More Government Stimulus This One is Huge

LIkely payment arrangements if an existing sum is due and there is incapacity to pay.

I have had several people ask me this and they are still gainfully employed. Help to fund the new XBox or PS4 maybe

 

Any advisers who are making claims that trust distributions can be turned into salary and wages (when this has never been done) or massive bonuses paid in final quarters when this also hasn't been done or no history of doing so feel free to share the post or Facebook or wherever you see it.

Promotor Penalty Laws may well apply to these type of posts and a few of us on LinkedIn are all for maximising the benefits but ensuring that the relevant contacts we have on LinkedIn (including many senior officers of the ATO) are aware of these schemes and if necessary they are brought before the TPB

the incentives are to help small business. they are not a free for all cash grab

The person doesn't need to be a client or even take up the advice for those laws to apply. I have a barristers opinion on this very issue for posts I do on LinkedIn.

Vincent Licciardi from HWL will be doing a post on this very issue soon and will share when he has posted it.

 

none at this stage. all the state government incentives are primarily focused on payroll tax

 

The NSW state Govt has a response coming later in the week (Thurs?). Apparently to cover land tax, payroll tax, rent, leases and eviction and tribunal matters and transport and concessions for transport

My daughter has already had her uni revoke her Opal card concession since they went online. They dont waste time.

 

Here is the post

Vincent Licciardi posted on LinkedIn

 

Agree. There are some arrangements that seemingly may be acceptable such as reasonable Director fees or a performance related payment relating to existing rights (eg a Real estate Agent bonus) . I have several clients who pay themselves sporadically. Care must be taken with this. One of the main ones is PSI for self employed contractors etc. An area of potential concern. And a very common question.

I had an issue today. Client has commenced business in recent times expanding to employ a staff member. Payroll to commence effective 2/3/20. ATO have revoked online registration for PAYGW for existing entities. I had to call and faced extra questions. In this case the advice was : paying a director may be a concern as the company has not done this in the past but paying a employee not. Its no scheme. This likely limits the cash flow boost but the minimum may be available. In another instance the comany has operated for 6 months and to date income has been reinvested but is now at a stage of paying working staff who are family (siblings). They agreed to $5K gross each per month when the company was financially able to do so and that time was a few weeks back. We have records of this decision back several months ago in our email correpondence and the onerous task of establishing STP etc which has been completed. But now they ask can we increase that ? I dont believe so.

The definition of salaries and wages (subject to withholding) is broad and includes : Eligible payments include salary and wages, but can also include director’s fees and payments to contractors that are subject to voluntary withholding arrangements under section 12-55 in Schedule 1 to the TAA 1953. General contractor payments are not eligible and efforts to swing a contractor to this witholding arrangement would be addressed by the avoidance rule.

 

NTAA just issued a good summary

 

@Paul@PFI Agree with that. If the business has a history of making sporadic payments, and many do , then I think you are safe. For example many small business pay out profits as loans and then clean up those loans as salary and wages in the final quarter so they don't have Division 7a issues. they do it purely for cashflow purposes. I think those arrangements are fine and if you have a history of doing so then you will be ok.

If however you don't normally pay your wife a salary and suddenly she earns $50k in the final quarter the ATO is going to be asking why and unless you had very good commercial reasons to do so or you have a history of doing so you run the risk of losing the cashflow boost.

 

@Paul@PFI - in that link PDF you posted there's a line:-

• specific payments that are based on the amount of PAYG withheld from salary and wages paid to employees (and other similar payments – e.g., termination payments, director’s fees and payments to contractors that are subject to voluntary withholding arrangements)

So, in the instance where say a company has 2x directors & 4 staff. Staff are all employees, 4 years and counting and all PAYGW paid.

The 2 Directors Trusts own the company 50/50 and receive sporadic management fees to their respective trusts, which then disburse on to the Trustees. So, they do still ultimately pay tax but I'm assuming that as the Trust is basically a middle-man and no PAYGW was witheld on Trust payments from the company, then any taxes paid by the two directors fall outside of the scope of the stimulus?

 

receiving sporadic management fees to their respective trusts for the work the directors do ?

i have just seen this in an audit for someone who is not a client of mine. that sounds like personal services income to me. during the audit the ATO deemed that to be personal services income

why wouldn't you just pay the directors fees from the company as their is no tax benefit paying it to a trust. if you have distributed those trust profits out to someone other than the individual you potentially have S99A issues

 

@Mike A structure was set up by the solicitor & accountant at the outset, main reason for asset protection.

 

i don't understand how paying a 'directors fee' to a trust will provide asset protection. you can call it whatever you like 'management fee' , 'consulting fee' , 'bonus' whatever you like it doesn't change the character of what the payment is for and sounds like payments for services the directors have provided.

 

I’ve no idea, that’s why we paid a heap of money to a recommended solicitor and accountant.

 

All good but i would ask them to explain it as i believe you have personal services income issues plus the loss of the cashflow boost on the paygw from what would otherwise be directors fees.

In particular i would want in writing that they are of the opinion that the psi rules dont apply to those payments. At least you have something during audit.

 

Cheers, I’ll bring it up with them again for my own sanity.

 

Yeah a payment to a trust cant be a Directors fee. A director must be a person hence the PSI issue and it certainly doesnt seem to comply with the expected types of payment. In any event as far as stimulus goes the staff issue means entitlement is likely met. The issue is how much ? To now classify new amounts to increase the cashflow boost likely is addressed by the avoidance rule. But the amount of tax withhheld on staff reported salary & wages is likely to be at least $20K and as much as 100% of the taxes withheld. As no withholding of the trust amounts it wouldnt change any entitlement in any event.

 

Hi Mike,

Thanks for all your input on this.

I run my own small/medium business and pay myself directors fees whenever the business has excess funds. If I change this to salary for the rest of the year would that be ok?

Thanks,
Tim

 

Directors fees ARE a permitted form of salary and wages in the new law. Even if $0 tax is withheld....BUT the business (company ?) must report and pay using the PAYG withholding system. I say that as tax law now denies a tax deduction for these payments if they arent in the PAYG system. The days of paying and ignoring tax withholding ended on 30 June 2019. If you arent registered the BAS wont have the spots for this data and no stimulus boost will be paid. The minimum stimulus of $20K may be eligible but to switch to withholding tax to increase beyond that may be a problem. Best you confirm with your tax adviser. There may be a need to correct past errors even.

 

Yes company.

My BAS forms do have a space for PAYGW.

I have a query in with my accountant but despite being an excellent accountant, sometimes the communication is, well, less than crystal clear.

So do you mean that, outside of the current stimulus, we can continue paying directors fees without withholding tax, as long as it is noted on the BAS? Does this actually change anything apart from the ATO knowing how the value of directors fees that are being paid?

 

ATO have indicated they will look at past payment history.

If you paid yourselves directors fees between jan to june 2019 and plan on doing the same in 2020 then it would demonstrate a history of doing so.

Directors fees are remuneration for PAYGW purposes and would be eligible.

If you paid directors fees of 20k between jan 2019 to june 2019 and it was similar in 2020 i dont believe you will have an issue.

If you bumped it up to 40k i think you will.

Will have more details as the many tax lawyers i deal with daily are communicating daily on this issue. We also have direct access to the most senior levels of the ATO who have been extremelt helpful during this time.

And you cannot continue not withholding on directors fees