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Travel allowance or LAFHA: which applies to you?

Travel Allowance or living-away-from-home allowance (LAFHA)? Understanding the difference between these two allowances can be complex, particularly when there is the perception of an overlap. The allowances are in fact very different, and have different consequences for the person receiving them.

An amount paid by your employer to cover expenses such as accommodation, food, or drinks while you travel for business is typically know as a travel allowance. There is also another type of allowance, called the living-away-from-home allowance (LAFHA), which compensates you for additional expenses when you are required to live away from home due to work duties. So what is the difference between the two?

Travel allowances are considered to be assessable income and PAYG withholding may apply. Any expenses incurred on meals and incidental expenses may be deductible against the allowance if certain criteria are met. Living-away-from-home allowance, however, is subject to Fringe Benefits Tax (FBT) and is non-assessable, non-exempt income. Costs of meals and incidental expenses will not be deductible since you are considered to be living away from home and not travelling.

There are no specific set criteria to know whether you are receiving a travel or a LAFHA allowance. The circumstances of each case will determine which one is more appropriate.

The ATO considers the following factors, although not determinative on their own, to be important:

  • time spent working away from home – the longer you spend working away from home, the more likely that you are living away from home and not travelling;
  • whether you had a usual place of residence at a previous location – you would only be considered to be living away from home where it is reasonable to conclude that you will return to your previous residence when work at the new location ends;
  • the nature of accommodation – if you live in settled accommodation, such as a house, unit or apartment, it may indicate that you are living away from home. This is particularly true if the accommodation has the amenities common to a home, such as an equipped kitchen and laundry. On the other hand, if you are staying in a hotel or in transitory accommodation, then it is more likely that you are not living away from home and are merely travelling;
  • whether you are, or can be accompanied by family or visited by family or friends – if your family accompany you during the entirety of your stay at a new location then it is likely that you have relocated and are not living away from home or travelling. All meals, living and incidental expenses will be considered to be private and not deductible.
  • conversely, if your family members accompany you for a short stay at your new location and subsequently return to live at the family’s permanent home, while you continue to work at the new temporary location, then it is likely that you will be considered to be living away from home.

Usually, your employer should tell you which allowance you’re getting, and a big clue is contained in your payment summary. Travel allowances are usually shown in the allowances section of the payment summary and contribute to your overall taxable income and affect the amount of Medicare levy payable. LAFHA is usually included in the reportable fringe benefits section and does not contribute to your overall taxable income or affect the amount of Medicare levy payable. It does, however, affect other things including the tax offset for eligible spouse superannuation contributions, HELP repayments, child support obligations, and entitlement to certain income-tested government benefits.

If you receive a travel allowance, expenses can be deducted without documentary evidence where it is considered by the ATO to be “reasonable”. However, if you have a lot of expenses that may go over the reasonable amount set by the ATO, it would be wise to keep documentary evidence, such as receipts and supporting evidence (eg, bank or credit card statements).

Want to find out more?

Do you want to know if your income or other government benefits will be affected by the allowance you receive? Ensure that you don’t get a big surprise when your tax is due. Talk to us about this today.

Super guarantee: are you ready for ATO crack down?

Super Guarantee: Are you ready for ATO crack down?

The ATO is increasing its efforts to crack down on employers who fail to make quarterly superannuation guarantee (SG) contributions of 9.5% on behalf of their employees. If you are an employer, regardless of whether you run a small or large business, now might be a good time to review your SG obligations before the ATO comes knocking. If a shortfall is discovered, simply rushing to make extra super contributions will not always be the best course of action. In fact, it can result in a double liability, so careful planning is required for dealing with any identified problems.

It is estimated that the shortfall – or gap – in SG payments could be around 5.2%, equivalent to $2.85 billion in missing super contributions (based on estimated figures for 2014–15). This gap is the difference between the theoretical amount due by employers to be fully compliant with their SG obligations and the actual contributions received by super funds. The Minister for Revenue said the failure of some employers to meet their SG obligations to employees has been a problem ever since SG was introduced in 1992.

ATO Deputy Commissioner, James O’Halloran reported recently: “While this analysis shows that 95% of the estimated superannuation guarantee is paid to employees, the gap exists because some employers appear not to be meeting their super guarantee obligations either by not paying enough or not paying it at all”. This follows recent pressure from a Senate Committee calling for the ATO to adopt stronger compliance activities, rather than its previous reactive approach.

In addition to following up all reports of unpaid SG, the ATO says it is increasing its proactive SG case work by a third this financial year. Mr O’Halloran added:

“We have improved our analysis of data to detect patterns in non-payment, and are working more closely with other government agencies to exchange information,”

Package of reforms

As if the Commissioner doesn’t have enough powers already, the Government has announced a package of reforms to give the ATO real-time visibility over SG compliance by employers. One of these involves additional ATO funding for a Superannuation Guarantee Taskforce to crack down on non-compliant employers.

Other key recommendations include the following:

Monthly contribution reporting

Superannuation funds will be required to report to the ATO on contributions received more frequently, at least monthly. The Government says this will enable the ATO to identify non-compliance and take prompt action. It has been noted that this move to more regular SG reporting will place a greater cost burden on super funds, especially smaller ones.

Single Touch Payroll (STP) roll out

Employers with 20 or more employees will transition to STP from 1 July 2018, while smaller employers (ie, those with 19 or less employees) will move to STP from 1 July 2019. Rather than being a check on businesses, this new system is designed to reduce the regulatory burden and transform compliance.

Director penalty notices

The issue of director penalty notices and the use of security bonds for high-risk employers are measures set to improve the effectiveness of the ATO’s recovery powers, to ensure that unpaid superannuation is collected and paid to employees’ super accounts.

Penalties by court order

The ATO will have the ability to seek court-ordered penalties in the most serious cases of non-payment, including those employers who are repeatedly caught but still fail to pay SG liabilities.

Super contribution due dates

 

Quarter ending Employer contribution due date Late contributions, SGC statement and payment due date
30 September 28 October 28 November
31 December 28 January 28 February
31 March 28 April 28 May
30 June 28 July 28 August

 

Employers are required to make quarterly super contributions of at least 9.5% of an employee’s ordinary time earnings. If the super fund receives the SG contributions by the quarterly due dates (see table) the contribution is tax-deductible for the employer, whereas a late payment is not tax-deductible.

Where an employer does not make sufficient quarterly super contributions by the due date, the employer becomes liable for the superannuation guarantee charge (SGC). The SGC is payable to the ATO and automatically arises as soon as the contributions are not made by the due date. This means that if an employer discovers a shortfall in SG contributions after the due date, making a contribution to the employee’s super fund to cover the shortfall isn’t always the best course of action as it may not reduce the SGC liability. Generally, an employer can only use late contributions to offset a portion of the SGC that relates to the relevant employee. However, a late contribution cannot be used to offset the SGC in respect of a person who is no longer an employee.

Fixing a SG problem

If you are expecting leniency from the ATO for a first offence, think again. The Commissioner does not have any discretion at law to remit the SGC itself. The best a non-compliant employer can hope for is that the ATO may remit the 200% additional SGC penalty that applies for the late lodgment of a SGC statement.

Employers can also request the ATO to defer the due date for lodgment of a SGC statement. However, a deferral of time to lodge the statement does not defer the time for payment. The ATO will generally only extend the due date for payment where there are circumstances beyond the employer’s control (eg, a natural disaster or illness) and the payment can be made in full at a later time (or by instalments).

Do you think you could have a problem with your SG obligations? Speak to us about your options before the ATO is on your doorstep.

 

Payroll reporting: a touchy subject

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If you are an employer the way you report payments, such as salaries and wages, pay as you go (PAYG) withholding and superannuation is changing. The ATO will need you to report these payments directly from your payroll solution in real-time, at the same time as you pay your employees. This is known as single touch payroll (STP) and is intended to simplify business reporting obligations. It comes into effect in 2018 or 2019, depending on the size of your business. Are you ready for this change and how will it affect you?

We can help you to prepare for the move to STP.
The introduction of single touch payroll (STP) is in line with the Government’s “digitisation agenda”, to make reporting more streamlined, but many small businesses will feel an extra compliance burden. Those who work in remote areas of Australia may be at a disadvantage as Single Touch Payroll reporting will require a strong internet connection.
In a straw poll conducted by Accountants Daily (between 5 September and 14 October), almost 90 per cent of accountants and advisers said that their clients were not ready for the shift to single touch payroll.
The Institute of Public Accountants (IPA) chief executive officer, Andrew Conway has said: “While initially STP delivers little benefit to small business, we acknowledge that other benefits exist such as transparency over superannuation guarantee payments.”
For small and micro businesses – those who employ less than five people – implementing STP by the deadline will take considerable incentive and support. The IPA supports the notion of a phased and targeted incentive approach as proposed by the Government, along with the consideration of a partial offset of costs. However, Mr Conway said the IPA would “like much more detail” to ensure small businesses are not impacted adversely by the implementation of STP. We will keep you posted on updates to this area.

How will this change affect you as an employer?
The change to STP means that employers won’t need to complete payment summaries at the end of the year as these will have been reported in real time throughout the year. If you have a payroll solution (software that you use in order to pay employees), you will need to update this or make sure it is updated by your service provider. If you do not have a payroll solution, you can speak to us about how to find the best solution for your business. We may be able to report using STP on your behalf. The first 12 months of STP will be considered to be a transition period, during which time you could be exempt from an administrative penalty for failing to report on time. There are other exemptions, including if you operate in an area with an unreliable internet connection or you are classed as a substantial employer for only a short period during the year (for example, if your employees are seasonal).

How about if you run a small business?
Mr Conway said the IPA’s concern is for 70,000 small businesses that will struggle to implement STP without help and support. If you do not use digital software for your payroll you may also need our help to adopt new technology.
What does it mean for employees?
With the move to STP, employees will be able to log on and make sure they are being paid the correct amount for their superannuation contributions so “this level of transparency is most welcome”.
What is the timeframe?
Single touch payroll will be compulsory for employers (including those in a wholly-owned group) with more than 20 employees from 1 July 2018. If your business has less than 19 employees, you have a bit longer, but you will need to get on board by 1 July 2019, subject to legislation. If you are unsure about whether you are a “substantial employer”, the advice is to do a headcount of all of your employees who are on your payroll on 1 April 2018; a total headcount includes all full-time, part-time, casual employees, those based overseas, absent employees and seasonal employees, not just your full-time equivalent (FTEs).

Want to find out more?
You may not feel ready to meet your compliance needs in relation to STP. You could qualify for a deferral (due to circumstances beyond your control) and you will need to make a request for this. Contact us to discuss the changes to payroll and what you need to do to make the transition seamless.

Financial advice from your accountant

 

business-money-pink-coins.jpgAre you in the market for some general financial advice about superannuation or simple managed investment schemes? Well, you don’t necessarily have to see a financial adviser. Depending on the circumstances, your accountant could help you with what you need in addition to taking care of your tax queries.

Accountants who are limited AFS licensees or representatives of limited licensees can give certain financial advice to their clients. This means you could potentially save time and money by getting your tax, accounting and financial advice in the same place.

Specifically, the financial services that could be given by a limited AFS licensee include:

advice for specific superannuation products, in relation to your existing holding for the purposes of making a recommendation to establish a self-managed super fund (SMSF), or to provide advice about contributions or pensions under superannuation products;

 

class of product advice in relation to superannuation products, securities, general insurance, life risk insurance, basic deposit products, and simple managed investment schemes;