Are you lodging and paying all your ATO commitments on time?

 

You need to ensure that all of your statutory compliance is met on time and with complete accuracy. If you don’t, you’ll be hit with penalties, interest and extra costs to fix the problem.

 

 

This is even true in areas that you may believe are simple or straightforward, such as hiring contractors versus hiring employees. You may think you know the difference, but do you really? To be considered a contractor, certain criteria need to be met:

  • They need to have a certain level of control over the work they are performing on a day-to-day basis.
  • They are engaged to produce a specific result.
  • They have the right to delegate work.
  • They bear the commercial risk and responsibility for their work or injury.
  • They provide their own tools, equipment and, in some cases, materials.
  • They work for you on an as-needs basis, rather than being an integral part of your business.

They may have an ABN, but that in itself is not enough. They may work for you only 80 per cent of their time, but that is also not enough. They may only work for you for a short period of time, such as two months, but that is still not enough to consider them to be considered a contractor.

So let’s take a look at the main compliance requirements for your business, and how you can ensure you meet them.

The main compliance requirements you need to be aware of in a building and property development business include tax, superannuation, workers’ compensation, payroll tax, land tax and stamp duty.

Tax

There are a number of tax obligations that every business needs to meet.

The first is your obligation to lodge annual tax returns to the ATO, be they as an individual, partnership, company, trust or self-managed superannuation fund.

The second is your obligation to lodge monthly or quarterly activity statements. Activity statements account for your goods and services tax (GST), your pay as you go (PAYG) withholding and your PAYG instalments. The frequency of your activity statements will depend on the turnover of your business (for GST) and the level of your payroll (PAYG). Irrespective of the frequency, the obligation remains the same: lodgement must take place.

Lodging your annual tax return and your monthly or quarterly activity statements can be managed with minimal effort using cloud accounting tools – a must for businesses in today’s commercial world. It not only helps with lodging on time, but also making sure you’ve reported accurately.

Once again, this is an area where cash flow management is important. While lodgement is one key compliance requirement, payment is the other. Ensuring you have accurately captured all relevant income and expenses will ensure the accuracy of reporting. Having done so will help you manage your cash flow position because you will know exactly what is required to make provision for the necessary payments of your tax obligations.

If your activity statement results in an amount payable, this typically suggests that you have received more business income than you have paid business expenses, not including payroll. In this instance, if your cash flow is effectively managed, you should have the funds to make payment. Sounds simple enough, doesn’t it?

Unfortunately, it can be tempting to utilise some of that excess cash elsewhere and, as a result, be left a little short when payment to the ATO is required. However, if you are monitoring your financial statements on a monthly basis, as discussed in Chapter 1, this will help prevent this from happening.

Meeting these ATO obligations keeps you ahead of the game. There are some non-negotiables in business and the ATO is one of them. The sooner you accept its place in business and the obligation for the lodgement and payment of your compliance requirements, the better off you will be.

 

Superannuation

The next compliance issue relates to your labour force – superannuation.

The superannuation guarantee scheme requires you to provide a minimum level of superannuation for your employees, currently being 9.5 per cent of their gross pay. If you don’t pay the required minimum, you will be liable to pay a non-deductible superannuation guarantee charge, which is made up of the superannuation shortfall (the super you should have paid) plus nominal interest of ten per cent plus an administration charge of $20 per quarter per employee.

This might not sound like a significant penalty, but I can assure you that it can quickly add up to be a major financial burden. Not to mention that the ATO does not take too kindly to employers failing their superannuation guarantee charge obligations.

When you employ people on your payroll, it is relatively straightforward to understand your requirement to pay superannuation. What sometimes gets lost or forgotten is the requirement to pay the same 9.5 per cent of gross payments to your subcontractors. Not all your subcontractors would attract this requirement, but those who just supply labour as individuals/sole traders and those who work predominately for you would.

Why? The answer is that the ATO sees those contractors as employees, particularly if they are not employed to produce a specific result on a specific job or project and they are employed as part of a larger work group to work together to complete that project. In other words, they are no different to the employees on your payroll.

There is no obligation to pay those subcontractors who are employed to perform a specific job, such as roofing contractors, electrical contractors and plumbers. If the transaction is considered to be a business-to-business relationship with another company that supplies labour and materials, then the obligation for superannuation does not exist.

Understanding the difference between the two will ensure you comply accordingly. More importantly, with this knowledge, you may seek to employ subcontractors on a different basis moving forward so as to not impose additional obligations on your business.

Workers’ Compensation

A requirement from day one of employing a labour force is to ensure that they are covered for any injury caused relating to their employment with your business.

Workers’ compensation applies in a similar manner to superannuation. If the labour, be it under an employee relationship or as a permanent or semi-permanent subcontractor, is considered to be an employee relationship in the eyes of the industrial relations and tax law regime, then workers’ compensation is required to be paid.

You can pay it quarterly or yearly in advance and it is based on your estimate of what your rateable remuneration will be for that financial year. Should your estimate be higher, you will be entitled to a refund that will usually take the form of a reduction of the next year’s premium. Should your estimate be lower, you will be required to pay the excess at the end of the financial year.

You have a requirement to lodge an annual Certificate of Remuneration to confirm what your actual payments to employees, directors, contractors and apprentices were for the financial year, including payment of superannuation. On this annual certificate, you are also required to estimate the following year’s total payment to the above labour force. This estimate then forms the basis for the premium you will be required to pay for the upcoming financial year.

Just like with superannuation, determining how you engage the services of subcontractors will have an impact on your workers’ compensation payments.

While there is a financial impact of deciding whether your labour force will be employees or external contractors, the issue of control may be just as important, if not more so. As explained earlier, you have total control and direction over employees in terms of what they do, how they do it and when they do it.

When it comes to external contractors, they control how and when they perform the work, and even who performs the work, within the specific requirements of the job. They can delegate to their employees or subcontractors, and their methods could well differ to your own. While you may lose some control, you do benefit from not having to direct and manage the work, given you have confidence in the contractor you have employed to perform the work.

 

In summary, there are many statutory compliance obligations placed upon you in your building and property development business. Being aware of these is the first step. Being set up to account for these is the second. Knowledge is power but management is success.

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Tony Dimitriadis