Grant Thornton flags biggest EOFY pitfalls with employment tax lodgments
With the end of the financial year looming, the accounting firm has outlined some common employment tax lodgment errors.
Grant Thornton has warned companies and accountants about some common traps that can arise with employee share schemes, payroll tax and the taxable payment annual report.
Grant Thornton partner George Bendall noted that companies with employee share schemes (ESS) are required to report to the ATO and provide employees with a statement if a taxing point has occurred during the tax year.
Furthermore, employers operating start-up plans are also required to report to the ATO the grants made within the year.
“You must provide an ESS statement to employees by 15 July 2024, and the ESS annual report to the ATO by 14 August 2024,” Bendall said.
“This presents a significant amount of pressure on employers looking to provide ESS statements in a timely manner, with taxing points arising right up to 30 June in some cases.”
Bendall said this reporting is complex and requires ATO-compliant software not ordinarily integrated with business payroll solutions.
One of the issues he commonly sees is startups failing to issue ESS statements to their employees.
“This has been a particular occurrence in transactions, with failure to issue the correct reporting in a timely manner being flagged as part of due diligence reviews and giving unnecessary stress to participants hoping to capitalise for the concessional capital gains tax regime that the Start-up ESS awards can fall into,” Bendall said.
It is also important that companies get advice and ensure they understand the taxing points with ESSs.
“The failure to get advice and understand when the taxing points arise can lead to late reporting which can trigger penalties including penalties that fall under the punitive Significant Global Entity penalty regime. This can lead to penalties of up to $782,500 in some cases,” he said.
Bendall said while most employers are aware of their upcoming payroll tax lodgements, this is another area where issues can arise.
Sometimes there can be a mismatch of reporting of ESS with state payroll tax disclosures, he said.
The failure to include the corresponding ESS reporting for state payroll tax or including it at the incorrect time can lead to broader payroll tax audits triggered by data matching ESS, he warned.
“Similar to ESS, the failure to include FBT amounts or the incorrect FBT amount can trigger an audit from data matching initiatives,” he said.
Bendall said there is also a common misconception that contractors can be excluded where an assessment has been made at common law that they are not common law employees.
“However, the inclusion of contractors for payroll tax in most states extends to almost all genuine contractor arrangements unless a specific exemption applies,” he said.
“As such, this can capture a multitude of arrangements including contractors engaged through companies or trusts, even where there may be no associated PAYG withholding or superannuation guarantee requirements.”
Bendall said employers should also ensure they are across updates to the payroll tax rates and various changes set out in state budgets.
“Given the significant level of activity aided by more sophisticated data matching techniques, we recommend that a robust state payroll tax review becomes part of all businesses’ broader tax governance process,” he said.
The taxable payments annual report is an area that is often overlooked ahead of other tax obligations but should be on the radar of businesses, he said.
“Annual TPAR lodgments are due by 28 August every year. If you engage contractors (including subcontractors, consultants, and independent contractors) and your business provides any of the following services, you could be required to comply with the Taxable Payments reporting system and lodge a TPAR:
- Building and construction services
- Cleaning services
- Courier services or road freight services
- Information technology
- Security, investigation or surveillance services
- Government entities.
Considering the breadth of the taxable payments reporting system requirements, Bendall said it's not only businesses that primarily offer services in the above industries that have reporting requirements.
“For instance, for retailers and restaurants that rely on courier services for deliveries, this service has become central to their business model. They may therefore have inadvertently given rise to reporting requirements,” he said.
