PAYG and GST instalments are calculated by reference to a taxpayer’s most recently lodged income tax return or annual GST return respectively. For this new 2018 income year, the instalments will be based on 2017 income tax and GST paid plus a 4% uplift factor on the assumption that income will increase in the 2018 year. The reason for the uplift factor is to prevent shortfalls of tax leading to a higher than expected tax liability at the end of the year.
If a taxpayer’s circumstances change in the 2018 income year compared to the information in the taxpayer’s 2017 tax return (e.g. a current year may not be as profitable as the previous year) the taxpayer can choose to reduce their PAYG instalments for the current year.
However, if such a downward variation results in a greater than 15% shortfall of the actual amount of tax payable when the 2018 tax return is assessed by the ATO (i.e. there was an underestimate of the instalment rate or amount for the current year), the taxpayer may be subject to the general interest charge (GIC) on the difference. Therefore, a reasonable degree of certainty of the changed circumstances must exist before varying the ATO’s PAYG instalment rate.
Please speak to your Nexia Edwards Marshall representative if you believe the amount calculated by the ATO is too high (or too low) so that we can correctly calculate your tax instalments and avoid a tax bill shock at the end of the year and having to find the cash to pay the tax bill.
As mentioned in previous Top Tax Tips, from 1 January 2017, the Government will tax working holiday visa holders / backpackers at a flat rate of 15% on earnings up to $37,000 with ordinary marginal rates of tax applying after $37,000.
Furthermore, from 1 July 2017, a backpacker who leaves Australia after the working holiday and who seeks payment of the superannuation contributions made on their behalf whilst a backpackers will be taxed at 65% on the contribution (giving rise to an effective tax rate of 55.25% - because contributions into the fund will be taxed at 15%).
For example, superannuation guarantee contributions of $1,000 made to a superannuation fund would be subject to contributions tax of 15% leaving $850 [$1,000 - ($1,000 x 15%)]. The $850 would then be subject to the 65% tax resulting in tax being payable of $552.50 ($850 x 65%). On the $1,000, the tax payable would be $702.50 ($150 + $552.50) – an effective rate of tax of 70.25% and a great win for the Government revenue!
The return of superannuation contributions to exiting backpackers made before 1 July 2017 will be taxed at 38% on the taxed element and 47% on the untaxed element in addition to being subject to the initial 15% contributions tax.
The curious anomaly is that the income tax rate has been reduced to encourage backpackers to work in Australia but the tax rate on their superannuation contributions is a disincentive to so.
There has been recent media speculation that passive investment companies may also qualify for the lower 27.5% tax rate.
The Government’s clear intention was that the lower tax rate of 27.5% was never meant to apply to passive investment companies. We understand that the Government may amend the law to make clear that the new 27.5% company tax rate will only apply to companies operating a trading business
We will keep you updated if there are any changes to the status quo.
For any questions or to discuss any of the above in relation to your personal situation, please contact Grantley Stevens or your Nexia Edwards Marshall Advisor.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Advisor.