Single Touch Payroll

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This is a Transcript from the Two Drunk Accountant’s Podcast – Ep 25

Single Touch Payroll

[Start 13:02]

Dan:           Alright Tim, let’s move onto our main topic today. And we’ve spoken that we’re going to do this a few times on the podcasts.

Tim:            Yep.

Dan:           It’s a new thing, new rule, new regulations. A big change for a lot of people in terms of their reporting.

Tim:            Yep.

Dan:           But it is Single Touch Payroll.

Tim:            Yeah. I mean, so it is in place now…

Dan:           Yeah.

Tim:            …for employers with 20 or more employees.

Dan:           That’s right, that’s right. So if you’re somebody listening to this podcast and you’ve got 20 employees—

Tim:            And you don’t know what Single Touch Payroll is.

Dan:           Yeah, you’re running late. You need to get on that.

Tim:            It’s possible that you’re not meeting your obligations there with ATO.

Dan:           Yep, that’s right. So, so what is Single Touch Payroll? Essentially—

Tim:            It’s a good concept.

Dan:           Yeah, essentially what it is, is as you are doing your pay runs, your weekly, your fortnightly, however often you pay, at the same time as paying your employees, you have to submit information to the ATO in regards to the amount that you paid, the tax withheld and the super associated with it.

Tim:            Yeah. Pretty cool.

Dan:           Yeah.

Tim:            That’s pretty cool because the ATO’s getting information as you go,…

Dan:           Ahm.

Tim:            …that means it could change the way BASs are lodged…

Dan:           Yeah.

Tim:            …it’s already getting that.

Dan:           Exactly.

Tim:            It could change the way end of your payment summaries are lodged, like already, they’re already saying you don’t have to lodge any of your payment summaries.

Dan:           Yeah, that is one of the big things, that you don’t lodge payment summaries anymore.

Tim:            Yeah.

Dan:           So normally at the end you’d get to, you know, June finishes and you think, “Geez I got to prepare all my payment summaries and give these to my employees”. No.

Tim:            Yep.

Dan:           Because you’ve reported this every week to the ATO, the ATO already have these details. All you need to do is submit a finalisation. But we’ll get to that.

Tim:            Yeah. Which is why, which is why they call it Single Touch.

Dan:           Yeah, exactly.

Tim:            Because as you’re paying your payroll…

Dan:           You’re reporting.

Tim:            …you’re reporting your lodgement obligations.

Dan:           Exactly. So what happens then is the ATO automatically prefill this information into MyGov or into their reporting to give to tax agents. And all you need to do is say, “Yep this has been finalised” and your employee can access that information anytime during the year.

Tim:            Yeah, that’s pretty cool too actually. So like let’s say, employees are changing jobs.

Dan:           Ahm.

Tim:            They should be able to access on MyGov a record of, well, they’ve been paid, right?

Dan:           Yeah, I believe so.

Tim:            So that’s pretty cool for like individual tax planning.

Dan:           Yeah.

Tim:            No longer do you need to rely on the payslip and year to date earning records, um, you could check with the ATO where you’re at.

Dan:           Yep, that’s right. So—

Tim:            Big change, it’s a big change and it does open the door for a lot of new ideas, ideas and concepts…

Dan:           Hmm.

Tim:            …in terms of tax lodgements as well.

Dan:           Yeah. Yeah, exactly. And I suppose at the moment, it’s only people with 20 or more employees.

Tim:            Yeah.

Dan:           But the ATO have recently been pushing everyone…

Tim:            Yeah.

Dan:           …to jump on.

Tim:            Yeah, to give it a try.

Dan:           Now it’s probably, I don’t think it’s even past through, it’s not law yet…

Tim:            Yeah.

Dan:           …but eventually what they’re saying is starting next financial year, so the 1st of July 2019, all employees will have to switch to Single Touch Payroll.

Tim:            Yeah.

Dan:           At the moment it’s just 20 or more. But you can opt in right now.

Tim:            Okay Dan, so here’s my question.

Dan:           Yep.

Tim:            Um, that’s fine for people who have an accounting software.

Dan:           Yes.

Tim:            What if you have an employee but you don’t have an up to date accounting software subscription?

Dan:           Yep, alright. So let’s, let’s, it’s a good segue. So the ATO have provided information in several ways that you can lodge this information.

Tim:            Yep.

Dan:           The first one is you run an accounting package or a payroll solution…

Tim:            Yep.

Dan:           …that is up to date and has this ability.

Tim:            So some examples of that are any of the cloud accounting softwares.

Dan:           Yeah, so Xero.

Tim:            Xero, QuickBooks Online, [17:16].

Dan:           MYOB, [17:17] Live.

Tim:            Essentials.

Dan:           Essentials as well.

Tim:            Yeah.

Dan:           Probably all those other ones like Saasu and all those kind of things I’d imagine.

Tim:            Yeah, yeah.

Dan:           I haven’t checked but I’d image they would as well.

Tim:            Yeah.

Dan:           And then if you go to a specific payroll provider. You know just an online software that does purely just payroll for you, they would definitely do it.

Tim:            Yeah.

Dan:           And the ATO have a list of providers.

Tim:            Cool.

Dan:           So if your current provider doesn’t do it, they’ve given you a list of providers that do.

Tim:            Yeah, okay.

Dan:           So that’s good. So—

Tim:            What about these people without an accounting software?

Dan:           Yes, exactly. So if you don’t have an accounting software, you have to submit your information to a third party such as a tax agent…

Tim:            Mm.

Dan:           …who then uploads that information…

Tim:            Wow.

Dan:           …to the ATO.

Tim:            Every week?

Dan:           Every week.

Tim:            Wow.

Dan:           So this is a compliance nightmare…

Tim:            Yeah.

Dan:           …if you don’t currently have an online payroll system.

Tim:            So it is going to push more people into accounting software.

Dan:           Ahm.

Tim:            That is a tough one though for micro business.

Dan:           Yep.

Tim:            I did see some correspondence through about the ATO considering, um, teaming up with some banking institutions…

Dan:           Mm.

Tim:            …to report the information that way.

Dan:           That’d be good.

Tim:            That’s quite interesting…

Dan:           That’d be great.

Tim:            …that idea.

Dan:           Yeah, mm.

Tim:            But, yeah, I mean to develop something like that with banks and then it would only be a limited number of banks…

Dan:           Yeah.

Tim:            …as well, is quite tough.

Dan:           Yeah.

Tim:            So there you go. That’s a big change for micro business. Um, I mean, not a lot of really small businesses do have payroll…

Dan:           Mm.

Tim:            …but just remember if you’re a really small business but you’re in a company and you’re taking money out of that company…

Dan:           Yeah.

Tim:            …that’s payroll.

Dan:           Yeah.

Tim:            Paying yourself is a wage from that company.

Dan:           Yeah. So you need to report your own wages…

Tim:            Yes…

Dan:           …to the ATO.

Tim:            …under the Single Touch Payroll system.

Dan:           Yeah. So if you’ve got a system like Xero, it’s going to be very simple to lodge this, it’s not, you know, you run your pay run, it creates the pay event and you upload like, it sends it from the software to the ATO.

Tim:            Mm.

Dan:           So it’s not like you have to download something, go to like your business portal online and upload the information…

Tim:            Yep.

Dan:           …every week because that would be a nightmare.

Tim:            Yeah.

Dan:           That’s not single touch, that’s several touches.

Tim:            Yeah, yeah.

Dan:           What you do, is just upload it straight to the software. Nothing will really change. If, and what you’re actually doing when you’re reporting, it’s not only you’re reporting that week but you’re reporting year to date figures.

Tim:            Yeah.

Dan:           So if you’ve changed a payroll, a pay run since your last lodgement…

Tim:            Yeah.

Dan:           …you do a correction…

Tim:            Yeah, okay.

Dan:           …and it fixes it.

Tim:            So that is possible to correct?

Dan:           It is possible. So you can change things—

Tim:            But only the previous pay run by the sounds of it?

Dan:           I don’t think so, no.

Tim:            Okay.

Dan:           If anything changes—

Tim:            So for the whole period you can do a correction?

Dan:           You can do a correction.

Tim:            So almost like you can reconcile the difference between [20:16].

Dan:           Exactly right, yeah.

Tim:            Okay.

Dan:           So the ATO have said, here it is, correcting employee information. “If the employee year to date information you last reported to us does not reflect the information in your payroll system…”

Tim:            Yep.

Dan:           So something’s changed. “…you should submit the updated information to us either within 14 days of the needed correction…

Tim:            Yep.

Dan:           …or in the next regular pay event where the affected employee has continuity of employment.” So if they still work for you…

Tim:            Yeah.

Dan:           …you can just fix it in the next pay run.

Tim:            Yeah, okay, cool.

Dan:           And it updates the information.

Tim:            Okay. So that’s important for self-employed people as well.

Dan:           Mm.

Tim:            Sometimes approaching the end of the year you may be adjusting some of your own pay.

Dan:           Yeah, definitely.

Tim:            It’s not quite so rigid for self-employed people what they’re paying themselves. It depends on the profit of the business and the cashflow in the business…

Dan:           Yeah.

Tim:            …and also the cash that you’re taking from the business.

Dan:           Yeah.

Tim:            So, um, so to me that’s, that’s a positive…

Dan:           Yeah.

Tim:            …for self-employed people. There is still some flexibility there to adjust before the 30th of June.

Dan:           Yep.

Tim:            This does sort of suggest to me though, if you’re of the model where you make retrospective changes, so say like in august you’re lodging your tax. I mean that’s quite early still to be lodging your tax. But at that point you want to change the wages you paid yourself.

Dan:           Mm.

Tim:            That may not work moving forward.

Dan:           Yeah, I think they will provide the ability to do that, especially…

Tim:            Maybe in the short term?

Dan:           …for self-employed people.

Tim:            Yeah, okay.

Dan:           I’d imag—

Tim:            The ATO is not in the business of, um, detrimentally taxing self-employed people…

Dan:           Exactly.

Tim:            …if there’s a smarter arrangement.

Dan:           Exactly.

Tim:            Not a way to avoid tax but just a smarter way to arrange their affairs.

Dan:           I would say that they will definitely have the ability to change a prior years’ payroll for yourself.

Tim:            Yeah.

Dan:           I don’t think that you’d be able to do it very easily maybe for employees…

Tim:            Yeah.

Dan:           …but it would probably be the same way that you update a payment summary now…

Tim:            Yeah, yeah.

Dan:           …you know, you amend it.

Tim:            Mm. Okay.

Dan:           But yeah, so essentially what will happen now, you have to lodge this information with your pay run every week.

Tim:            Yep.

Dan:           It’ll gather and collect the data at the end of the financial year…

Tim:            Yep.

Dan:           …it has what you’ve paid everyone already there and you just say, “Yes, that’s right”. You don’t need to send a payment summary to your employees.

Tim:            Yeah.

Dan:           The ATO’s got the information.

Tim:            Mm.

Dan:           And there’s nothing more you need to do.

Tim:            So a couple of extra perspectives here.

Dan:           Yeah.

Tim:            One from the ATO’s perspective.

Dan:           Yes.

Tim:            Quite a smart move.

Dan:           Yeah.

Tim:            They can effectively plan their cash flow now…

Dan:           Yeah, exactly.

Tim:            …moving forward. Every week…

Dan:           They know.

Tim:            …fortnight and month…

Dan:           Yeah.

Tim:            …they know how much tax is being withheld…

Dan:           Yeah.

Tim:            …and how much they should be receiving.

Dan:           How much they should get every quarter.

Tim:            So that’s really smart for people who aren’t lodging BASs from falling behind.

Dan:           Mm. Yeah.

Tim:            Because they know already…

Dan:           What you’re meant to have—

Tim:            …huge chunk there. Um, which should have been collected in BAS…

Dan:           Yeah.

Tim:            …that hasn’t been lodged.

Dan:           Yep.

Tim:            That’s really smart for the ATO.

Dan:           Very smart.

Tim:            I’m supportive of that.

Dan:           Yeah.

Tim:            They’ve got more information there and they can actually stop problems before they occur. Put out those fires before they occur.

Dan:           Yeah. Something that we always advocate anyway is to pay your tax and everything as you do your pay run.

Tim:            Yeah. So you, Dan’s getting at, putting like an amount of the tax withheld from your pay run straight to the ATO.

Dan:           Yeah.

Tim:            Why not? Or put it in a Reserve Bank account…

Dan:           That you don’t touch.

Tim:            …that you will pay to the ATO.

Dan:           Yeah.

Tim:            And the other side of the equation, this is the second perspective I was thinking of was super.

Dan:           Yes.

Tim:            So how—

Dan:           I was going to have a whole conversation about this. But go with your question.

Tim:            Yeah. So, um, obviously we suggest to businesses that we work with to pay your super as you go because it’s so easy these days.

Dan:           Yeah, and you don’t get behind.

Tim:            Again, you can pay that to the super funds or you can put it to a Reserve Cash Bank account if you want to collect interest on it.

Dan:           Yep, yep.

Tim:            Now, how’s it going to work specifically for self-employed people…

Dan:           Mmm.

Tim:            …who are part of the payroll…

Dan:           Yeah.

Tim:            …may or may not have been paying their own super?

Dan:           So, here’s, here’s the first part of this.

Tim:            Okay.

Dan:           Not only are you lodging to the ATO your pay run, your wages and tax…

Tim:            Yeah.

Dan:           …but you’re also submitting the amount of super…

Tim:            Yeah.

Dan:           …that is associated with that pay…

Tim:            Yeah, they can see that.

Dan:           …for each person.

Tim:            They can see that.

Dan:           Now what the ATO are allowed to do now…

Tim:            Ahm.

Dan:           …is data match that with your super fund…

Tim:            Oh.

Dan:           …to see what was actually paid.

Tim:            Perfect.

Dan:           And if you don’t pay it.

Tim:            Yeah.

Dan:           They come get you.

Tim:            Even if you, even if you’re a self-employed person?

Dan:           I’d imagine. Because as a self-employed person, even though they don’t really chase it up, you are meant to pay super for all employees, including yourself.

Tim:            That’s a huge, a huge change for accountants, BAS agents, clients.

Dan:           Yeah.

Tim:            They all need to be across the fact.

Dan:           Yeah.

Tim:            Self-employed people need to be paying their super now.

Dan:           Now.

Tim:            They’re not going to be happy about it either.

Dan:           I’d like to check to see if the ATO have released anything about this.

Tim:            I would like to actually ask the ATO the question.

Dan:           Yeah.

Tim:            And you know what? They won’t give you a straight answer…

Dan:           No, it’ll be—

Tim:            …because they’ll hedge their bets. They’ll keep their options open.

Dan:           Yeah, yeah.

Tim:            I mean, only time will tell.

Dan:           Yeah.

Tim:            There’s probably some scenarios happening right now…

Dan:           Yeah.

Tim:            …with businesses that are employing 20 or more people.

Dan:           Oh, definitely.

Tim:            So if you’re an accountant listening to this, you’ve got a client who hasn’t been paying their own super…

Dan:           Yeah, which happens.

Tim:            …have 20 or more employees but they’ve been using Single Touch Payroll…

Dan:           Yeah, how’s it going?

Tim:            …tell us your thoughts. Are you concerned about that?

Dan:           Yeah. I think, I think the bigger issue, and I think this is really good thing, is that there are a lot of people out there, you know, and none of our clients because we always point it out to them…

Tim:            Ahm.

Dan:           …that you, that they just don’t pay their employees super.

Tim:            Mm.

Dan:           They’re cash poor. They get to the end of the quarter, they don’t realise they had to pay this extra couple of grand…

Tim:            Yeah.

Dan:           …and then they just leave it. And then suddenly after a year, they own 10 grand of super. And, you know, you’re meant to be lodging the super guarantee charge forms and a bit of interest and what not [26:22]…

Tim:            That’s going to be very tightly monitored.

Dan:           That’s going to be very tightly monitored to the—

Tim:            Even paying it late a quarter…

Dan:           The ATO are going to know

Tim:            …there should be [26:29].

Dan:           Yeah. The ATO are going to know how much super this person accrued and how much you’ve paid.

Tim:            Yeah. And when you paid it.

Dan:           And when you paid it. Which is not something that’s ever happened before.

Tim:            Yeah, because even if you paid a week late, there really should be interest on that.

Dan:           Yeah.

Tim:            And then there’s an administration fine.

Dan:           Exactly. So—

Tim:            Which isn’t that much, the fine…

Dan:           No, it’s $10.

Tim:            It’s a pain. It’s a pain.

Dan:           Yeah.

Tim:            And those two things are deductible.

Dan:           No.

Tim:            No.

Dan:           So the first thing I would say to prepare for this…

Tim:            Mm.

Dan:           …is (1) if you’re not already on cloud solution, get on one.

Tim:            Yeah, get on it. Yeah, yep. Get on it.

Dan:           (2)…

Tim:            Get on it!

Dan:           Yeah. (2) change your methods. Start paying your super and your tax weekly.

Tim:            Yeah, weekly.

Dan:           Or fortnight, whatever your pay run is, pay it then.

Tim:            You know what? And if you’re not doing that already, you will notice the change. I mean, obviously you need a little bit of cash flow behind you to be able to do this.

Dan:           Yeah.

Tim:            Some people are playing catch up constantly.

Dan:           Yeah.

Tim:            It’s just a little bit out of their control.

Dan:           Yeah.

Tim:            But make it a focus to try and get on top of that by chipping at it away weekly.

Dan:           Yeah, definitely.

Tim:            So that’s really important too, I think.

Dan:           Yeah.

Tim:            And then you don’t get the pain every three months of that superannuation amount.

Dan:           Yeah, that’s right.

Tim:            And BAS. Half of the BAS is tax withheld on wages.

Dan:           Exactly.

Tim:            That’s all sorted as well.

Dan:           Yeah. So this is, the people who are going to be affected by this the most, somebody who’s been in business for 20 years, a tradie who’s been doing the same thing on MYOB…

Tim:            Yeah.

Dan:           …and now suddenly has to do this. They’re, that’s going to be the biggest change.

Tim:            Not that he’s a tradie, but now is a good time to shout out to Matt Small who commented on our Facebook page—

Dan:           Yeah, “Don’t touch my payroll”.

Tim:            “Don’t touch my payroll!” I like that…

Dan:           Yeah.

Tim:            …because he’s someone you’ve spoken to recently about, you know.

Dan:           About different softwares and things.

Tim:            Different softrwares. So it’s an interesting thing. And he’s been in business for a long time and..

Dan:           Yeah, exactly.

Tim:            …so it’s a huge change for people like Matt.

Dan:           Yeah, exactly. It’ll be a big change for a lot of people like that who, you know, have been in business for some time and have done something the same way but the changes in the past 5 years…

Tim:            Yeah.

Dan:           …have led to this point, it’s the tipping point.

Tim:            Yeah. And it’s not because like Matt’s doing the wrong thing…

Dan:           No, no, definitely not.

Tim:            It’s just because, and different generation to us, different mindset. We don’t want our data accessible online in the cloud…

Dan:           Yeah.

Tim:            …we’re concerned about security.

Dan:           Yeah.

Tim:            So there are a lot of people still concerned about those things.

Dan:           Yeah, exactly. And, you know, there’s definitely a lot of clients out there who, who do say that and say things like that. But unfortunately, um, with Single Touch Payroll—

Tim:            It’s pretty much push, it’s changing.

Dan:           Yeah.

Tim:            And with MYOB not supporting desktop related software anymore…

Dan:           Exactly.

Tim:            …it’s forcing your hand. You’re going to fall behind if you…

Dan:           Exactly.

Tim:            …you don’t get with the times.

Dan:           Exactly. And we all know how we feel about MYOB anyway so.

Tim:            [Laughing].

Dan:           So, uh, there are a couple of quick little parts of this.

Tim:            Oh yeah, okay, cool.

Dan:           One of them is exemptions.

Tim:            Okay.

Dan:           So there are exemptions. I’m just going to bring this up.

Tim:            Oh really!

Dan:           Yeah.

Tim:            Huh.

Dan:           Yes. So some people are exempt from Single Touch Payroll. These would include

[mumbling]

. So people who are exempt from having to do Single Touch Payroll – employers with seasonal workers.

Tim:            Oh. Why’s that?

Dan:           So some employers need to employ casual workers for short time during peak seasons. This may increase the number of employees in your payroll to 20 or more for a short period.

Tim:            Ah, so this is just for next. This isn’t until 30 June 2019, you’re exempt. Okay.

Dan:           Yeah, so for this year you will be exempt if you have, you know, if you had fewer than 20 employees at any one time for at least 10 continuous months…

Tim:            Yeah.

Dan:           …or if you reasonably expect to have fewer than 20 employees at one time for at least 10 continuous months.

Tim:            Yeah, okay. Okay. Well, that’s fair enough, that’s fair enough.

Dan:           Yeah, there are a—

Tim:            The next year you’re going to have to jump on anyway.

Dan:           There are a couple of others.

Tim:            Yep.

Dan:           If you are an insolvency practitioner…

Tim:            Okay.

Dan:           …right? And you are an insolvency practitioner for an employer, so someone’s gone into administration and you as the insolvency practitioner have taken over…

Tim:            Yep.

Dan:           …um, you don’t need to report Single Touch Payroll for that person’s employees.

Tim:            Oh okay, okay.

Dan:           So if that business is continuing…

Tim:            Mm, interesting.

Dan:           …but it’s in administration being run by the insolvency people…

Tim:            Yeah.

Dan:           …you don’t need to continue with that compliance.

Tim:            That’s interesting.

Dan:           Yeah. But you do have to lodge payment summaries at the end of the year for whatever payments you didn’t include in Single Touch Payroll.

Tim:            I feel like it would be easier for the liquidator just to do the Single Touch Payroll…

Dan:           Yeah, I agree.

Tim:            …if, if the business has an existing accounting software.

Dan:           I agree 100 per cent.

Tim:            Mm, interesting one.

Dan:           Another here is, long service leave and redundancy schemes. So employees in certain industries such as building and construction need to make regular contributions to long service leave.

Tim:            Yeah.

Dan:           We know that.

Tim:            Yeah.

Dan:           Ah, these employees who are members of the scheme may then be entitled to a payment long service leave. If you’re an administrator of one of these schemes you don’t need to use Single Touch Payroll.

Tim:            Mm.

Dan:           And then if you’re an employer with a withholding payer number…

Tim:            Ahm.

Dan:           …instead of an ABN, you don’t need to report it.

Tim:            Okay. That’s actually people who, an example of that Dan…

Dan:           Mm.

Tim:            …is someone who has a nanny.

Dan:           Yeah.

Tim:            A live-in nanny.

Dan:           Yeah.

Tim:            They’re paying them a wage…

Dan:           Exactly.

Tim:            …but they don’t have an ABN. That’s what a withholding payer number is.

Dan:           Exactly.

Tim:            So they don’t need Single Touch Payroll.

Dan:           They don’t need Single Touch Payroll.

Tim:            So if you have a live-in nanny, you’ll be happy to know.

Dan:           Yeah.

Tim:            If you have a live-in nanny, send us an email.

Dan:           Yeah.

Tim:            I’d like to hear what that’s like.

Dan:           Exactly. Foreign employees. You’ll be exempt from reporting payments to foreign employees if all the following apply. The employee is employed offshore by an offshore entity.

Tim:            Yeah.

Dan:           That entity is a non-resident Australian taxation purposes.

Tim:            Ahm.

Dan:           The employee is seconded to Australia. Oh seconded, I read that completely wrong.

Tim:            [Laughing].

Dan:           The employee is seconded to Australia or…

Tim:            Right. So that’s from—

Dan:           …or part of the employee’s base salary is paid into an offshore entity. So if you’re an offshore entity—

Tim:            That’s from the perspective of the foreign, foreign business.

Dan:           Yeah, exactly. Exactly.

Tim:            Yeah, I mean how are they going to comply with Single Touch Payroll?

Dan:           Yeah. And then you can apply for further exemptions.

Tim:            Okay. If you feel like you’ve got a scenario where—

Dan:           Exactly.

Tim:            Mm.

Dan:           So that’s it.

Tim:            Okay, well it’s not as big and bad as it sounds.

Dan:           No.

Tim:            Single Touch Payroll, it could even be a positive once you get into the groove, it could even save you time.

Dan:           Yep, exactly. Get an online solution for your payroll. Pay your tax and your super as you pay your wages. That’s our recommendation and lodge your finalisation at the end of the year.

Tim:            Spot on.

Dan:           It’s done.

Tim:            Perfect. That’s Single Touch Payroll.

Dan:           Single Touch Payroll.

[End 33:25].

[End of Transcript]

GST 101

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The most common question we get asked from people who are starting on out in business is; “Should I register for GST?” This is followed by a slew of related questions such as; “When is the best time to register for GST?” ,  “How does it affect what I do?” You might already be in business and registered for GST, but you might not fully understand what it actually is.

Well here’s a quick overview of what GST is, how it works and when you might need to register for it – plus a few hints and tips along the way.

GST really gets complicated in some areas which we’ll cover in a future blog. If you deal with any of the following then you should speak to an expert to make sure you’re treating your GST correctly:

  • Used item dealerships (eg cars/bikes).
  • Digital services provided from an overseas business.
  • Exporting services from Australia.
  • Health services.
  • Importing goods into Australia.
  • Residential rents versus commercial rents.
  • The business of buying, renovating and selling homes.

For this blog post though, we’re just going to start with the very basics of GST!

So what is GST?

Well, it stands for Goods and Services Tax. And it’s very similar to other taxes charged around the world, such as Value Added Taxes, or VATs. GST was introduced by the Howard Government around the year 2000. And what it does is charge a 10 per cent tax to the end user of a good or a service. That’s the thing that a lot of people actually don’t realise. It increases the price by 10 per cent of everyday products that we in the general public buy and use all the time.

Before GST: you had something that you were selling for $10.

After GST: you’d have to charge $11 because you were forced to add a 10% tax on top of your normal price.

The best way to explain how this might work is to use an example. Let’s imagine a plumber. This plumber buys materials. Those materials are made by another company. Let’s say piping. Without knowing it the plumber is adding value to that piping by combining it in such a way that a customer can use it – in this case so that their sink doesn’t leak. This gets to the heart of what a value added tax or a goods and services tax targets. If you’re buying things, adding resources and labour and increasing value by doing so and on-selling it to someone else then you have to charge GST.

The pipe company usually would’ve sold their piping to the plumber for $100.00 before GST was regulated.

Under the current rules of GST they have to charge an extra $10.00 (if the GST rate is 10%). Meaning they’ll sell their piping to the plumber for $110.

The poor plumber has to pay that extra $10. But if the plumber is registered for GST, is operating a business and is going to use that piping to add value and on-sell to someone else, then they won’t suffer the payment of that tax. They’ll actually be able to get the $10.00 back.

This is where some people do get confused. Not only do you have to pay GST on all goods and services that you sell if you’re registered for GST, if they’re within the scope of the GST laws, but you also get to claim the GST on all goods and services that you purchase. It’s a two-sided coin!

So if you have business to business transactions and you’re both registered for GST, neither of those businesses really pay that tax. The person who pays the tax is the end user. Private residents and everyday people like you and I. In the example of the plumber it would be a residential customer.

GST essentially works in a cycle, passing from business to business, until it gets to an end residential user who essentially is the one paying the tax. Businesses are the ATO’s middle man when it comes to GST, collecting the tax on their behalf and paying it to them regularly. This brings us to…

Business Activity Statements

BAS’s are real drag for many business owners. A lot of people, especially those new to business, forget to budget for their BAS. It’s very easy to not realise that money in your bank account, as a business owner collecting GST, doesn’t actually belong to you. In essence you’re holding it for the ATO temporarily until your next BAS.

This is a big challenge for a growing business that’s potentially struggling with cash flow.

If you’re registered for GST then at the end of every month, quarter or year (depending on what your lodgement cycle is), you lodge a BAS. In that BAS you include all your GST related income and all of your GST related purchases. Then you total what that is and it’s either a refund or a payable and you receive or pay that to the ATO.

When Should You Register for GST?

Some new businesses can hold off registering until their sales grow. Others must register straight away as they are in a designated industry. For some businesses registering for GST is a big positive, for others it should be something that you delay as long as possible.

The ATO’s guidance is that when you expect to reach turnover of $75k during a financial year then you should register for GST. Therefore it is a little bit grey as to when you must register. But certainly you should register as soon as you reasonably think your sales will be over $75k in the financial year.

Here’s an example of a completely acceptable manner in which to register for GST, using our plumber scenario. Let’s imagine the plumber has just started his business. He’s been trading for 6 months. His sales have reached $60k, which includes materials bought and on-sold to customers. This means it’s December and the plumber has got 6 months left in the financial year. At that point you would reasonably expect ‘I’m going to exceed the $75,000 GST turnover limit’. Your next thought should be ‘I need to think about registering for GST pretty soon.’

It’s important to be aware of this as it gives the plumber some time to start telling suppliers and customers that they’re going to be registered for GST.

The Pros and Cons of Registering for GST

Obviously there are some pros and cons of registering for GST and it depends on your unique scenario.

Business to Business: If you’re working business to business, it’s not a huge change because those businesses that you’re serving could actually be able to claim the GST credits back if they’re registered for GST. This means they’re not going to suffer a price increase – that is once they lodge their BAS and get their GST paid back to them.

Residential Customers: If you’re working for residential consumers, it’s a different story. You’re going to have to put your prices up and people might not be happy about that. Sometimes a 10 per cent hike is pretty significant for a small business. And you don’t want to leave the price the same and simply eat into your profits. This is where if you’re not expecting to get $75k of income in a financial year then you really have to weigh up whether or not it’s worth registering.

Selling Non-GST Items: If you’re someone who is selling non-GST items (eg health Services, exports of goods/services, some foods, etc) you could be getting 10 per cent back on your purchases which have GST in their price. In this instance it could be worth registering for GST even where your sales are less than $75k. This is because the goods or services being sold aren’t GST goods or services and you won’t owe anything to the ATO from the services you’re selling.

Administration Costs: There is an administration cost surrounding being registered for GST. Your standard of bookkeeping must be higher and account for which items you buy and sell have GST included in them. Sometimes it’s not easy to know if an item has GST or not. It will increase your burden of time and admin. The good news is that your accounting software – Xero, QuickBooks, MYOB – will help you keep track of your GST. At the end of the month or quarter, you can run reports that show exactly what you need to lodge on your BAS.

Summary:

Q: You’ve started a business, should you register for GST?

A: If you expect to be making sales of over $75k per annum, or if it could be in your best interest in terms of collecting GST refunds, then yes. Not only are you required but it could be a good idea.

Q: I’m not sure if I’m going to hit $75k this year, should I still register?

A: It depends on your business plans and expectations. If you think your business will rapidly grow and exceed the $75k threshold then it could be smart to register from day one, get used to the system of GST and avoid having to change pricing and systems later down the track.

Q: Can my accountant help me with GST and BAS’s?

A: Yes absolutely they can. Your accountant is there to help and support you. We lodge many of our clients BAS’s and do a lot of client’s bookkeeping. We find that this helps us to keep in touch with them regularly and give them more timely and beneficial advice. We include these at a very attractive price within fixed fee monthly packages.

Is Your Side Hustle A Business?

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One of the most common questions we are asked is; “I’ve started doing [insert your brilliant side hustle] and I’ve started to make a little money. What do I do about that?”

Why have a side hustle?

Some people just want an extra bit of cash. The main question is; are you doing this simply because you enjoy the act of doing it? In which case, you’re probably not aiming to make a profit and it’s really just more of a hobby.

Or are you aiming to make cash? In which case your side hustle is probably a business and you need to put a strategy in place.

So you’re making some extra cash.. The next question is; do I need to declare that? Unfortunately it’s not a straightforward answer, it comes down to; how often are you doing your side hustle? How much are you earning?

With those factors in mind; if you said it’s probably less than $5000 a year, I don’t have a website, and it’s something I do on the weekends with friends and family – in this case it’s probably a hobby.

Let’s use an example..

Let’s say you make a wooden table and sell it for $100 on Gumtree. This is a one-off thing. That’s a hobby.

When your side hustle is not a hobby..

You subscribe to Handyman Monthly (great magazine), and you learn how to make a beautiful wooden table. It turns out so good, you decide to make 20 more of them. You then decide to launch a website showcasing your tables and you apply for accounts with suppliers for the materials.

You find antique stores to sell to, various other channels, you create a bank account specifically for this venture and you keep track of your expenses.

You’ve even worked out that a table takes around 20 hours to complete and $500 in materials. So you figure you need to sell your table for around $2500 to make a profit.

You’re running a business.

Now do you need to declare this on your tax return? Again it comes down to how much money you make. If you sell one table for $100 its probably not going to be an issue. But if you make $20,000 – you need to declare that income.

If you’ve made less than $20K in sales and run at a loss, the ATO is not worried whether you include it in your tax return or not.

However, if you made less than $20K in sales and made a profit, thats a business and you should include it in your other income.

The ATO considers some or all of the following factors as a business;

  • You registered a business name
  • You have a dedicated phone number for the venture
  • You have an ABN
  • You are licensed or qualified in the field
  • You create a repeatable product on a regular basis

If you fulfil the most of the above criteria, you are most likely running a business and not a hobby.

So it’s a business.. what do I do now?

Based on a number of things;

  • How much income am I expected to bring in?
  • Are there other people in the business?
  • Am I going to employ people?
  • Whats my long term plan and vision?

Answering these questions will determine whether you are simply going to register as a sole trader or going to form a company. Also whether you are going to need an ABN.

You also need to consider;

  • Do I need insurance?
  • Will I have cash flow or do I need finance to start the business?
  • Do I need to buy some equipment?

In most cases if you are working full time and start a side hustle, you just register for an ABN. You’re not expecting to earn hundreds of thousands of dollars.

The beauty of the side hustle is you can do something you enjoy and that gives you a creative outlet. You can make a bit of money, and potentially it could grow into a business. It could turn into something amazing and you could quit your job (or simply work less).

Ultimately ask yourself; is the side hustle something you want to keep low level and purely as something you enjoy, or do you want to grow it enough to change your lifestyle?

You should really want to be at either end of the spectrum and not hang in the middle.

If you’ve started a side hustle, and based on what you’ve read above, you feel you have some tax obligations, or need some advice in creating the correct business structure, get in touch with us today! We even have an obligation free Discovery Session where we can learn all about you, your business and your goals.

This blog post is a partial transcript from the Two Drunk Accountants Podcast. You can listen to the entire episode here.