Business Resources

Welcome to our 'Common Mistakes' series, where we delve deep into the intricacies of the GST system. While the foundation of the Goods and Services Tax (GST) might seem straightforward, like many things in finance, the devil is in the details. In this article, we talk about a topic where mistakes are frequently made: GST on credit card fees and annual card charges.

The Nuances of Credit Card Fees

Firstly let's address a common misconception. Most businesses assume that every expense that passes through their books will have GST included. However, credit card fees and charges are a trap, as GST does not apply to all transactions.

For instance, the interest you pay on credit card balances is exempt from GST (technically, interest is a “BAS Excluded” transaction).
What if you’re a business that accepts credit card payments from your customers? The merchant fees you pay your card provider typically do include GST.

Now for the fun bit - Credit card surcharges when you pay bills. Whether GST applies to the surcharge is dependent on whether GST applies to the underlying transaction you are paying. It gets even more confusing when the bill you are paying is a “mixed supply” where part of the bill attracts GST, and part has no GST – insurance premiums, vehicle registration and telephone bills are common examples here. The joy with credit card fees on these payments is that part of the fee attracts GST and part doesn’t so you need to split your credit card surcharge when recording the transaction in your accounts.
It’s small details like this that can trip you up if you’re not careful.

Annual Card Fees

Similarly, annual credit card fees are another area of confusion. Annual fees do not attract GST as they are not considered to be the supply of goods or services (because, you know, GST is a Goods and Services Tax).

The Hidden Costs of Misunderstanding

Imagine this: if you’re claiming GST credits incorrectly, not only could you be losing out on claiming GST credits that you’re entitled to, but you could also find yourself at odds with the ATO if you’re incorrectly overclaiming GST. It’s crucial that businesses understand the GST system if they are doing their own bookkeeping and accounting.

Why Engage a Professional Bookkeeper?

This is where the value of an experienced bookkeeper is invaluable. Professional bookkeepers possess an in-depth understanding of the nuances and ever-evolving landscape of the GST system. With their help, you can navigate the confusing maze of credit card fees, annual charges, and other not-so-obvious GST implications with confidence.

While the basic concept of GST might seem easy to grasp, it’s the layers beneath the surface that can complicate matters. The most well-intentioned, diligent business owners can find themselves making avoidable mistakes.

As always, our goal here isn’t to overwhelm or cause panic. It’s simply to emphasize the importance of recognizing when you’re in over your head. Sometimes, a small investment in professional expertise can save you from much larger financial pitfalls down the road.

So, the next time you’re feeling uncertain about the GST implications of an expense or financial decision, remember this article. It might just be time to give your trusted bookkeeper a call.

PS – If you find this topic enthralling, you can find more details in the ATO’s GSTR 2014/2 ruling here - https://www.ato.gov.au/law/view/document?docid=GST/GSTR20142/NAT/ATO/00001&PiT=99991231235958

This “Common Mistakes” article discusses a little-known financial dilemma faced by many Australians: managing HECS/HELP debt alongside the benefits of salary sacrificing. It’s one of those areas where, despite your best intentions, you could end up with an unexpected (large) tax bill at the end of the year. Let’s see what’s going on…

The Basics of HECS/HELP Debt

The cost of tertiary education is not insignificant, and the ability to pay your fees upfront each semester is out of reach for most people. The HECS/HELP program is an interest-free government loan available to eligible students where the Federal Government pays the course fees on your behalf. The loan then is repaid once you are earning an income and your annual wages are above a specified threshold. The threshold increases each year, and for 2023-24 it is $51,550.

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It's important to note that while the HECS/HELP debt is interest-free, indexation is applied to the outstanding balance on 1 June each year. Historically the indexation rate has been close to 2%, but it has increased in the last couple of years and on 1 June 2023, it was a sizeable 7.1%.

Understanding Salary Sacrificing

Salary sacrificing involves agreeing with your employer to forgo part of your pre-tax salary in return for benefits of similar value, and you then pay tax on the reduced wages.

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The most common thing that employees salary sacrifice is superannuation contributions. This is a very tax-effective way to get money into your superannuation account, as these contributions are concessionally taxed at 15% when received by the fund. In comparison, if you were to make a contribution from your after-tax income, you would have paid tax on those wages at your marginal tax rate. For example, if your wages are between $45,001 - $120,000, the marginal rate is 32.5% plus Medicare Levy (2023-24 tax rates).

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There are also other items that can be salary sacrificed, but most attract Fringe Benefits Tax, and those working in the not-for-profit sector can salary sacrifice additional items without creating FBT obligations for their employer.

The Hidden Trap

Now, here's where many get caught…
While salary sacrificing can decrease your taxable income, when it comes to calculating your compulsory HECS/HELP repayment, the Australian Taxation Office (ATO) looks at your “Repayment Income”, which is calculated as your taxable income, plus any salary sacrificed amounts**.

To put it plainly, even if you salary sacrifice and consequently pay less tax throughout the year, your HECS/HELP repayments are based on the larger figure – your wages before any salary sacrifice deductions. This can result in a shock at tax time, as many find themselves with unexpected taxes to pay.

Prepare and Plan Ahead

So, how do you navigate this potential minefield?

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Consider having extra tax withheld from your wages

One proactive step is to ask your employer to withhold additional tax from your wages during the year. It might seem counter-intuitive, especially since the whole point of salary sacrificing is to reduce the tax you pay, but this strategy can prevent a potentially hefty tax bill at the end of the year.

Be Ready for End-of-Year Tax Liabilities

If you prefer to keep your money on hand throughout the year, then it's vital to be prepared for a potential tax debt when submitting your tax return. Having savings put aside in a separate bank account can help you be prepared.

Why Seek Professional Advice?

Remember, it's important to not only look at each component of your wages or deductions in isolation but also how they all combine and affect your broader financial picture. Always consider seeking guidance when you’re in doubt, as sometimes, a little investment in professional expertise can help avoid bigger challenges down the track.

Salary sacrificing can be a brilliant strategy for tax minimisation, but ensure you're fully aware of all implications, especially if you're juggling HECS/HELP repayments.

** “Repayment Income” is actually more than just your taxable income plus salary sacrificed items; it’s taxable income plus the following:

• Net investment losses
• Total reportable fringe benefits amounts
• Reportable superannuation contributions
• Exempt foreign employment income

If you like reading the boring stuff, here are links to the ATO with further details:

Indexation rates - https://www.ato.gov.au/Rates/Study-and-training-loan-indexation-rates/
Income thresholds and repayment rates - https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/
Repayment Income - https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/

We all know how inconvenient it can be when you're in a rush and 2FA pops up, slowing down your login. 🙄. There are lots of 2FA options out there and you often get to choose the one that suits you best, whether that be using an authenticator app, using the software’s own app, or opting for the code to be sent by email.

But, using only the one 2FA method every time you log in isn't always the best long-term strategy.

What if your go-to method fails one day? 🤔 Are you prepared? Do you remember your security questions, backup codes, or alternate email/phone details?

Here's a tip: Log in using your backup method occasionally! It's a great way to refresh your memory on those tricky security questions and ensure your alternate contact info is up to date.

When the day comes when you really need that backup method, you'll thank yourself for being prepared! 🔒💡