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Delaying June salary to reduce tax

Discussion in 'Accounting & Tax' started by MRO, 25th Jun, 2015.

  1. MRO

    MRO Well-Known Member

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    What does the ATO think about companies delaying paying their employees a day later, 1 july instead of 30 June. I know this is only a timing difference but if an employee requests it, do you think it would be a problem.

    Thanks
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    It would depend upon a range of factors. In some instances its perfectly legit and in others it actually wouldn't matter since the wages would be tax deductible when incurred rather than when paid. Breach of the Fair Work Act should also be considered.

    But in its simplest sense can you pay the Directors late. Sure can. And it may still be deductible in the 2015 year.
     
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  3. MRO

    MRO Well-Known Member

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    Thanks Paul. It is for a friend. He is a salary employee and going overseas for 6 months next year. Plan is to pay June salary (and annual leave payout) in July depsite him finishing this week.
     
  4. BennEznElle

    BennEznElle Well-Known Member

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    As Paul mentioned, from an employee point of view it is great. From the employer point of view, its not going to make a huge difference.
     
  5. Pistonbroke

    Pistonbroke Well-Known Member

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    What does hos award say?

    .
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    This is no different to a retiring employee. I generally recommend they retire on 1st July and take their accrued leave etc in new tax year.
     
  7. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Might want to refer to IT 2534 which deals with accruals of directors fees, bonuses and salary and wages http://law.ato.gov.au/atolaw/view.htm?DocID=ITR/IT2534/NAT/ATO/00001&PiT=99991231235958

    4. So far as the point in time when income such as directors fees, bonuses, etc., are considered to have been derived for income tax purposes, the law is settled that salary or wages and other similar types of income are derived for income tax purposes at the time the income is paid or otherwise made available to the employee

    Taxpayer Alert TA 2011/4 aims to clarify the ATO position.
     
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  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Most accountants and tax agents are familiar with the nature of expenses incurred and deductible at that time. Example is PAYG instalments of employee tax on wages would be deductible in another tax period if not for tax law concepts. However the tax AND wages despite being paid in different tax periods are incurred at the same time. So the tax paid in the next qtr is deductible in the present quarter despite the cash basis of accounting. That key concept does not need complex citation and rulings. It is a simple matter that explains the concept of an expense incurred.