoken to your accountant about FBT and you have a car, you have salary sacrifice, or you have entertainment, then you need to at least have a conversation with your accountant to see whether it's something that's relevant for your business. Sarah Eifermann: What's the FBT rate? Trudi Cowan: 47% but there's all sorts of gross up rules around the expense and factoring JST back into the expense. It's complicated. Sarah Eifermann: So, we can give a rough idea that if the expense was a hundred dollars, you'd pay FBT of $47 on that hundred dollars. Trudi Cowan: It sometimes works out higher. Sarah Eifermann: Right. So, this is why we're saying it's something that you have to be really aware of because in that instance. Trudi Cowan: It can make that particular expense, very expensive. Sarah Eifermann: Yeah. Especially if it is a $350 entertainment and then you have to add in 47% in tax to that overall expense and FBT is calculated with your tax return, so financial year, how does it work? Trudi Cowan: No, FBT to make things more fun works on a one April to 31 March. Sarah Eifermann: Of course, it does. Trudi Cowan: Yeah. Whereas with the tax returns, you often have a long time to lodge. If you work with an agent, with FBT, it has to be lodge by I think the 5th of June is the last due date. So only a couple of months to get the returns in as well. So, there's a much quicker turnaround on the reporting for it. Sarah Eifermann: And it's also a completely separate return then. It’s a FBT return. Trudi Cowan: Completely separate return yes. Sarah Eifermann: So, if you don't have FBT returns included in your current accounting package or whatever you are paying for with your accountant, you really need to have a very hard conversation with them. Trudi Cowan: And in some cases, it might just be that you need a review and not necessarily a return, but you should at least be having that conversation So, with your accountant and finding out whether the things that are in your business are things that we need to be considering for FBT purposes. Sarah Eifermann: Yeah. Trudi Cowan: Completely. Sarah Eifermann: Completely. Well enough about that tax that I really don't like. Moving on to another tax that I really don't like. Payroll tax. Trudi Cowan: Yes. Sarah Eifermann: As it stands, payroll tax is taxable on your payroll. Trudi Cowan: Yeah. So, it's a state tax. Sarah Eifermann: Yes. Trudi Cowan: And I believe all states have it and as you say, it's paid on your wages. Sarah Eifermann: Yeah, it’s a threshold-based wages. Trudi Cowan: Yeah. So, look, payroll tax, the thresholds are slightly different in every state. So, it does depend on where you are, but to use Victoria as an example, if your wages are more than $54,166 a month, or more than 650,000 annually, then you do need to pay payroll tax. Sarah Eifermann: The threshold is almost double in New South Wales, it's 1.1 mill. Trudi Cowan: Oh, is it? Sarah Eifermann: Yeah, it's massively different. Trudi Cowan: Look, if you've got employees in lots of different states then you may not have to pay it just because your employees are in different locations and therefore don’t make the threshold for that particular state. Sarah Eifermann: It is literally based on the threshold so it's really important to check that depending on how you pay yourself as director and how close you are to the threshold. You need to be aware that maybe being on wages for you isn't the right way. That's not the right structure. And similarly, if you pay a spouse, your income split or pay a spouse that way as wages. Maybe there's another way that you can structure your income if you're tied to the threshold of payroll tax because once you go over that threshold all your payroll gets taxed. Not just the amount that's over the threshold. Trudi Cowan: The other thing with payroll tax is it can sometimes include your contractors. So, if you do have a lot of contractors on the books, just make sure that you checking the rules. Sarah Eifermann: So, what sort of circumstances does contractors fall into? I know I'm putting you on the spot, but that's kind of an important comment. Trudi Cowan: You are putting me on the spot, but it's more in those circumstances when they're almost an employee like relationship. Sarah Eifermann: So, it's like sham contracting, they become payroll. Trudi Cowan: Sham contracting definitely would fall in. Sarah Eifermann: Just to clarify, sham contracting is when someone works more than 80% for you has regular hours, you pay them a wage. You really should be paying them super based on the ATO’s rules. They really effectively an employee. Trudi Cowan: Yeah. So, if you've got contractors that are very much labour hire you, they're working at your direction, then definitely check the rules in terms of whether they would be falling into the payroll tax thresholds for your calculations. As well, payroll tax, the states probably aren't going to come running and chasing you straight away. You're required to go to them and register for but if you don't register and they find out, then you'll be up for penalties and what have you. So, if you are in those thresholds definitely jump into the relevant websites. Sarah Eifermann: And I have a client that's quite high up in the Victorian department that runs payroll and land tax and I can tell you right now, they do a lot of investigation and all that, they don't have much sympathy if you haven't registered and done the right thing and then get caught. Trudi Cowan: They're more inclined to rebate and remediate on payroll tax that would cripple a business where you've tried to do the right thing and you've registered and not necessarily understood it or reported well, as opposed to just avoiding it altogether and not reported at all. Sarah Eifermann: And I think the important thing to also comment and especially in Victoria, I believe it's a group of companies. So, if you have couple of different entities, but directors are the same, Ownerships the same then you fall in under the gap and then payroll applies to all your entities as well. Trudi Cowan: So, payroll tax I should say. Sarah Eifermann: Life, joy, death and taxes, two constants in life. Trudi Cowan: While we're on the state taxes there's another state tax I want to mention, which is land tax. Sarah Eifermann: Yeah. Trudi Cowan: Yeah, and this applies when you have land holdings over a certain threshold. So, if you own property this is one that you might be aware of already. Sarah Eifermann: What if, so there are a lot of people listening to us right now, panicking because they own their house. Trudi Cowan: Yes. There, there is an exemption for your primary residence. Sarah Eifermann: Primarily place of residence is an exemption. Trudi Cowan: So, if you own the house that you live in and that's the only house, then no need to worry, you won't be subject to land tax. However, if you have other properties that you use for investment purposes, holiday purposes then land tax is likely to apply to you. The state governments or the state revenue authorities will assess this themselves. They basically go through the land records and figure out who should be paying land tax and you'll get a nice little bill in the mail, calculating it for you. If you think that they've done it wrong, because they didn't have the right details about where you're living or what have you, you can appeal and go back to them for it to be reassessed but in the first instance, they will certainly do the assessment and send out those notices. Sarah Eifermann: Yeah. So, I mean, it's another example of why it's really important to update your addresses if you're changing properties or have some foresight about what you're trying to achieve. If you've got a property portfolio, active foresight, broad scanning, looking ahead. See where you are going. I know no one likes doing it, but it's really helpful to reduce potential tax implications if you've planned ahead as to where that's at. So how do you find out what's owing to it? For example, like I have obviously changed residences, I now have an investment property. Does that automatically make land tax applicable? Like how would I go about truly finding out? Trudi Cowan: Most states do it based on landholdings at a set date. So, in Victoria, they assess it based on what property you own at 31 December. Sarah Eifermann: Yep. Right. Trudi Cowan: And then they send out the notices based on that. So, if you've bought a property in February then you didn't own it a 31 December. So, they're not going to pick you up this year for another year. They'll pick you up at the end of next year right. Sarah Eifermann: I think it's also important to note in Victoria too, that the land tax implication land tax is payable on transfer, they won't transfer the title, if there's land tax outstanding. So just be aware as a purchaser, if a vendor has land tax implications, they will be included in the bill for your adjustments on settlements. And again, depending on the cycle of when they've picked it up and when your settlement is, you may in fact incur tax for a set period of months, because it's based on their registration that you've just said, like when they do their assessment and if your conveyancer isn't across this, you could incur their cost because it's based on 12 months. So, if they've been assessed at the 31st of December and they haven't paid it, you can't transfer the title in May, it's for the 12 months, you pick up the property in May. If your conveyancer doesn't pick up on this, adjust it correctly. Or have the SRO. So have the vendor solicitor do an adjustment to land tax because they're disposing within 12 months, you will incur the costs for six, seven months of that person's land tax bill. And I had seen this become a problem in the past. Because land tax is not understood, which is why we're talking about it now. Trudi Cowan: Exactly, exactly. Right and the other important thing to note about state taxes is that a tax agent has a license to deal with federal taxes, but not state taxes. So not all accountants are necessarily across the state taxes. Um, and in general, we can't advise on the state taxes, because it's a law, you actually have to go to a lawyer we can help you with the compliance of it. It may not necessarily be able to give you technical advice. So, if you're wondering why your accountant, maybe he's never really brought it up, it may just be that it's not within the area of expertise because it's not something that most of us are licensed to deal with other than the compliance and meeting the obligation Sarah Eifermann: Interesting. Interesting. So yay, more fun taxes! Trudi Cowan: More fun taxes! I'm not sure which ones I prefer, the federal or the state. I think perhaps the federal ones are a little bit more resolved in their presentation and transparency. Sarah Eifermann: Now the last one I have on my list is not actually a text, but it's a reporting obligation around texts, some of you may not be aware of. And it's called teapot reporting, which is taxable payments and your report. Now this is a report that certain industries need to complete to the ATO on payments that they're making to contractors. Anyone in the building industry would be well aware of this report because they've had to complete a teapot for many, many years. Then how long has it been around? Trudi Cowan: Oh, as long as I can remember. Sarah Eifermann: And was it, was it brought in to assist with this sham contracting scenario? Is that when it came in? So, it's been around about 20 years, at least. Trudi Cowan: It was really brought in to try and help the ATO deal with who’s doing contract work and pick up the cash jobs and have a better understanding of who's receiving payments from who to make sure those individuals are actually picking up all of the income in their tax returns that they should be. So, it was established before the ATO went digital and it’s still a requirement. It started with building and construction, as I said. So yes, you should be very aware, but it's recently been expanded. So, if you're in cleaning services, road freight or courier services. Sarah Eifermann: Gig economy Trudi Cowan: IT, or security investigation surveillance services and you use contractors, then you would also be required to keep or to lodge this report. Pretty much any industry where being a contractor and using your ABN and invoicing is standard. You are probably going to fall in under this Taper reporting. What's actually really interesting is to fall within those industry categories, it only needs to be 10% of your income from one of those categories. So, one of the common examples that was brought up with the IT services was say a graphic design. They may have a component of their work that's actually IT related. Sarah Eifermann: They may offer domain names or web hosting. Trudi Cowan: To get to that 10% threshold may actually not be all that difficult for them. Right. So even though you might be sitting there going, but I'm a graphic designer, I'm not IT. You can actually fall into this reporting requirement because it only needs to be 10% of your income that falls within that industry classification. Sarah Eifermann: Yeah. Not a lot at all. Not a lot at all. Why do you care? Trudi Cowan: Because the ATO will give you a fine if you don't write the report. Sarah Eifermann: Yeah, they will. Trudi Cowan: So, it is important to do it. It is usually due the 31st of October. So, sort of just about the year end, you got a couple of months to do it, but using an accounting software or something anyway, you should already have the information to prepare this report and a lot of the accounting packages will actually spit out a report and lodge it for you. You just need to make sure that you're actually putting it into your accounting software, not just the name of the contractor, but their ABN and their address. Sarah Eifermann: So, when you fill in the contractor part, fill it in properly. Trudi Cowan: Not just putting in their names. So, like I say, it's not a tax, but it is a report that's important to be aware of if you do provide services in one of those industry categories, and look in my mind, it's also important to do, because we want to stand out the dodgy people that aren't reporting their texts properly because they can charge less than you because they're not having to factor in tax. We want it to be a fair system. Sarah Eifermann: Yeah, undercutting you, so get onto it. Right. So that's all four of the taxes. Trudi Cowan: Yeah. And there's probably a whole lot more because I know that there's lots of different little ones, but they probably the ones that are going to be most relevant to our listeners and most relevant for them to be aware of. Sarah Eifermann: Yay. The joy. Well, I mean, unfortunately, like I said, two constants in life, death, and taxes. He can't avoid them. All you can do is forward plan for them and make sure that you're ahead of it. That's why tax planning is so important and we are at the time of the year where tax planning is relevant and if you put it on your agenda, you need to get it on there now, and highly recommend you go and listen to it episode from last season about tax planning, because I think that was quite a brilliant episode as to why it's so valuable into your business, especially if you're looking at any feature forward cash flow planning, yeah, I highly recommend that you book in with your accountant now for tax planning and if they don't offer it, find one that does. Trudi Cowan: I’d be very surprised if any accountant said no, but you never know. Sarah Eifermann: I have heard no, by the way. Trudi Cowan: Really? Sarah Eifermann: Yeah. Some accountants don't offer it. They just do transactional Post year-end work. Trudi Cowan: And if you've got any other questions on any of these taxes, or there's another lesson on tax that you'd like to know more about then reach out to us on email or Instagram. Sarah Eifermann: I'd really love it, if possible, if you could leave us a review on whatever platform you're listening on, even if it's just clicking the stars. Trudi Cowan: That’ll be great. Sarah Eifermann: That helps boost us up so more people can find us as well. So our next episode, we are talking about ASIC and the reason we have ASIC listed is because there's some changes going on with the way things are being done in your reporting obligations at the moment within ASIC and direct identification numbers and yada yada, yada. But, tune in next week to hear a bit more about where that's heading. Trudi Cowan: Thanks everyone. Sarah Eifermann: See you next time. Bye.

———————-

Just two industry experts (and guests) having a friendly chat and sharing our knowledge. We aim to raise your knowledge base and dis-spell any myths surrounding finance. tax and a range of other financial topics.

This is a safe space to ask questions and hear useful info on financial matters. 

Read more about FOFU here 

And, as always if you'd like to leave us a message, or suggest a topic, you can do so here 

———————-

DISCLAIMER- The information and material in this podcast, and supplementary and associated information available, is for general information only. It should not be taken as constituting professional advice from the podcast owners, and we recommend you seek independent suitable advice that is specific to your unique circumstances.