Financial Management Practice Manual
Chapter 10
Taxation Management
Guidance Template
Office of Health Statutory Agencies – Queensland Health
Financial Management Practice Manual - Guidance Template
Chapter 10 – Taxation Management
1
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Version history
Version no. / Date / Changed by / Nature of amendment1.0 / July 12 / Jesse Lee / Final draft
1.1 / October 12 / James Ronan / Financial Policy Review
1.2 / October 12 / Deborah McLaughlin / Final
Contents
10Taxation Management
10.1Fringe Benefits Tax (FBT)
10.2Pay As You Go (PAYG)
10.2.1Tax File Number (TFN) Declarations
10.2.2Withholding Declarations
10.2.3PAYG Withholding Variation
10.2.4Child Support
10.2.5Payment Summaries
10.3Non-Wages Withholdings
10.3.1Definition
10.3.2Process
10.3.3Due Dates
10.4Payroll Tax
10.4.1Rates
10.4.2Process
10.5Goods and Services Tax (GST)
10.5.1Reporting of GST in the Annual Financial Statements
10.5.2GST in Practice for Purchases
10.6Duty
10.7Excise
10TaxationManagement
Taxation management is a key component of any business. Foundations must ensure they are compliant with all relevant State and Commonwealth taxation requirements.
It is recommended that Foundations seek advice from a qualified taxation expert when developing the taxation management component of this Manual. Failure to comply with taxation requirementscould result in significant criminal charges against the Foundation.
Refer to the AustralianTaxationOffice (ATO)for further informationregarding relevant taxation legislation and requirements for the Foundation. Specifically, guidance can be sought from the ATO’s Tax Basics forNon-Profit Organisations.
Foundations must comply with the Financial Accountability Handbook (see Volume 3, Information Sheet 3.11 – Taxation Compliance Systems) and the Financial Management Tools (see Information Sheet 3.11–Taxation Compliance and Information Sheet 4.1 - Monitoring/Assessment of Internal Controls).
TIP:Some taxation management practices and procedures are covered throughout this Manual.
–Provide an outline of the taxation managementpractices of the Foundation.
–What is the purpose of taxation management? How does taxation management benefit the Foundation?
–What are the objectives and principles of the Foundation’s taxation management system?
–How is taxation management achieved? Who is responsible?
–Describe how the Foundation’s taxation management practices meet the legislated requirements.
–What types of tax liabilities are required to be managed by the Foundation? For example:
- Fringe Benefits Tax (FBT)
- Business Activity Statements (BAS)
- Payroll Tax (PRT).
–Describe how the internal controls (refer to Chapter 2) of the Foundation support proper and effective taxation management.
–How often are the taxation management systems and practices of the Foundation reviewed? Who is responsible for this? How is it undertaken?
–How is the taxation management system used to assist and report on the Foundation’s financial position throughout the year?
–How does the Foundation ensure proper and effective records are kept for taxation management purposes (see Chapter 3)?
–How does the Foundation ensure its taxation related financial records are safeguarded and that only authorised staff have access? How does this comply with the Foundation’s security and specific controls (see Chapter 2)?
–How does the Foundation go about requesting taxation advice? Who is responsible or this?
10.1Fringe Benefits Tax (FBT)
Refer to the Australian Taxation Officefor further information regarding relevant taxation legislation and requirements, in particular, the Fringe Benefits Tax Assessment Act 1986 (Commonwealth).
Fringe Benefits Tax (FBT) is levied on employers in relation to fringe benefits provided to employees and their associates in respect of their employment (i.e. there must be an employer / employee relationship).
A fringe benefit includes any rights, privileges, services or facilities not subject to personal income tax.
–Is the Foundation eligible for any FBT exemptions?
–How does the Foundation manage the requirements for FBT liabilities?
–What are the objectives and principles of managing the Foundation’s FBT requirements?
–How is the managementof the Foundation’s FBT requirements undertaken? Who is responsible?
–What types of fringe benefits may be provided to the Foundation’s employees? For example:
- Home garaging of a work/pool car
- Private use of a work car
- Private e-toll.
–Describe how the Foundation’s FBT managementcomplieswith Australian Tax Office requirements?
–Describe how the FBT managementpractices are developed and maintained.
–How often does the Foundation review its FBT managementpractices? Who is responsible for this?
–Describe the links between the Foundation’s FBT managementpractices, financial records management practices (see Chapter 3) and financial reporting requirements (see Chapter 4).
–Who can create or amend FBT managementpractices? Can this be delegated? If so, is this delegation of authority recorded in the Financial Delegations Register (see Chapter 2)?
–How does the Foundation determine if a fringe benefit is taxable or exempt? Who is responsible for this?
–How does the Foundation ensure there is appropriate segregation of duties for FBT managementpractices?
–How does the Foundation manage the FBT requirements that relate to salary sacrifice fringe benefits? Who is responsible for this?
–How does the Foundation manage FBT requirements for an employee compared to a consultant or contractor?
–How do the Foundation’s record management principles apply to FBT related documents?
–How do the Foundation’s risk management policies apply?
–How is a clear audit trail maintained for the Foundation’s FBT managementpractices?
10.2Pay As You Go (PAYG) Withholding
The Pay As You Go (PAYG) system commenced on 1 July 2000 and is a part of A New Tax System (Business Tax Reform).
Foundations are required to comply with the relevant sections of the A New Tax System(Pay As You Go) Act 1999 (Cwth).
Refer to the AustralianTaxation Office for further information regarding relevant taxation requirements for the Foundation, for example, PAYG withholding obligations in relation to withholding amounts (of certain payments) and remitting to the Australian Tax Office.
Commonwealth income tax deductions from regular gross income payments to individuals are referred to as Pay-As-You-Go (PAYG) tax.
TIP:Practices for deductions from wages and salaries are also covered in Chapter 6.
–How does the Foundation manage its Pay As You Go (PAYG) Withholding requirements?
–What are the objectives and principles of managing the Foundation’s PAYG Withholding requirements?
–How is the managementof the Foundation’s PAYG Withholding requirements undertaken? Who is responsible?
–How does the Foundation manage its PAYG Withholding requirements for:
- Temporary staff from employment agencies
- Contractors and/or consultants.
–Describe how the Foundation’s PAYG Withholding managementcomplieswith Australian Tax Office requirements?
–Describe how the Foundation’s PAYG Withholding tax managementpractices are developed and maintained.Who is responsible for this?
–How does the Foundation ensure correct PAYG Withholdings are calculated for staff salary and wage payments?
–How does the Foundation ensure that the ‘Tax File Number Declaration’ and ‘Withholding Declaration’ are applied to current withholding schedules issued by Australian Tax Office when determining the correct PAYG tax withholdings?
–Does the Foundation include allowances when determining the correct PAYG tax withholdings from staffsalary and wage payments?
–What deductions from salary and wages attract PAYG withholdings? For example:
- Normal salary or wages
- Overtime and penalty rate payments
- Arrears in annual leave or long service leave or sick leave
- Bonuses and commissions
- Unused annual or long service leave
- Most allowances.
–How does the Foundation manage the different PAYG Withholding tax rates that apply to leave loading, unused leave payments and lump sum termination payments?
–How do the Foundation’s record management principles apply to PAYG Withholding related documents?
–Describe the links between the Foundation’s PAYG Withholding tax managementpractices, financial records management practices (see Chapter 3) and financial reporting requirements (see Chapter 4).
–How often does the Foundation review its PAYG Withholding tax managementpractices? Who is responsible for this?
–Who can create or amend theFoundation’s PAYG Withholdingtax managementpractices? Can this be delegated? If so, is this delegation of authority recorded in the Financial Delegations Register (see Chapter 2)?
–How does the Foundation ensure there is appropriate segregation of duties for its PAYG Withholding tax managementpractices?
–How do the Foundation’s risk management policies apply?
–How is a clear audit trail maintained for the Foundation’sPAYG tax managementpractices?
10.2.1Tax File Number (TFN) Declarations
Tax File Numberdeclarations are completed by anemployee to allow aFoundation to determine the correct amount to withhold from payments for taxation purposes.
Refer to the AustralianTaxation Office for further information regarding TFN declarations and other relevant taxation requirements for the Foundation.
–Does the Foundation require new employees to submit an Employee Tax File Number (TFN) declaration for all forms of employment?
–What is the timeframe for new employees to submit their TFN Declaration form? For example, 28 days from commencing employment.
–How does the Foundation ensure that PAYG tax withholdings of 46.5% are applied to staff salary and wage payments when a TFN Declaration form has not been supplied?
–How does the Foundation manage and store staff TFN Declaration records?
–How does the Foundation ensure its TFN Declaration management practices comply with the requirements set out by the Australian Tax Office?
10.2.2Withholding Declarations
Refer to the Australian Taxation Officefor further information regarding withholding declarations and other relevant taxation requirements for the Foundation.
–When does the Foundation require staff to complete a withholding declaration? For example:
- HELP (HECS – Study Asset) debt is extinguished or commenced
- Financial Supplement Debt exists or extinguished
- Variation to dependent spouse, overseas forces or special tax offset
- Inclusion of Senior Australian tax offset
- To request an increase in PAYG instalments.
–How does the Foundation ensure all withholdings are calculated correctly in accordance with the withholding schedules from the AustralianTax Office?
10.2.3PAYG Withholding Variation
PAYG Withholding Variation is completed by anemployee where he/she wants to vary the amount or rate of PAYG withheld from payments or to advise of their obligation to repay HELP or Financial Supplement debts.
Refer to the AustralianTaxation Office for further information regarding PAYG withholding variations and other relevant taxation requirements for the Foundation.
–How does the Foundation manage a PAYG withholding variation for employees?
–How does the Foundation ensure that all PAYG withholding variations are updated annually? (PAYG withholding variations expire 30 June each year.)
–How does the Foundation manage and store staff PAYG withholding variation records?
10.2.4Child Support
Refer to the Australian Taxation Officeand Child Support Agencyfor further information regarding child support deductions from employee salaries and wages.
The Australian Tax Officeadministers the Child Support Agency (CSA).The CSA will advise if any deductions are to be made on behalf of an employee. The amount to be deducted is usually for a fixed sum, spread over a specified period. CSAdirections must be followed.
The employee cannot countermand the order. The deductions must continue until the CSA withdraws the order.
Anemployee must be informed of any deductions made. Other personnel mustnot be made privy to the fact that deductions are required to be made.
10.2.5Payment Summaries
Refer to the Australian Taxation Officefor further information regarding payment summaries and other relevant taxation requirements for the Foundation.
–How does the Foundation manage its obligation to provide payment summaries to every employee to whom wages or salaries have been paid?
–What is the timeframe for the Foundation to provide payment summaries? For example, summaries must be issued on or before 14 July in the following year.
–How does the Foundation provide payment summaries to staff who have left the Foundation? For example, payment summaries for exited staff are issued on or before 14 July in the following year, or within 14 days from the date of request.
–How does the Foundation ensure that payment summaries are issued in duplicate? For example, one copy for the employee and the other to theAustralian Taxation Office.
10.3Non-Wages Withholdings
Refer to the Australian Taxation Officefor further information regarding relevant taxation requirements for the Foundation.
This Section applies to payments other than salaries, wages and associated items:
- That are the subject of a voluntary agreement whereby the payee seeks to have tax withheld at the point of payment
- To a supplier who has not quoted an Australian Business Number
- Under a labour hire agreement.
10.3.1Definition
ABN means the Australian Business Number which became operational on 1 July 2000. It is issued by the Australian Taxation Office.
PAYG means the Pay-As-You-Go system where the payer withholds tax from payments in accordance with Australian Taxation Law.
Payment means the total payment under a contract irrespective of whether it is paid by normal process or as a set off. Salaries and wages, and other payments subject to pay-as-you-go instalments are excluded, as are payments to a tax-exempt body.
10.3.2Process
–How does the Foundation manage the taxation requirements for non-wages withholdings?
–What are the objectives and principles of the requirements for managing non-wages withholdings?
–How is the managementof the Foundation’s non-wages withholdings undertaken? Who is responsible?
–How does the Foundation ensure that withholding tax is deducted from payment of an invoicein relation to supply, which includes GST, where the ABN is not supplied?
–How does the Foundation manage non-wages withholdings ifa payee has not provided a valid ABN? For example, a 46.5% withholding is deducted from the gross payment.
–How does the Foundation manage a request by a payee that tax is deducted at a higher rate than required? Is this request required in writing?
–Describe the links between the Foundation’s non-wages withholdings managementpractices, financial records management practices (see Chapter 3) and financial reporting requirements (see Chapter 4).
–Describe how the Foundation’s non-wages withholdings managementpractices are developed and maintained.
–How often does the Foundation review its non-wages withholdings practices? Who is responsible for this?
–Who can create or amend thenon-wages withholdings management practices? Can this be delegated? If so, is this delegation of authority recorded in the Financial Delegations Register (see Chapter 2)?
–How does the Foundation ensure there is appropriate segregation of duties for its non-wages withholdings managementpractices?
–How do the Foundation’s risk management policies apply?
–How is a clear audit trail maintained for the Foundation’s non-wages withholdings practices?
10.3.3Due Dates
At the end of the financial year, withholding payment summaries must be fully completed and distributed as follows:
- Payee’s copy must be posted or delivered by 14 July
- Original must be posted or delivered to the Australian Taxation Officeby 14 August.
Completed Payee Declaration forms must be posted or delivered to the Australian Taxation Office within 28 days of receipt.
10.4Payroll Tax
Foundations must verify if they are exempt from the requirements under the Payroll Tax Act 1971. If exemptions have been granted, this section does not apply. If a Foundation is not exempt, the requirements under the Act must be complied with.
Refer to theOffice of State Revenue for further information regarding Payroll Tax requirements relevant to the Foundation.
Payroll tax isa self assessed State tax levied on employers by the Office of State Revenue.
The Office of State Revenue should be contacted for current payroll tax rates and guidance on inclusions, exclusions and thresholds for the following:
- Salaries and wages
- Leave and allowances
- Benefits
- Payments
- Other types of wages
- NonQueensland employment.
In general, payments that do not attract payroll tax are:
- Salaries/wages paid to employees while on compulsory Australian Defence Force Reserve leave
- Salaries/wages paid to employees while volunteering for
- Rural fire brigade in accordance with Fire and Rescue Service Act 1990
- State Emergency Service in accordance withDisaster Management Act 2003
- Functions as an honorary ambulance officer under the Ambulance Service Act 1991
- Travelling/accommodation and living-away-from-home allowances, where those allowances do not exceed prescribed daily rates
- Reimbursements of expenses incurred personally by officers in carrying out official duties
- Payments made to a person who is an apprentice or trainee under the Vocational Education, Training and Employment Act 2000
- Payments to employees under the Commonwealth parental leave scheme
- Workers’ compensation payments.
10.4.1Rates
Refer to theOffice of State Revenuefor further information regarding Payroll tax rates.
The payroll tax rate is 4.75% as a percentage of taxable wages, payable to the Officeof State Revenue.
10.4.2Process
–How does the Foundation manage the requirements for payroll tax?
–What are the objectives and principles of managing the Foundation’s payroll tax requirements?
–How is the managementof the Foundation’s payroll tax requirements undertaken? Who is responsible?
–Describe how the Foundation ensures its payroll tax managementpractices comply with the legislated requirements.
–Describe how the Foundation’s payroll tax managementpractices are developed and maintained.
–How often does the Foundation review its payroll tax managementpractices? Who is responsible for this?
–Describe the links between the Foundation’s payroll tax managementpractices, financial records management practices (see Chapter 3) and financial reporting requirements (see Chapter 4).