As if it being October already wasn’t scary enough, our newsletter is here which, if I’m being honest, putting anything together about tax is terrifying. October marks the end of the September quarter for GST reporting *BOO!*, September BAS statements for those who lodge themselves are due this month *RAWR!* and 31 October deadline for individuals who don’t lodge through a tax agent is approaching *GASP!*
If those dates don’t leave you weak in the knees, just remember it’s only 86 days until Christmas 💀
That being said, I think the above justifies a spooky edition for this month’s newsletter.
Beware: Threatening auras ahead
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We are still working hard to get through the backlog of tax returns and we apologise it’s taking us longer than normal to get back to you. Just know that your patience is appreciated during this time.
Messages from the ATO
What you need to know about using business money
Are you using business money or assets for private use? Your guide for using business money and the tax consequences here!
Read more
Is it a business loan or a non-commercial loss?
Learn the difference between business losses and non-commercial losses for your business.
Read more
Understanding your super guarantee (SG) obligations
Check how you can avoid some of the most common errors when completing your SG obligations.
Read more
Medicare Levy Vs. Medicare Levy Surcharge
This is a question that gets brought up quite frequently each year, so what is the difference? The confusion often arises because both are related to healthcare funding and are calculated based on your income. The difference is they target different groups and have different rates and purposes. The Medicare Levy is a broad tax while MLS is designed to encourage higher-income earners to take out private health insurance.
Medicare Levy
Everyone (well, most people) pays the Medicare Levy. This is a compulsory tax for most Australians to help fund the public health system. The Levy is 2% of your taxable income. The Medicare levy applies to everyone except if you:
- Meet certain medical requirements
- Are a foreign resident
- Are not entitled to Medicare benefits
Medicare Levy Surcharge (MLS)
The surcharge is an additional tax aimed at encouraging higher-income earners to take out private health insurance, thereby reducing the burden on the public health system. The surcharge ranges from 1% to 1.5% of your income level. Individuals who earn over $97,000 per year and families earning over $194,000 per year who do not have private hospital cover are subject to this surcharge.
Exemptions
You can claim a full exemption for any period for which you have a certificate from the Medicare Levy Exemption Certification Unit of Medicare Australia showing you were not entitled to Medicare benefits because you were a temporary resident for Medicare purposes and either:
- you did not have any dependants for that period, or
- all of your dependents were in an exemption category for that period.
A letter from Medicare is not sufficient – it must be from the exemption certification unit.
Personal Services Income (PSI)
Personal Services Income (PSI) refers to income that is primarily generated from your personal skills or efforts as an individual. The ATO defines PSI as income where more than 50% of the amount you receive for a contract was for your labour, skills or expertise.
You don’t earn PSI if:
✕ less than 50% of your income from a contract is for your skills, knowledge, expertise or efforts
✕ You receive income from selling or supplying finished goods, even if you made these goods
✕ You receive income from an income-producing asset, such as renting a vehicle or piece of machinery
✕ Your income comes from licencing your intellectual property, such as a patent
Characteristics of PSI are:
✓ PSI Relates more to the supply of a service rather than the supply of goods
✓ PSI tends to require greater dependence on skill and judgement
✓ PSI is more likely to arise if the business has minimal assets and few employees
Examples of PSI include income earned by professionals such as doctors, lawyers, accountants, and consultants. If you’re paid mainly for your personal efforts or skills, rather than for selling goods or using assets, it’s likely to be classified as PSI.
When working out if PSI rules apply, you need to look at each contract or job to determine if you have received PSI. If you have received PSI (including if you’ve received it as a company, partnership or trust), you then need to work out if the PSI rules apply to that income.
If a business is caught by the PSI rules there are severe tax limitations placed on that business. Where a business receives more than 50% of its income from a contract purely for the supply of labour, which depends on the skill and expertise of the contractor performing the work, then all of the income under that contract is classified as PSI.
Who does it apply to?
Only individual taxpayers can have PSI. If PSI is channelled through a company, partnership or trust (i.e. a personal services entity or PSE), it is still the individual’s personal services income for tax purposes.
Talk To You Soon!
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That’s all from us for this month.
As always, if you have any questions please don’t hesitate to reach out!
P: (07) 5596 5758
E: Adminstaff@plantandassociates.com.au
Stay spooky!