Chartered Accountants Australia and New Zealand (CA ANZ) is urging PAYG instalment taxpayers to COVID-19 check their September 2020 PAYG instalment notice from the ATO by talking to their local chartered accountant.
Small businesses around the country are financially fragile because of COVID-19 related disruption. It has hit their revenue, cash flow and affected their ability to pay their rent, their bills and staff wages. Some investors have seen their dividends and rental income decline.
PAYG instalments is a system set up by the ATO that helps business owners and investors manage their expected tax liability by making regular payments.
The aim of paying by instalments is to avoid having a big tax bill when the annual income tax return is lodged.
But CA ANZ’s Head of Tax Michael Croker, says businesses and investors who are facing financial difficulty should talk to their accountant given the extra uncertainty around cashflow and extra flexibility around instalments from the ATO.
“The ATO has certainly come to the table and recognised that many are struggling in these hard economic times,” Mr Croker said.
“As we all know, cashflow is key, and while paying in instalments makes sense for a ‘normal’ tax year with better economic conditions, given the reduction in revenue, a PAYG instalment check-up may be a good idea right now.”
Mr Croker explained it is generally rare to vary the September quarter PAYG instalment, given that we are only three months into the 2020/21 financial year.
“ATO penalties can apply for large, inaccurate PAYG instalment variations so taxpayers usually wait till a later quarter when they have a better idea of how their income is tracking.
“But COVID-19 has changed all that: many businesses can already see a rocky road ahead and are really worried about cashflow, and to their credit, the ATO has recognised that.
“This year the ATO has said: ‘For the 2020-21 income year, we will not apply penalties or interest for excessive variations when you make your best attempt to estimate your end of year tax liability. However general interest charges may still apply to outstanding PAYG instalment balances”.”.
Mr Croker said the key thing is not to leave the discussion about PAYG instalment variations to the last minute.
“Get early, professional advice from your Chartered Accountant, who will look at the big picture and work out what is in your best interest,” Mr Croker said.
“For the September 2020 instalment your accountant may also suggest changing the method by which PAYG instalments are calculated so that your payments are more closely aligned to cashflow.
“A 2020-21 forecast budget may be needed, and your accountant will want to understand the impact of any recent or planned changes in your business or investment strategy.”
In many cases, CAs find these discussions go beyond just tax and into topics such as getting better deals from financiers, insurance and landlords for small business clients.
“We know this year has been challenging, but there are practical steps available to get through the pandemic in good financial shape. Having a good adviser in your corner will help with that,” Mr Croker said.
Source 1: ATO website
Detailed advice from the ATO if you need to vary PAYG instalments as a result of COVID-19.Read more