HEALTH & LIFE’s BEST PRACTICE NEWS ALERT Current circulation:
6689
DATE: ISSUE NO:
4 May 2005 106
Welcome to Health & Life’s (formerly acpm.com.au) free email newsletter service. Tell a friend that we would be happy to add their email address to the distribution list. This service is to provide Health & Life’s clients and those who attended our presentations with up to date information on key financial and practice management issues that may affect your Practice. Please do not use this as a substitute to seeking professional advice.
Writer in charge: Mr David Dahm
CPA, BA Acc., FTIA, ASIA. FAAPM
NEWS ALERT BROADCAST Super Dooper Problems – Watch out for new laws and new tax penalties! There are two major issues confronting practices. The first deals with non-deductible superannuation payments in relation to independent contractors, such as contract doctors. The second issue deals with the new national super choice legislation. The new legislation commencing on 1 July 2005 affects all practices. It requires employers to consult their employees about the choice of where they would like their employer super funds to be paid to. Failure to confirm in writing before 1 July 2005 will mean employers will be liable for fines up to $500 per employee per notice period until your practice has addressed the new paperwork that must be completed before the end of the financial year. Problem #1: No Tax Deductions for Independent Contractor Super Payments! Problem: Practices likely to be caught out are those paying for locums or independent medical contractors. Many practices when employing doctors, in attempt to avoid employer, employee and medico-legal responsibilities, attempt to classify their doctors as “independent contractors”. If any employer superannuation payments are made under this type of arrangement, it is non-deductible under s.28-80 of the Income Tax Assessment Act 1997 (“ITAA 1997”). The Act requires a person to be an employee or no deduction can be claimed. If an independent contractor arrangement is in place, practices are required to pay a 9% Employer Superannuation under the Superannuation Guarantee Act 1992. This is because the Act states the superannuation guarantee is to be paid on behalf of persons working “under a contract that is wholly or principally for the labour of the person”. Under such an arrangement the person is deemed to be an employee. This means if you are not withholding tax from the independent contractor as well as paying super, you cannot claim a tax deduction on superannuation paid to the contractor. It is clear there is a conflict in the two Acts. Solution: Practices should not pay super to independent contractors and make them employees (if they are not concerned with the medico-legal implications). Alternatively, look to re-negotiate your contracts with those affected and establish a written Associateship arrangement (service agreement) whereby the practice charges for facilities and services based on a percentage of practice receipts.
Contact our office about purchasing template service agreements which can assist in resolving this problem. Problem #2: Offer Your Employees Choice of Employer Super or risk paying a $500 fine per employee! Problem: More paperwork is required before 1 July 2005 in order to avoid the new Super Choice penalties. Choice - How it works In its most basic form, the choice of fund legislation which comes into effect on 1 July 2005 will allow each individual worker to choose his or her own superannuation fund. From the employer' s point of view, the introduction of choice will require individual practices to nominate a ' default fund' . The default fund must either be the Award default fund for that particular industry, or if there is no Award, then an annual vote of employees will determine the default setting. If the Award nominates more than one suitable default fund then the employer has to choose which will be the default, though of course they can - and should - consult with their employees via a vote. Who does this affect? • All employers • Contractors, sub-contractors and independent contractors • Employee Doctors and Allied Health workers • Principals with ‘Do it Yourself’ Super Funds • Practice Managers • Practice Nurses • Clerical Staff What should you do? Step 1: Understand the new rules The Tax Office has been issuing kits to all employers which emphasise the following: • Choice in super takes effect 1 July 2005 • Employers have to nominate a “Default Fund” for their practice • The default fund is the Award fund or a fund chosen by the employees Step 2: Understand the practical impact the rules will have on your practice Practices must assess the impact the new rules will have on its practice administration. While the employer is responsible, albeit perhaps only partly, for choosing the default fund, it is not responsible for choosing other suitable super funds. This means that reviewing and assessing other super is the responsibility of each individual employee. The responsibility of this role can not therefore fall on the practice policy committee or practice manager. The bigger problem for employers may then be what happens if their employees end up wanting to use lots of different super funds? While the current system of using a single fund for all employees may seem like it stifles competition, the upside is that it makes the practices job of sending off the superannuation cheques very simple. However in the worst-case scenario, a practice may have to send a superannuation cheque for as many funds as they have employees. Therefore, employees may wish to think about helping their Practice by perhaps using major super funds that are sophisticated enough to have decent payroll administration systems.
Step 3: What happens if I do nothing or do not consult my staff? The Penalties If you don’t meet your choice of superannuation fund obligations, you may be liable for the choice shortfall. The choice shortfall is part of the superannuation guarantee charge. Your obligations include:
• •
offering choice of superannuation fund to your eligible employees, and acting on your employees’ choice by paying their superannuation guarantee contributions to their chosen fund or to your award fund if they do not choose a fund.
The choice shortfall applies where you have paid superannuation guarantee contributions to a complying fund for your employee but not to the fund chosen by them. The choice shortfall is roughly 25% of the contributions that are paid to the wrong fund. A choice shortfall may also apply if you have not given your employees a Standard choice form in the required timeframe. The choice shortfall is limited to $500 for a notice period per employee. For example, if the choice shortfall for an employee for a quarter is $1,000, the actual shortfall can be no more than $500. Source: www.superchoice.gov.au No staff consultation Employers should not force or pressure employees into a particular fund. Employers have a duty of care to employees when presenting a fund. To the contrary, employers may find themselves liable for not conducting an appropriate due diligence on a “default fund” and therefore be liable should the fund not perform. Therefore, it is important that employees exercise choice, and minutes of a meeting are signed by all parties. Employers should only assist in providing information. Step 4: Where to from here? 1)
Speak to your local association or professional adviser, attend seminars and review articles regarding this topic. In addition, log onto www.superchoice.gov.au and start reviewing your obligations under the Act.
Note that the Australian Association of Practice Managers SA are holding a practical seminar in Adelaide on Tuesday, 10 May 2005, at 6.30pm. Contact the Secretariat Kim Monu via email at sa@aapm.org.au for further details. 2)
Understand your legal and taxation structure to work out who the rules apply to. Simplify arrangements before 1 July 2005, if possible.
3)
Determine what employees and contractors are affected by the changes and check your Awards.
4)
Complete the necessary taxation documents prior to 1 July 2005
Health & Life ‘on the move’!! IS HEALTH & LIFE COMING TO A PLACE NEAR YOU? Throughout the year, David will be traveling regularly intrastate and interstate. This section will keep you up to date with these movements so that it gives you the opportunity to arrange to see him if you have any issues to discuss. If you want to catch up, call us on 1800 077 222. Fees may apply.
Future places/dates are: Early May 2005 Late May 2005 Late June 2005
Melbourne & Sydney Brisbane Perth
Which topics would you like to be covered? If there is a particular topic that you would like covered in one of our future News Alerts, please email pa@healthandlife.com.au and let us know what it is. We will then endeavor to cover your requested topic.
Do we have your email address? It is apparent feedback we are receiving that there are persons receiving this regular email who are not on our email list. If you are receiving this email ‘second-hand’ from another source, we would be delighted to receive you email address and we will add you to our list so that you can receive it first-hand on the day that it is sent. This invitation is open to all medical practices. Please send your email address to pa@healthandlife.com.au
Do you wish to unsubscribe from our list? Please email pa@healthandlife.com.au if you wish to be removed from out distribution list
WARNING – This email, including any attachments, is for the personal use of the recipient(s) only. Republication and re-dissemination, including posting to news groups or web pages, is strictly prohibited without the express prior consent of Health & Life Pty Ltd. Health & Life Pty Ltd’s Best Practice News Alert is designed as a comprehensive and up-to-date GST and Practice Management news service to alert readers to the latest in practice and related developments affecting the medical and dental profession as they happen. It is published when there is news to report. No responsibility can be accepted for those who act on its content without first consulting us or obtaining specific advice.
*** End of Issue 106 *** Health and Life Pty Ltd (formerly acpm.com.au) Accounting, Taxation & Practice Management Services. “Looking after your future” PO Box 8145 Station Arcade, ADELAIDE SA 5000 Telephone:
(08) 8415 5400
Fax:
(08) 8231 6767
Email:
pa@healthandlife.com.au
Web Site
www.healthandlife.com.au
Health and Life Pty Ltd ACN 056 427 546 (formerly acpm.com.au) of 17th Floor. 33 King William St, Adelaide or any of its employees does not represent that this communication (including any files attached) is free from computer viruses or other faults or defects. Please seek independent and specific advice on any opinions or information provided which we
make publicly available. Health and Life will not be liable to you or any other person for any loss or damage (including direct, consequential or economic loss or damage) however caused and whether by negligence or otherwise which may result directly or indirectly from the receipt or use of this communication or any other files attached to this communication. It is the responsibility of any person opening any files attached to this communication to scan those files for viruses. The information transmitted is intended only for the person or entity to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Š Health and Life Pty Ltd 2005.