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Champion's end of financial year checklist 30 June

This month's articles

Annual Leave Overhaul
Update on Employment Laws

Payment Arrangements with the ATO
What attracts the ATO's attention - Part 2
Up Close & Personal
Quote of the month

 

ANNUAL LEAVE

Annual Leave Overhaul


The Full Bench of the Fair Work Commission reached a crucial verdict for employees covered by modern awards that will change annual leave entitlements.  The ruling will be inserted into all modern awards, giving employers important new rights and more flexible leave arrangements with their employees.
Annual leave overview

All full-time and part-time employees are entitled to four weeks of annual leave in a 12 month cycle. Accrued annual leave is based on their ordinary hours of work during the year. Because there is no minimum or maximum amount of annual leave that can be taken at a time, employees can hoard their leave entitlements.

Direction to take leave

Under the new rule, businesses with employees covered by modern awards can now direct their staff to take time off from work once they have accumulated eight weeks of leave. The decision provides welcome relief to employers who have long dealt with the detrimental effects of accrued annual leave.

Before making a direction, the employer and the employee must reach an agreement on how to reduce or eliminate excessive annual leave. In situations where both parties cannot find a suitable solution, an employer can give their employee a written direction to take leave.

The direction must be in writing, and meet the following requirements:

• The direction must not leave the employee with less than six weeks of paid annual leave after the directed annual leave is taken.
• The employee cannot be directed to take off a period of leave of less than one week.
• The employee cannot be directed to take leave less than eight weeks, or more than one year after the date of the direction.
• The direction cannot be contradictory to any leave arrangements already in place.

Cashing out of annual leave

A further ruling enables employees covered by modern awards to cash out a portion of their annual leave, rather than taking their leave. Employees who elect to receive cash instead of taking leave, should their employer agree, must satisfy the following conditions:

• The cash-out agreement must be in writing and signed by both parties.  The agreement must be retained by the employer.
• The agreement must state the amount of leave to be cashed out, the payment to be made to the employee, and when it will made.
• Annual leave cannot be cashed out if it results in the employee’s remaining entitlement being less than four weeks.
• Employees are not allowed to cash out more than two weeks of accrued annual leave in a 12 month period.

 
EMPLOYMENT LAWS

Update on employment laws


The start of the new financial year has brought about some important changes to employment laws.

All employers have a responsibility to remain up to date and aware of any amendments made to employment laws, to ensure that they remain compliant and continue to meet their obligations.
Below are four important changes that took effect from 1 July 2015:

Salary cap for unfair dismissal

The high income threshold increased from $133,000 to $136,700 per annum. Because the threshold includes allowances and benefits employees and employers should remain aware of how salary packaging can affect their eligibility to meet the new requirements. 

Recent unfair dismissal cases have demonstrated that even though an employee’s base salary may be below the high income threshold, any additional benefits scan be classified as “earnings”. These earnings can push an employee’s base salary over the threshold, making them ineligible for unfair dismissal remedies (if they are not covered by an enterprise agreement or modern award).

Before dismissing a high income employee, employers need to be aware that employees who earn over the threshold may still have other legal avenues to challenge dismissals. These options include anti-discrimination laws and the Fair Work Act’s general protections provisions. Therefore, to protect themselves against any type of challenge, employers should take the necessary steps to understand their position before dismissing an employee.

Minimum wages

The modern award minimum wage rates rose 2.5 per cent, and the National Minimum Wage increased to $656.90 per week (or $17.29 per hour) for employees who are not covered by an award or agreement. However, employers who employ staff that are not covered by any age or disability percentage rate are exempt from the change, and may pay less than the National Minimum Wage.

The changes bring about the need for employers to make sure that their rates do not fall below the new minimum wages rates. Even if their employees are already paid above the minimum wage or modern award rates, employers should review their rates nonetheless.

The same goes for any employees who are employed under an enterprise agreement. Employers should check that the base rates in their agreement remain at least equal to the new minimum Modern Award rates.

Employees should also check what their current pay rates are, and ensure that any applicable increases have been applied to their first full payslip for the period on or after July 1, 2015.

Superannuation Guarantee

The maximum cap for superannuation contributions increased to $203,240 per annum. However, the Superannuation Guarantee rate will remain at 9.5 per cent until 30 June 2021, and will increase to 12 per cent by 1 July 2025.

The delay in an increase has significant financial implications for those expecting to remain in the workforce for more than 12 years. This is because the 3 per cent increase will take effect from the start of the 2025-26 year (in 12 years time (under the new laws), rather than in five years time (under former SG laws).)

Redundancy tax concessions

The tax free threshold that applies to genuine redundancy payments will increase, affecting employers with employees who are entitled to a redundancy payment. From 1 July 2015, the tax free base limit in a valid redundancy payment will increase to $9,780, and the tax free limit per year of service will increase to $4,891.

 
ATO

Payment Arrangements with the ATO


Collection of small business tax debts is a specific area of focus for the ATO as small business accounts for approximately 62% of all outstanding tax debts. One option for taxpayers is for the business to enter into a payment arrangement with the ATO – the payment of the tax debt by instalments.
The ATO has simplified the process for entering into payment arrangements. For tax debts of less than $25,000 and where the taxpayer has a good taxation compliance history and can pay the tax debt by instalments within 2 years, a payment arrangement can be set up without the need to talk to a tax officer. The taxpayer simply needs to call the ATO’s automated self-help numbers and follow the prompts.
 
The ATO is likely to impose stricter conditions before agreeing to a payment arrangement for tax debts over $25,000 and for taxpayers with poor lodgement history. These include providing the ATO with accounts and other financial information to assess business viability. There may also be a requirement for an upfront payment.
 
The advantages of entering into a payment arrangement with the ATO include:
  • The pressure on the short term cash flow of the company is alleviated.
  •  A payment arrangement provides the ATO with an alternative to more formal recovery procedures.
  • The ATO is precluded under law from commencing or pursuing proceedings to enforce a director penalty if a payment arrangement is in force and being complied with.
 However, there are potential downsides which may be less obvious:
  • A payment arrangement does not vary the time at which the tax debt is payable. GIC (General Interest Charges) applies from the due date and continues to accrue while the debt remains outstanding.
  • A significant initial payment may be required. In many cases this can be up to 50% of the tax debt.
  • A condition of the payment arrangement is that all ongoing lodgement and payment requirements are met. Missing one repayment, or the late lodgement of a single return, will result in default under the arrangement.
  • Default under a payment arrangement may be the catalyst for the ATO to employ its powerful approach to debt collection – utilising a number of recovery actions which may include taxation garnishees, director penalty notices or winding up proceedings.
Entry into a payment arrangement with the ATO may be vital to overcome a company’s short term cash flow issues. However, defaulting under the arrangement, or the subsequent liquidation of the company, may result in the imposition of personal liability on the director(s) that the entry into the arrangement was trying to avoid in the first place.
 
ATO

What attracts to ATO's attention - Part 2

 
Following on from last month’s newsletter, we look into the specific behaviours, characteristics and tax issues that attract the ATO’s attention.

In this issue, we consider Tax Consolidated Groups.
Consolidation allows wholly-owned corporate groups to operate as a single entity for income tax purposes.

The ATO focuses on incorrect or deliberate miscalculation in the following areas:

Available fraction rules
  • High available fractions which, if incorrect, would allow a consolidated group to utilise transferred losses at a faster rate than appropriate.
  • Failure to make adjustments to the available fraction when a loss entity joins the group.
Cost-setting rules
  • Incorrect uplifts under the tax cost setting rules regarding amounts of revenue and/or capital gains assets through:
    • high allocable cost amount of the joining entity
    • overstated liabilities of the joining entity
    • overstated market value of the assets of the joining entity
    • allocation of the allocable cost amount to assets on a basis that provides a bias towards assets where the head company of the group may inappropriately increase revenue deductions, or artificially increase the cost base of the joining entity’s CGT assets.
Consolidation exits and Potential Capital Gains and Losses
  • Negative allocable cost amount of an existing subsidiary has not been returned as a capital gain by the head company.
  • Exiting members of the group who incorrectly applied the ‘exit history rule’.
  • Large entities leaving a consolidated group.
  • Multiple exits during an income year.
  • Movements of entities between consolidated groups controlled by wealthy individuals.
Consolidation membership rules
  • Leaving an entity out of a consolidated group to avoid that entity’s losses being limited by the available fraction.
  • Incorrect inclusion of an entity as a member of a consolidated group, which may give rise to unintended tax benefits, such as the ability to transfer assets within the group without triggering a capital gain.
As you can appreciate the above areas of Tax Consolidated Groups are complex and require specific calculation in accordance with appropriate legislation.

Specific attention is required on establishment, entry or exit of an entity in a Tax Consolidated Group.

Champions Business Growth Advisers assists many of our clients with these calculations and we would be open to discuss the benefits and disadvantages of forming a Tax Consolidated Group in conjunction with your specific situation.

 
UP  CLOSE  &  PERSONAL

With Shivam Grover

 

Shivam commenced with Champion's in February 2015 as our Cadet Accountant.

 

This month we get to know Shivam a little better.
Can you tell us a bit about your new role at Champions?

I have joined champions a cadet accountant and have been trained on procedures relating to individual returns, basic send outs, mapping financial statements and much more. Through the completion of these procedures I can contribute towards the success of the firm.

How would you describe Champion's as a firm?

Champion's possesses an extremely professional environment and has made my transition, from high school into work, very smooth. People here are very friendly are always more than willing to go out of their way and assist someone.

What do you enjoy doing in your spare time?

I like spending time with family and friends.  I am also extremely passionate about sport, especially cricket, and participate in weekly competitive games.

What is the last book that your read?

Romulus, My Father.

What is your favourite movie?

I really enjoyed Ted, as I thought it was hilarious.

Where is your favourite holiday destination?

I really enjoyed the trip to Singapore. But I wish to explore Europe.

If you were stranded on a deserted island what is the one thing you could not do without?

A book on how to escape from a deserted island, alive!

 
Financial success, as well as most success in life,

is not about perfection, it's about direction -

Donald Lynn Frost
Copyright © 2015 Champion's Business Growth Advisers Pty Ltd, All rights reserved.
www.champions.com.au
Champion's Business Growth Advisers Pty Ltd · Level 3 · 107 Phillip Street · Parramatta, NSW 2150 · Australia
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