PAYG reporting to be reduced for small business as ATO embraces digital change

Small Business Minister Bruce Billson has announced measures he said will remove red tape barriers for small businesses and their owners.

Billson said the government is “working up a measure for reducing compliance costs for taxpayers by $56 million per year, by reducing PAYG instalment reporting requirements for a range of small businesses”. By simply reviewing thresholds that are more than a decade old, we can cut the red-tape burden which lands most heavily on small business, Billson said.

He also reminded small businesses that, from 1 July 2014, under the Commonwealth’s “pay on time or pay interest” policy, federal departments and agencies will either have to pay an account within 30 days or interest will be applied at the General Interest Charge rate applied by the ATO. This will apply to all financial obligations of the Commonwealth to small business from 1 July 2014.

The thresholds for entering the PAYG instalment system have not been reviewed since 2001-02, and Billson announced the following changes:

• increase the business or investment income threshold from $2000 to $4000. Currently, the ATO requires an individual to pay PAYG instalments (akin to the old provisional tax system) if $2000 or more of gross business or investment (e.g. dividends or interest) income was reported on their most recent tax return;
• increase the balance of assessment threshold from $500 to $1000. Currently, the ATO requires an individual to pay PAYG instalments if the tax payable on the last assessed tax return was $500 or more;
• increase the notional tax threshold from $250 to $500. Currently, the ATO requires an individual to pay PAYG instalments if the individual’s notional tax was $250 or more. Notional tax is basically the tax attributable to the taxpayer’s business and investment income for the most recent assessment; and
• remove the requirement for entities registered for GST to remain in the system even if they have a zero instalment rate.

The above changes are very welcome, and the ATO has confirmed they will apply from 1 July 2014.

If taxpayers no longer meet the PAYG instalment thresholds, they will be automatically exited from PAYG instalments. The ATO says it will write to each business and individual to withdraw their instalment rate.

If taxpayers still wish to pay instalments towards their end of year tax liability, they may voluntarily re-enter PAYG instalments by contacting the ATO on 13 28 61.

The government expects that an estimated 372,500 small businesses will benefit from the administrative changes to PAYG instalment thresholds.

As a result of the changes the government is making, around 32,500 small businesses that have no GST reporting requirements will no longer have to lodge a business activity statement (BAS) where to date lodgments have been made only to report PAYG instalments. The remaining 340,000 small businesses with modest or negative income which are required to lodge a BAS, will no longer have to interact with the PAYG instalment system.

Employee share ownership

Billson also flagged changes to the tax rules surrounding employee share ownership.

He said the tax system currently imposes taxes on discounts on interests granted under an employee share scheme in the year of issue and many people have reasonably argued that these tax arrangements are a disincentive for many start-ups to set up an employee share scheme and are inconsistent and out-of-step with global practice.

The minister said the government is examining ways to address these concerns in the context of the National Industry Investment and Competitiveness Agenda.

Digital interactions on tax

Billson said work is being undertaken by the ATO and Treasury in two areas known as “Enabling Digital by Default” and “Single Touch Payroll”. “Enabling Digital by Default” would allow the ATO to progressively designate “digital” as the default channel for interactions, with a provision for taxpayers to “opt-out” under special circumstances.

For example, he said in a digital by default world, an employee could jump online or into a mobile app and authorise the ATO to send their TFN, superannuation choice details and bank account number to an employer’s software. An employer could then use a “Single Touch Payroll” function to automatically fulfil a whole range of existing employer reporting and payment obligations, such as staff payments, PAYG withholding and payment summaries.

In the future, this function could be extended to other non-Commonwealth obligations such as payroll tax and workers’ compensation reports and payments. The minister also added that a “Single Touch Payroll System” could also level the playing field for business by reducing non-lodgment and phoenix opportunities, as the ATO would be alert to non-payers sooner.

Dispute resolution to be easier

The minister has also announced that small businesses in a dispute are set to benefit from the launch of a new online dispute resolution information and referral tool called Dispute Support.

It is a simple to use online tool to help small businesses to identify the most appropriate low cost dispute resolution service for their dispute.

Dispute Support also provides information on understanding and managing disputes and tips to help avoid disputes in the future. The tool is available on the Australian Small Business Commissioner’s website.

Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.