Federal Income Tax Outline Bryce - PowerPoint by tvr74609


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									Wages & Employment

        Employing Some One
• Two types of Employment a Direct Employee
  or Subcontractor
• Employee – Contract of Service
• Subcontractor – Contract for Service
• With either a valid contract is formed as
  discussed last semester.
• Offer, Acceptances & Consideration
• Many jobs are covered by a federal or state
  industrial award.
• Awards outline the rights and obligations of
• legally binding minimum wage rates and
  employment conditions for employees.
• The Award are the Terms & Conditions of the
  Employment Contract
• Subcontractors employment conditions will be
  the contract
• In may be a HIA, MBA or purpose written
            Breach of Contract
• Breach of Contract in either case will result in

  Breaches of Contract for Subcontractors will
  result in damages etc as per contract or
  common law
  Breaches of Contract - Employee
• Employee can resign at any time
• Notice specified by Award
• If this breached Notice Period deducted from
  money owed.
• Termination given with notice
• Immediate Termination notice period has to
  be paid out. (Unless Award specifies different
  for things such as Misconduct)
                 Serious Breaches
• As a Contract is present, fraud etc by either party
  may result in damages
• Warman v Dwyer
  – Dwyer was Manager of Qld Division
  – Warman was exclusive distributor of product
  – While Dwyer was still employed he
     1. Negotiated with supplier to not renew deal with Warmans
     2. Induced experience Staff to leave Warmans
     3. He then resigned, signed exclusive deal & employed staff as
        they resigned

     He was required to pay damages equal to loss of profit
• Any Business Structure can employ

• No matter what business structure, the
  requirements are the same

• Wages & Employments need to be kept
        Records That Must Be Kept
•   General records
•   full name of employer and ABN
•   full name of employee
•   classification of the employee under any award or enterprise
•   whether the employee is employed full-time or part-time
•   whether the employee is employed on a permanent,
    temporary or casual basis
•   if the employee is an apprentice or trainee and the date the
    person started as an apprentice or trainee
•   date on which the employee was first employed by the
•   if the employee's employment has been terminated, the date
    of termination
• Remuneration and hours worked
• number of hours to be worked per week, per day
  or other period,
• the employee's start and finishing times each day
• rate of pay per week, day,
• if piece work is prescribed, the number and
  description of pieces made by the employee and
  the rate per piece paid
• gross amount of money paid to the employee
  and any deductions made
• any other details to show that the requirements
  of the award or enterprise agreement relating to
  pay and hours worked are being met
• Leave records
• any leave taken by the employee
• the employee's entitlement from time to time
  to that leave
• the accrual (buildup) of that leave
•   amount of contributions made
•   period over which contributions are made
•   when the contributions are made
•   name of the fund or funds to which the
    contributions are made
          Long Service Leave
• Date of Commencement of Employment
• Copies of Forms Lodged with The Long Service
•   Employment Induction Records
•   Site Induction Records
•   Record of Training
•   Record of Licenses
     Employee Or SubContactor
• Common Law Employee
  – Control Test
  – Integration Test
               Control Test
• Who is the Controller?
  – Who determines hours of work
  – Who determines sequence of work
               Integration Test
•   How does the person fit into the organisation
•   Is the working relationship a continuing one
•   Can the employee work for others
•   Can the person profit from good business
               Common Law
• Will affect issues such management control
  – Vicarious Liability for employees actions for
    tortuous Acts such as Fraud Negligence
  – Breaches of Statutory Law such as EPA, Driving
    Laws etc
  – Employment Conditions, does the award apply

  – Remember Statutory Requirement from ATO,
    Workcover etc may deem Common Law
    Contractors Employees
  Subcontractor or Employee -ATO
• ATO has test to determine if the arrangement
  is an Employee or Subcontractor
• This is called the Personal Services Income test
• Remember the ATO is only interested Tax Paid
           Test 1- The Results Test
• You’ll pass the results test in the income year if you
  can answer ‘yes’ to all three of the following
  questions for at least 75% of your PSI:
             Results Test Q1
• Q1) Under your contract or arrangement, will
  you only receive payment when the work has
  been completed – that is, after producing the
  contracted result

  To answer ‘yes’, your contract must stipulate:
• you have to produce an outcome before being
  paid, which may include progressive
  payments, and
• you are paid this way.
              Example of Q1
• A carpenter enters into a contract to build five
  tables. The contract states the carpenter will
  not be paid until all five tables are completed.
  The carpenter is paid when he completes all
  five tables. This contract will pass this first
  condition of the results test as the payment is
  linked to producing a result (completing the
  five tables).
               Notes to Test 1
• If you’re paid on an hourly basis or daily rate
  for the services you provide, it’s unlikely you’ll
  pass the first condition of the results test as
  this payment would generally not be linked to
  producing a specific result or outcome
               Results Test Q2
• Question 2: Do you need to provide the equipment
  or tools necessary to do the work?

 To answer ‘yes’ to this question, you need to supply
 all the equipment or tools that are required to
 complete the contracted work.
          Example Question 2
• A painter is contracted to paint an office. As
  part of the contract, the painter has to provide
  their own tools and equipment including paint
  brushes, rollers and drop-sheets. As the
  painter has provided the necessary equipment
  to complete the work, they would pass the
  second condition of the results test
           Note to Question 2
• If no equipment or tools are needed to
  complete a job, you will pass this second
  condition of the results test
                Results Test Q3
• Do you have to rectify defects in the work, or are
  you liable for the cost of rectifying defects?

  An carpenter is contracted to complete a project.
  Under the contract, the carpenter is liable to rectify
  any defects in their work at their own expense,
  even if they have to pay someone else to rectify the
  defects. This contract would pass the third
  condition of the results test as the carpenter is
  liable for the cost of rectifying the defects.
                 Note to Q3
• If you are entitled to invoice your payer for the
  hours you spend in rectifying any defects in
  your work, you will not pass this third
  condition of the results test.
       Personal Services Income
• If you answered ‘yes’ to all three questions in
  the results test, you have passed this test and
  the PSI rules do not apply to this income and
  will be considered a Sub-Contractor for tax

• If you do not pass you need to asses for Step 2
                80/20 Rule
• For the 80% rule, you need to work out
  whether any of your clients, or their
  associates, provides 80% or more of your PSI
  in an income year
                80/20 Rule
• If you receive PSI from a client and one or
  more of the client’s associates (for example, a
  company and a subsidiary of that company),
  this PSI is considered to come from one source
          80/20 Rule - Example
• Sasha is an IT consultant who designs software
  for two different clients in an income year. The
  income Sasha receives is PSI as the majority of
  the income is a reward for her knowledge, skill
  and expertise.
• Sasha charges the first client $90,000 and the
  second $10,000 for the work she completes.
  This means 80% or more of her PSI comes
  from one client, as the first client has provided
                 80/20 Rule
• If you fail this test you must apply for a
  determination from the ATO if you want to be
  classed as a sub-contractor

• If you pass this test you must asses Step 3
                     Step 3
• You must pass at least one of the following
  – Unrelated Clients Test
  – Employment Test
  – Business Premises Test
        Unrelated Clients Test
• Question 1: Do you receive PSI from two or
  more unrelated clients

 To answer ‘yes’ to this question, you need to
 receive PSI from at least two clients who are
 not related or controlled by the same
 individuals or entities
• Bryce is a Carpenter who works for 3 different
  companies in equal amounts (33%).
• One Director is Common to all three
• These Companies would be deemed related
  and Bryce would not considered a
  Subcontractor for Tax Purposes
          Unrelated Clients Test
• Question 2: Do you provide your services as a
  direct result of making offers or invitations
  (such as by advertising) to the public?

• To answer ‘yes’ to this question, there must be
  a definite connection between the offer to the
  public and the engagement for the work.
  Making offers to the public includes
  advertising in a newspaper or business
  directory, maintaining a website, and word-of-
  mouth referrals
             Employment Test
• Question 1: Do you get employees, partners
  (in a partnership) or other contractors to
  perform at least 20% (by market value) of the
  principal work?
• Gareth is a truck driver. He contracts:
  – another truck driver to drive the truck on long-
    haul trips
  – a bookkeeper to help with invoicing.
• The truck driver is helping in the principal
  work while the bookkeeper is not.
            Employment Test
• Question 2: Do you have one or more
  apprentices for at least half of the income

• To answer ‘yes’ to this question, you don’t
  have to have the same apprentice for the
  entire six months. Also, your apprentices don’t
  have to work with you for six months
           Business premises test
You’ll pass the business premises test in an income year if you
   answer ‘yes’ to all parts of the following question.
At all times in the income year, were your business premises:
• owned or leased by you
• used for personal services work more than 50% of the time
• used exclusively by you
• physically separate from your residence and your associates’
• physically separate from the business addresses of clients and
   their associates
        Business Premises Test
• Two common examples that don’t pass the
  business premises test are:
• a home office as this not considered physically
  separate from your residence
• an office jointly leased with another
  person/business entity, as neither lessees
  have exclusive use of the premises.
 Workers Compensation (Work Cover)
Who are deemed Employees?
 Workers Compensation (Work Cover)
Who are deemed Employees?
 Workers Compensation (Work Cover)
Who are deemed Employees?
Workers Compensation (Work Cover)
Who are deemed Employees?
Superannuation Guarantee
             Eligible Employees
• Aged 18 to 69
• Earn more than $450 per month
• If <18 earns > $450 works > 30 hours per week
              Self Employed
• No legal requirements to pay superannuation
  for yourself
• If you work for your own company, you are an
  employee of that company and must pay
  yourself superannuation.
                Payroll Systems
• In house systems
  – Purpose Made (These are Suited to large
     •   Chris 21
     •   Oracle
     •   SAP
     •   Micropay
              Payroll Systems
• Combination Accounting & Payroll
  – Purpose Made (These are Suited small business)
     • MYOB
     • Quickbooks
               Payroll Systems
• Outsourced Payroll
  – Subcontracted Out to Specialist Companies
     • ADP Employer Services
     • Talent 2
                Payroll Systems
• Paper Systems
  – From Officeworks etc
     • Provide a written format to record Payroll information
                Payroll Items
• Earnings – Reward for Effort
  – Eg Carpenter pay rate is $21 for Carpentry Work
               Payroll Items
• Entitlements – Benefits that are derived
  because employment
  – Annual leave
  – Sick Pay
  – Bereavement Leave
  – Public Holidays
  – Superannuation
  – Redundacy
               Payroll Items
• Allowance – Payment above Earnings to
  accommodate for special or harsh conditions
  – Height Allowance
  – Site Allowance
  – Living Away From Home Allowance
  – Confined Space

  – See Hand Out
                Payroll Items
• Deductions – Moneys subtracted from Gross
  Pay to determine Nett pay
  – Taxation
  – Salary Sacrifice Superannuation
  – Union Fees
  – Child Support
  – Allotments
         Definition - On Costs
• Entitlements & Allowances will be On Costs
  Employees Wages & Conditions
• Normal working hours will be determined by
  the award
• Cl 27.1
• Work out of these hours is considered
  overtime Cl 29.1
     Method of Wage Payments
• Cash
• Direct Deposit
• Cheque
  – Most Awards Require that paid time be allowed to
    deposit the cheque to the Bank Account
           Other Allowance
• See Payment Summary Sheet

                                                                                                               Employers Name:

                                                                                             Employees Name:

                                                                  1st Day

                                              O/T 1.5 x

                                              O/T 2.0 x
                                                                  2nd Day

                                              O/T 1.5 x

                                              O/T 2 x
                                                                  3rd Day



                                              O/T 1.5 x


                                              O/T 2 X
                                                                  4th Day


                                              O/T 1.5 x
                                                                                                                                 Time Sheet

                                              O/T 2 X
                                                                  5th Day


                                              O/T 1.5 x

                                              O/T 2 X
                                                                  6th Day


                                              O/T 1.5 x

                                              O/T 2 X

                                                                  7th Day


                                              O/T 1.5 x

                                              O/T 2 X
                                                                                    Wages Book
                          Ordinary Total                     Overtime Total                        Allowances                            Deductions
Employee No

                                            Hours 1.5 X
                                                                                                                        Gross                                                 Employer
              Hours 1 X

                                                                 Hours 2 X
                                                                                                                        Wages                                                  Super
                                                                                                                                       Salary     Union                Paid


                            Rate   Amount                 Rate               Rate   Amount                                      Tax   Sacrifice   Dues    Allotment


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