Small Biz Tax Tips

Personal Services Income (PSI)

The PSI measures are designed to limit the level of deductions available to certain contractors whether operating as a sole trader or through a company, trust or partnership, and to also extend the PAYG withholding rules in such cases. A taxpayer who meets certain specified tests such as the ‘results’ test, will be treated as carrying on a personal services business and will be able claim a wider range of deductions, but the ATO may still seek to limit the taxpayer’s ability to retain income in a company or split income between lower income beneficiaries.

Non-commercial losses

For a business to be commercial under these rules, it needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities will have to be carried forward and offset in a later year against future income from the same type of source.

Consolidation regime

If you have entered the tax consolidation regime, you should note that the Government is moving to extend the time for making or revoking certain elections that may impact your business to December 31, 2005.

Is there anything I’ve forgotten?

A commonly overlooked item is interest earned on bank accounts, cash deposits, and income earned from other sources, as well as a schedule of non-business deposits. These should be declared in your return. You should also remember the new carve-out for ‘at call’ loans which was covered in the May issue of DSB.

For further assistance with the year end tax process and ongoing tax planning, you should consult your accountant.

*Garry Addison is a senior tax adviser with CPA Australia.

Communication: key for super choice

By Michael Davison, superannuation policy adviser, CPA Australia.

Employers must ensure that their workers have access to choice of superannuation funds on July 1, 2005 if they are entitled. To make choice work effectively, communication is the key.

Employees are eligible to choose their own fund, providing they’re not covered by a state award or agreement, federal certified agreement or Australian workplace agreement that specify a superannuation fund.

Employers have the option of selecting a default fund for their employees (from an existing staff superannuation fund or new fund). To be eligible, the default fund will need to provide a minimum level of insurance cover to be set by the Government. However, existing funds will have until July 2008 to satisfy this requirement.

The key to ensuring super choice runs smoothly for all parties concerned is communication and for all to follow correct procedures in a timely fashion. Employers should clearly communicate to employees the process they must follow in order to choose a fund. Just as importantly, they need to communicate to ineligible employees why they can’t choose a fund.

Employers must provide the standard choice form to all eligible employees by July 28, 2005. Any new employees must receive the form within 28 days of starting work. The standard choice form is available from the Australian Tax Office.

It is important that all employers ensure they have adequate systems to receive and record employees’ choice of fund and to check their choice is valid. They must also ensure their payroll system is equipped to pay contributions to multiple superannuation funds.