Australian PAYG instalment 20% reduction for small business – top issues for tax practitioners
Companies and super funds eligible for the PAYG instalments 20% reduction
Lodging your 2009 company and super fund income tax returns
When completing the calculation statement what figure should I put at the ‘PAYG instalments raised’ label i.e. label T (company) and label G (Super Fund and Self Managed Super Fund (SMSF))?
You should use 100% of the PAYG instalment amount from quarters one, three and four and 80% of the instalment amount from quarter two (December quarter) when calculating the amount to be included at this label.
I didn’t complete label T (company) or label G (super fund or SMSF) – what should I do?
Nothing, our systems will populate these labels with the correct figure if left blank.
I completed label T (company) or label G (super fund or SMSF) incorrectly – what should I do?
Nothing, our systems will override the incorrect figure with the correct figure.
I paid 100% of my December 2008 PAYG instalment and the extra 20% has been transferred from my activity statement account to my income tax account. How do I make sure I receive this credit?
Our systems will pick up any credit balance on your income tax account and it will be shown as ‘other amounts refundable on your 2009 notice of assessment.
If you have access to the Business or Tax Agent portal you should access the portal when you are preparing your/your client’s income tax return to ensure that you are aware of any credit transferred to your/your client’s income tax account as a result of the 20% reduction.
Can I claim my credit for ‘PAYG instalments raised’ at label Z instead of label T (company)?
No, if you do, an internal error will result meaning we will need to contact you before cancelling and re-processing your income tax return.
The PAYG instalment reduction is a permanent 20% reduction to the instalment payable for the quarter that includes 31 December 2008
Under the pay as you go (PAYG) instalment system certain entities are required to make payments towards their income tax liability, however, the PAYG instalment amounts are a separate liability to the income tax liability.
The PAYG instalment amounts worked out by the Tax Office are required to be altered by a ‘gross domestic product (GDP) adjustment’ so that the instalments payable during the income year more accurately reflect an entity’s expected income tax liability. The GDP adjustment was increased to 8% for the 2008–09 income year, however, due to the current economic environment it is likely that the PAYG instalment amounts worked out for this income year will exceed many entities’ expected income tax liability.
The PAYG instalment reduction is a permanent 20% reduction to the PAYG instalment amount for the quarter that includes 31 December 2008 for eligible small business entities. The Government has taken this action so the instalment liability for this quarter more accurately reflects small businesses’ average actual profit growth in the current economic environment. It also minimises costs to taxpayers who may have otherwise considered varying their PAYG instalment downwards.
Is the PAYG instalment reduction optional?
When the legislation supporting the PAYG instalment reduction is enacted the reduction is mandatory and the Tax Office must reduce the PAYG instalment amount notified for the quarter that includes 31 December 2008 for eligible small business entities.
Prior to the enactment of the legislation, the Tax Office is anticipating the law by making an adjustment to the running balance account of all entities that we have identified as eligible for the reduction. We will reduce the amount of the PAYG instalment for the December 2008 quarter that we have allocated to their account by 20%. This action is necessary so that we are able to pay refunds to those entities that have already paid 100% of the PAYG instalment amount previously notified by the Tax Office and request a refund of the extra 20% payment.
However, where an entity pays the full PAYG instalment amount and does not request a refund, we will treat the extra 20% amount as a voluntary payment towards their income tax liability.
Eligible small business entities should have received a letter directly from the Tax Office or via their tax agent
We have already written to small business entities identified as eligible for the 20% reduction, either directly or via their tax agent, where the activity statement / instalment notice is posted to their agent’s address.
If you think that one of your clients is eligible for the 20% reduction and they have not received a letter from us, you should phone us on 13 72 86 Fast Key Code 1 4 1 to determine their eligibility, prior to advising them to pay only 80% of the instalment amount.
Why have some small business entities been excluded from your list of eligible clients?
We have written separately to taxpayers whose activity statements / instalment notices are sent to a different mailing address to that of their tax agent.
Entities eligible for the reduction include those that:
- pay their PAYG instalments quarterly using the Tax Office calculated instalment amount printed on their activity statement / instalment notice, and
- are carrying on a business that has an annual turnover of less than $2 million, or
- are in receipt of income from a partnership or trust that is carrying on a business which has an annual turnover of less than $2 million.
Generally, we do not expect a self-managed superannuation fund (SMSF) to be carrying on a business. However, if a SMSF’s trustee believes they are eligible for the PAYG reduction based on the above eligibility, they should apply the reduction.
The eligibility criteria also details why some small businesses have been excluded from your lists.
Small businesses will not be eligible for the PAYG instalment reduction where they:
- do not satisfy the small business entity $2 million aggregated turnover test. For example, any business that had an annual turnover of $2 million or more in each of the two income years before the 2008–09 income year will not be eligible
- have already varied the amount of the PAYG instalment for the quarter that includes 31 December 2008 or an earlier quarter for the income year
- pay two Tax Office calculated PAYG instalment amounts (that is, two instalment payers)
- pay their instalments on the basis of their instalment income multiplied by their instalment rate, or
- are a non-business taxpayer with only investment income.
What if my client has already paid the full amount?
If your client has already paid the full instalment amount advised on their activity statement / instalment notice, they may choose to:
- do nothing – we will treat the extra 20% amount as a voluntary payment they’ve made towards their income tax liability, or
- contact us on 1300 308 217 (8.00am–6.00pm, Mon–Fri) to have the 20% amount either:
- applied to their next PAYG instalment, or
- refunded.
