Many people new to running a business and employing people are unsure about the difference between PAYGI and PAYGW. They are not the same thing!
PAYG stands for ‘pay as you go’. This is the means the ATO uses to obtain tax payments from both employees and business owners. Paying tax ‘as you go’ throughout the year means you don’t have to pay it in one lump sum at end of tax year.
PAYG Withholding for Employees Income Tax
PAYG withholding (PAYGW) refers to the income tax an employer withholds from employees’ gross wages to meet their personal income tax liabilities. Employers are required to remit the employees’ withheld tax to the ATO each month or quarter. They do this with the business activity statement (BAS) or the monthly instalment activity statement (IAS).
PAYG withholding applies to employers’ payments to employees, directors, office holders, and labour-hire workers. It can also be withheld from non-employees; contractors with a voluntary withholding agreement, some payments to foreign residents and payments to suppliers where an ABN has not been quoted.
PAYG Instalments for Business Income Tax
If you run your own business, you’ll need to plan for income tax payments once you make more than the taxable threshold. PAYG instalments (PAYGI) allow you to pay an amount towards an expected tax bill. Amounts are based on business or investment income from the previous tax year. Once you complete your tax return, the amounts already paid are offset against the total amount of tax due. You will then receive either a bill for extra tax, or if you have paid too much, you will receive a refund.
Usually, when starting in business, you don’t pay any tax instalments until you have completed the first year’s tax return. However, if you’re new to business, you can voluntarily enter into the PAYG instalment system to start contributing towards your next tax bill. This is worth considering if you have done better than expected in your first year!
You can pay PAYG instalments using the ATO determined amount based on information in the last tax return (instalment amount) or using the ATO defined percentage rate applied to your income (instalment rate). The first method is the simplest; however, if your income varies a lot from one quarter to another, it’s better to use the instalment rate. Then you know you have put aside the correct amount based on your actual income.
PAYG Planning for Cash Flow
Suppose you’re new to business or considering employing people soon. In that case, you’ll need to plan for PAYG instalments and possibly PAYG withholding (PAYGI and PAYGW). Then you can meet your ATO tax reporting and paying obligations. Planning ahead means you’ll never be caught short with cash flow difficulties. Talk to us to learn more about income tax responsibilities as an employer and business owner.
6 Reasons Why Every Business Owner Should Review Financial Reports Monthly
Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, here are 6 reasons we recommend that you should start to.
But before we get our 6 reasons, let’s talk very quickly about which financial reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:
4 Financial Reports you should be looking at:
The Statement of Financial Performance; also known as the Profit and Loss report (P&L) or the Income Statement. This report tells you how your business is performing over a period of time, such as; by month or financial year. In broad terms, it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
The Statement of Financial Position; also known as the Balance Sheet, it shows the value of the business’s Assets, Liabilities and Equity.
Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
Liabilities include things like bank loans and credit cards, Accounts Payable, and Hire Purchase balances
Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced.
Accounts Receivable Ageing report (Aged Receivables); this shows how much money is still owed to the business as of a certain date in time. It is usually segmented as to how overdue they are. Sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.
Accounts Payable Ageing Report (Aged Payables); this report shows who the business owes money to as at a certain date in time. It is usually segmented by overdue period.
6 Reasons why it’s important:
Understand your business better; by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing. It can be helpful to compare periods, or to look at a month by month P&L. Then you can clearly see on one page the revenue and expenses month by month. This helps to identify trends in your data and highlight anomalies in coding/categorising.
Accurate information for lending purposes; if you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet.
Get paid quicker and reduce bad debts; by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly. This will result in getting paid more quickly and reduce the risk of bad debts.
Better relationships with your suppliers; by entering your supplier bills into your accounting software, your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
Better cashflow; get an accurate understanding of how much money the business owes and is owed. This will help with cashflow planning. Additionally, understanding the trends of your business; its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
Better business decision making; the better you understand your financial reports, the stronger position you will be in to make better business decisions. This will positively affect the profitability of your business and its financial viability.
What should you do next?
If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business, then get in touch so we can make an appointment time to go through them with you.
Your business success is important to us. Contact us to see how we can help you.
Adapting to Economic Challenges: A Guide for Small Businesses
In light of recent economic developments, we at DJ Grigg Financial want to provide you with the necessary insights and support to navigate these challenging times. Many small businesses are currently facing significant risks due to economic challenges, and it’s crucial to address these issues proactively.
Key Insights on Small Business Collapse Risks
Recent reports from ABC News have highlighted the increasing risk of collapse among small businesses. As your trusted advisors, we recognise the importance of addressing these concerns head-on. Here are some key points to consider:
Struggles Across the Board: While larger enterprises may be weathering the economic storm, many small businesses are struggling to stay afloat. It’s important to assess your current position and experiences.
High-Risk Industries: Industries such as food services (including restaurants, bars, cafes, and pubs), construction, and transport are particularly at risk. If your business falls within these categories, extra vigilance is required.
Increased Risk of Failure: For small businesses with a turnover of up to $10 million, the risk of failure has risen by 20% in the year ending March 31, 2024.
It may be comforting to know that even successful restaurateurs are feeling the pressure, with some deciding to close their doors despite their past successes. This underscores that making an informed decision to close down is not a failure but a strategic move in tough times.
Taking Action: Ways We Can Assist
We are here to support you with actionable steps to safeguard your business:
Business Planning: We can assist with strategic business planning. This involves reviewing your current operations, identifying potential risks, and developing a plan to mitigate these risks.
Pricing Strategies: We can help re-evaluate your pricing strategies to ensure they remain competitive and profitable.
Budgeting: Creating detailed budgets can help you manage your finances more effectively and prepare for potential downturns.
Insolvency and Restructuring Advisors: Bringing in experts can be crucial for early intervention. These advisors can provide a comprehensive overview of available options, whether it involves restructuring or closing the business to prevent further financial losses.
Before the End of Financial Year – Let’s Talk
For those experiencing downturns, an end-of-financial-year review can substitute for a tax planning review. While the process of crunching the numbers remains the same, the focus shifts to reassessing your financial health, setting business and personal goals, identifying areas for improvement, and developing strategies to weather the storm or plan an exit.
Remember, we are here to be your confidant, advisor, and friend during these times. We are committed to guiding and supporting you through these challenges. Please feel free to reach out to us to schedule a consultation.
In July 2024, the superannuation guarantee statutory rate rises to 11.5%. Annually, the rate is increasing by 0.5% until July 2025, when it will reach the legislated 12%.
Prepare Now for the July Rate Rise
Review your current superannuation costs for all employees, both hourly and salaried.
Review any salary packaging arrangements. Is the agreement inclusive of superannuation, or is super paid on top of the agreed salary?
For salary packages inclusive of super, you will need to check the contract’s wording to ensure you apply the changes correctly. This change may also impact annualised salary arrangements.
Calculate your revised payroll costs from July. Show the current wages and superannuation expenses compared to the new rate from July. Highlight the increased amount per month or quarter so you know precisely the impact.
Discuss the super rate increase with your employees now. Let them know that there will be an increase of 0.5% each year from now until July 2025. When the statutory rate will reach 12% and remain there.
Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July so you don’t get caught short.
If you’d like help reviewing payroll costs and employee agreements, talk to us now, and we’ll make sure you have accurate reports to make planning for the rate rise easy.
Getting organised now, before the superannuation guarantee statutory rate rises, means you’ll be well prepared for your business’s increased costs when the first payment is due later this year.
Understanding Reasonable Expenses for Employee Truck Drivers
Employee truck drivers often face unique challenges when it comes to claiming deductions for work-related travel expenses. The Australian Taxation Office (ATO) provides guidelines on what constitutes “reasonable amounts” for domestic travel expenses. This is particularly relevant for truck drivers who spend significant amounts of time on the road. They may incur costs for meals, accommodation, and other incidental expenses. Keeping accurate records is crucial for these employees to ensure compliance and maximise their deductions.
Key Takeaways
1. Keep Detailed Records: Even though formal substantiation isn’t required for amounts up to the ATO’s reasonable limits, maintaining a work diary, bank statements, and some receipts is critical.
2. Understand Deductible Amounts: Know the specific reasonable amounts for each meal type and ensure claims are within these limits.
3. Accurate Reporting: Ensure that any travel allowances received are declared as income and that corresponding deductions are accurately calculated.
Reasonable Amounts for Meals
For the 2025-26 income year, the ATO has set out the reasonable amounts for employee truck drivers’ meals (food and drink) in Table 5 of its Determination. These amounts are as follows:
– Breakfast: $31.15
– Lunch: $35.55
– Dinner: $61.30
It’s important to note that these amounts are separate and cannot be aggregated into a single daily amount. This distinction is crucial, especially on days when travel commences or ends, as not all meals may be deductible if they are not consumed during the course of work travel. For instance, if a driver only travels part of the day, only the meals that fall within the travel period can be claimed.
Example: Glenn’s Travel Expense Calculation
To illustrate how these reasonable amounts are applied, let’s consider an example:
Scenario: Glenn is an employee truck driver who drives from Melbourne to Adelaide, staying overnight in his truck cab.
– Glenn leaves Melbourne at 9:00 PM and stops around midnight at a truck stop in Horsham, spending $25 on food and drink.
– The following morning, he spends $20 on breakfast at the truck stop where he parked overnight.
– Glenn then drives to Bordertown, where he spends $25 on lunch.
– Throughout his journey, he also snacks on items brought from home, such as a sandwich and almonds.
In total, Glenn spends $70 on meals during his trip. Since this amount is less than the combined reasonable amounts for dinner, breakfast, and lunch, he can claim a deduction for the full amount he spent without needing to keep all the receipts for these meals. However, it’s advisable for Glenn to retain some receipts to demonstrate a consistent spending pattern. This will assist the ATO should they require an explanation.
Importance of Record Keeping
While the formal substantiation requirements are relaxed for claims up to the reasonable amounts, maintaining accurate records is still essential. Truck drivers should keep a detailed work diary for fatigue management, which can also serve as evidence for meal breaks. Additionally, retaining bank statements and receipts can help substantiate the claim if the ATO requests further information.
Case Study: Duncan and Commissioner of Taxation (Taxation) [2024] AATA 974
The case of Duncan and Commissioner of Taxation (Taxation) [2024] AATA 974 highlights the importance of keeping proper records. John Duncan, a long-haul truck driver, claimed significant food and drink expenses for the 2020-21 tax year. However, he did not keep appropriate records to substantiate his claimed expenses, which led to the disallowance of a substantial portion of his deductions.
The Tribunal emphasised that Mr. Duncan bore the onus of proving the correct assessment should have been, under the Taxation Administration Act 1953. Despite his claim that he should not need to substantiate his expenses, the Tribunal found that without proper records or evidence, Mr. Duncan could not satisfy the requirements for claiming the substantiation exception.
What is the criteria to use the substantiation exemption?
To use the substantiation exemption in Australia, truck driver employees must meet specific criteria set by the Australian Taxation Office (ATO):
They must incur meal expenses during work-related travel and the claimed amounts must not exceed the reasonable limits specified for each meal (breakfast, lunch, and dinner – see rates above) for the income year.
The travel must necessitate being away from home overnight, as evidenced by their work diary or other travel records.
They must receive a travel allowance from their employer, which must be included in their tax return as income.
While formal receipts are not required for claims up to the reasonable amount, truck drivers should still keep sufficient evidence such as work diaries, bank statements, or a sample of receipts to demonstrate their typical spending patterns and substantiate their claims if audited by the ATO.
By adhering to these guidelines, employee truck drivers can ensure their claims are compliant with ATO requirements and can maximise their eligible deductions for work-related travel expenses.
A Guide to Promoting Mental Well-being in the Workplace: Resources and Strategies for Employers
Supporting and promoting health and well-being in the workplace is essential for staff and business owners alike. Providing a physically and mentally healthy workplace is beneficial for all who work there, as it reduces staff absenteeism, increases productivity, and makes the workplace more enjoyable.
If you are an employer, workplace health and safety laws require you to look after your workers’ mental health just as you would physical health.
This includes minimising risks to workers’ mental health, preventing discrimination based on mental health, protecting privacy, and not taking unfair action against workers because of a mental health condition.
Workplace Mental Health and Well-being Resources
There are many excellent apps available, both free and paid, to assist with all aspects of physical and mental well-being in the workplace that you can offer to staff. Also, you could use them yourself as a business owner.
Creating well-being in the workplace doesn’t have to take a lot of time and resources. Small activities carried out regularly accumulate over time into good habits and everyday practice.
Encourage conversations about health and well-being, check in with staff about stress they may be experiencing, offer team activities that promote well-being and provide access to tools like the apps listed above to assist employees in managing their mental health and well-being. Find out more about workplace stress, rights and responsibilities, risk factors, and how to develop an action plan.
Many other apps provide education about mental health and practical tools to change mental and emotional states. Consider offering your employees paid subscriptions to an app of their choice to foster well-being. Check out Unwinding Anxiety, Headspace, Waking Up, Calm, Ten Percent Happier, and Productive for starters.
If you are a small business owner experiencing business-related stress which is spilling over into your personal life, NewAccess for Small Business Owners (developed by Beyond Blue) has a great mental health coaching program for small business owners and sole traders.
When a workplace takes care of its employees’ mental wellbeing, it leads to happier, more productive workers. When employees feel supported and valued, they’re more likely to do their best work. Plus, addressing mental health issues early can save money and create a positive work culture where people thrive.
