Chapter 2 Tax Identification Numbers Copyright 2003 Mc

TAX FILE NUMBERS What is a TFN? • A unique identification number issued by the ATO to every taxpayer for tax dealings. • A taxpayer is issued with only one TFN. • An individual’s TFN is a nine-digit number. • Companies’ TFNs have an eight-digit number. • TFNs ensure that one taxpayer’s affairs are not mixed up with another's and enables the ATO to check and match a taxpayer’s income and expenses. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 2

Obtaining a TFN • Complete a TFN Application/Enquiry form and send it to the ATO. • These forms are available from the ATO direct or from www. ato. gov. au. • There are different application forms for different entities. • When applying for a TFN, specified proof of identity documents must be lodged. • The TFN is then issued within 28 days of the application being received by the ATO. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 3

PAYERS’ TFN OBLIGATIONS Employers’ TFN Obligations Reporting TFNs • Completed TFN declarations must be sent to the ATO by the employer within 14 days of being received by an employee. • Employees are given 28 days to provide their TFN, otherwise the employer is obliged to withhold tax at the highest marginal rate plus the Medicare levy. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 4

WITHHOLDING INCOME TAX • It is optional for an employee to quote their TFN on a TFN declaration. • If not quoted the employer must withhold tax at the highest personal tax rate plus Medicare levy. • If the employee quotes a TFN, the employer must withhold tax at current prescribed rates for the level of wages. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 5

Safeguarding Privacy Employers must take safeguards to ensure the privacy of an employee’s TFN information. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 6

Investment Body TFN Obligations • Investors who invest funds in interest-bearing accounts or other investments that earn income should quote their TFN to the relevant investment body. • If an investor does not quote their TFN, the investment body must withhold income tax at the highest marginal tax rate plus Medicare levy from any income paid to the investor. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 7

Relevant Investments • Interest-bearing accounts or deposits with financial institutions • Money invested with a government authority, semi-government body or company. • Money deposited in a solicitor’s trust for reinvestment or on-lending. • Units in a cash management fund, a managed investment or property trust; and • Shares held in a public company. Investors must quote their TFN to the relevant investment body to avoid the maximum tax being withheld from investment income. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 8

People Exempt from Quoting • Children under the age of 16 on 1 January whose income from investment is < $420 annually. • Persons who receive specified pensions or benefits from Centrelink or Veterans Affairs. • Persons of any age who have interest bearing accounts or deposits and income from the investment is < $120 annually. The person who relies on the exemption must inform the investment body of their status to be effective. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 9

Withholding Income Tax • Investors quote their TFN on the appropriate TFN Notification form, available from the Investment body or the ATO. • The completed form is lodged with the investment body. • If not quoted, investors must withhold income tax at the highest marginal tax rate plus Medicare from any interest or investment income payable. • Tax withheld must be paid to the ATO within 21 days after the end of the month in which the income was paid. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 10

Notifying Investors • The investment body must notify investors of the gross amount of income paid and the amount of tax withheld at the time of payment. • At the end of the tax year investors must include the gross amount as assessable income in their tax return. • Any tax withheld is claimed as as a tax credit on the return. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 11

Reporting Requirements Investment bodies must send three reports to the ATO: • Quarterly TFN reports. • Annual Investment income reports. • Annual reconciliations. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 12

Australian Business Numbers What is an ABN? • An eleven-digit tax identification number used by entities conducting any type of business. • Businesses apply to the ATO for an ABN. • An ABN is used by entities while conducting business. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 13

ABN REGISTRATION • An ABN can be obtained by entities carrying on an enterprise in Australia. Entities include: Individuals (as sole traders) Partnerships Companies Trusts Superannuation funds. Carrying on an enterprise means transacting business. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 14

ABN REGISTRATION • To obtain an ABN entities must apply to be registered on the Australian Business Register. • Application forms may be obtained from the ATO or online through: www. business. gov. au. • The web site address of the ABR is www. abr. business. gov. au. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 15

QUOTING ABNs • Businesses who supply goods or services to business payers are encouraged to register for an ABN. • If they don’t quote an ABN, tax must be withheld from payments at the highest marginal rate plus the Medicare levy. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 16

QUOTING ABNs • The payer does not have to withhold tax if: • The business entity gives the payer an invoice showing its ABN, or • The payment is $50 or less. It is an offence for a business entity to quote an ABN that is not its own. Penalties are severe. Copyright 2003 Mc. Graw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 17