Beware of Varying Pay As You Go (PAYG) Income Tax Instalments!
What is the Issue?
Stannards Accountants and Advisors has met with the ATO this week to discuss company and individual PAYG tax instalments. The ATO has formed a task force to review the misreporting and variation of tax instalments and requested a meeting with Stannards on the basis that as on a whole, our clients outperform the vast majority on this issue.
The ATO have estimated that $10 billion of tax is paid late as a result of tax instalments being varied down or not paid at all which is impacting their cash flow and providing unfair commercial advantage for businesses not adhering to the instalment program.
What are the ATO doing?
Where the ATO have identified variations or ‘lack of reasonable care’ on calculating tax instalments, they can apply ‘General Interest Charge’ (GIC), currently 8.70%, or penalties of between 25%-75% on the unpaid amount. The ATO will apply an 85% threshold for instalments varied v.s. final year-end tax.
By way of example:
ABC Pty Ltd had tax payable of $100k in FY16.
The ATO issued quarterly tax instalments during FY17 totalling $100k.
The directors of ABC Pty Ltd varied the instalments to a total of $50k for FY17.
The final tax position of ABC Pty Ltd for FY17 is $100k again.
As the varied instalments equal 50% of the final tax payable ($50k / $100K) the company is potentially liable for GIC or penalties.
What is the best course of action?
1. Consult Stannards prior to making any adjustments to your ATO instalment amount or rate
2. Only vary instalments down when there is a significant downturn in trading conditions/ profit or a change in investments
3. Pay all instalments in full up to ‘tax planning time’ when we meet in March-April and will review year-to-date profits and estimated tax position.
Do you have any questions?
As you know, we are ‘business partners for life’ and always available to discuss your business concerns or queries. Contact one of our partners or managers today to discuss how the ATO’s position impacts you.