Posts Categorized: General

Christmas and tax

Entertaining and providing gifts at Christmas time to staff, customers and suppliers is a cost of doing business. However, there are some important FBT, GST and income tax considerations and outcomes.

Under-pinning the implications are the following key points:-

Christmas parties, entertainment and gifts are all treated under entertainment tax rules.

  • FBT applies to benefits given to employees. 
  • There are no FBT implications on entertainment and gifts given to customers, clients and suppliers. 
  • There are three methods under which an employer can quantify the taxable components of any entertainment expenditure – in fact there are 38 permutations depending on who is entertained where, how and with whom.  We will largely address the actual method which the vast majority of clients use and which delivers more favourable outcomes.  It is beyond the scope of this briefing to address 12 week log method and we will only touch upon the 50/50 method where relevant. 
  • Christmas comes but once a year and to the best of my knowledge and experience does so on 25th December.  Nevertheless, the ATO treats Christmas parties and gifts as being what are called minor, infrequent and irregular benefits. 
  • Such minor benefits are FBT exempt where they cost less than $300 (including GST) provided the actual method is used to quantify entertainment.

 

The Christmas party

Where entertainment is calculated under the actual expenditure method:-

  • If a Christmas party is held on-site on a work day, the whole cost for each employee will be an exempt fringe benefit.  So too will the spouse’s cost provided the cost per spouse is less than $300.  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.  Taxi travel to or from the workplace (not both ways) will be exempt from FBT and not tax deductible. 
  • If a Christmas party is held off the work premises, then the whole cost will be exempt from FBT provided the party costs less than $300 per person (employees and their spouses).  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend. 
  • If an external Christmas party costs more than $300 per person then the total cost is subject to FBT. 
  • The cost of any entertainment provided during the party (whether that be at the work premises or outside) will be exempt if it costs less than $300 per head – for example DJ, musicians, clown and comedian. 
  • The cost of entertaining clients, customers and suppliers is not subject to FBT and is not tax deductible. 
  • If any exemption is exceeded then FBT is payable.  Consequently, an FBT Tax Return must be lodged and FBT paid.  Please keep this in mind when completing the 2015/16 FBT Questionnaire in early April 2016. 

Where entertainment is calculated under the 50/50 method:-

  • 50% of the cost will be subject to FBT and this portion will be tax deductible.  The other 50% will not be subject to FBT and will not be tax deductible.  An FBT Tax Return must be lodged and FBT paid. 
  • Only taxi travel from home to the venue will be FBT exempt and not deductible for tax.

 

Gifts

The following gifts are exempt from FBT and are tax deductible:-

  • Hampers, bottles of wine, gift vouchers, a pen set costing less than $300 (inclusive of GST).

The following gifts are subject to FBT and are not tax deductible:-

  • Tickets to a sporting event or theatre, holiday, accommodation, etc.

 

GST

  • The GST component of any tax deductible portion can be claimed back.
  • The GST component that relates to the non tax deductible portion can’t be claimed.

 

Please do not hesitate to call us should you have any queries.  

 

At MRS, we will spend today planning for your success tomorrow.

 

New concessional contribution limit

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday 23rd November. With that we will now have a much lower concessional (deductible) contribution limit from July next year.

The limit for the current 2016/17 financial year is $35,000 per annum for those aged 49 or older on 30th June 2016; $30,000 for those younger.  The limit for everyone will fall to $25,000 as from the 2017/18 year.  And with the non-concessional limit then also falling to $100,000 (subject to transitional and bring forward rules), many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.  Long gone are the days when one could rectify years of no planning for retirement by making concessional contributions of around $100,000 over a few years.  Retirement planning need to now start at an earlier age.

Thankfully one of the positive changes ignore by the press is one that allows those that have been out of the work force for an extended period to make catch up on contributions in excess of the annual limit. They 10% employment income test will also be removed.  It’s not all bad news.

At MRS, we will spend today planning for your success tomorrow.

New non-concessional contribution limits

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday. With that we now have a much lower new non-concessional contribution limit; that being the after tax contributions one can make into their super fund which are not taxed when received by a super fund – that is those monies that go into a super fund tax free and which come out tax free.

The current limit is $180,000 per annum but that will fall to $100,000 from July 2017. And with the concessional limit then also falling to $25,000, many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.

The bring forward rule will remain. That rule allows those under 65 to make three year’s worth of non-concessional contributions in one year whether that be from an inheritance, windfall or proceeds from an asset sale.  In the future, this means that no more than $300,000 can be contributed in any one year.  The limit to 30th June 2017 remains at $540,000 but is subject to what has already been described by some as an unusual and complicated transitional rule.  Whilst the limit may remain at $540,000 for this financial year, it will be less for those who under contributed in 2015/16 or do so in 2016/17.  Make sure you understand what your limit is before making any non-concessional contributions before 30th June 2017.

At MRS, we will spend today planning for your success tomorrow.

New super rules now law

Those largely unpleasant superannuation changes announced in this year’s Budget are now law.  The Senate passed them yesterday.

As we explained to out clients in a seminar on Tuesday night, wile some of the changes are quite positive, many them will have substantial impacts upon how people can accumulate wealth for retirement.  Indeed, with a new concessional (deductible) cap of only $25,000 from July 2017, it will become difficult for many to fund their retirement through super as their parents did.  If it wasn’t already true enough, many people will be forced to address their retirement planning at a much earlier stage in life.

Ignorance and inaction rarely pay off and doing nothing will cost some a great deal.  It is critical you understand what you need to do under the adverse changes and what you can do to make the most of the positive changes.

Single Touch Payroll is coming

Single Touch Payroll is coming. Single Touch Payroll (STP) will require all employers to report to the ATO at the time of every pay how much they are paying and to whom.  No more advising the total of all wages at W1 and tax thereon at W2 on the following activity statement (with the detail only being provided to the ATO with the supply of the PAYG Payment Summaries after the end of the year).

A test program is underway. It will become optional from July 2017 and mandatory for all employers with 20 or more employees from July 2018.  Once the systems is fully up and running the need for PAYG Payment Summaries (group certificates) will be dropped as the ATO will know exactly how much has been paid as of an employee’s last pay.  Employees will be able go into their MyGov account and see these details – as well as the super that is to be paid.

STP will also allow employers to provide employers with TFN Declarations and Super Choice forms.

Thankfully it was announced in September that the proposed requirement for employers to pay the PAYG WH to the ATO at the time employers are paid has been dropped – exactly how cashed up did they think the typical small & medium sized business is?

So if you don’t have a complying and/or efficient payroll system, now is the time to explore your options. Speak to us about your options and what you need to do.

At MRS, we will spend today planning for your success tomorrow.

Unfair contract term protection

As of 12th November 2016, unfair contract term protection that apply to consumers will be extended to cover standard form small business contracts.

Standard form small business contracts are ones where one of the parties has limited or no opportunity to negotiate the terms therein. Small businesses are businesses that employee less than 20 people.  Employees of related entities are not counted against this limit.

This new form of protection will apply to contracts entered into or varied on or after 12th November, 2016 for contracts of less than $300,000, or $1,000,000 if the contract is for more than 12 months. 

Terms that can be found to be unfair include those that enable one party but not the other two:-

  • Avoid or limit their obligations under the contract,
  • Terminate the contract,
  • Penalise one party for breaching or terminating the contract, or
  • Unable one party to vary the terms of the contract.

However, the law does not provide relief from the upfront price payable under a contract.

So, as from yesterday, standard form contracts “forced” upon a small business can be found to be unfair by a court or tribunal. The effect is that that a term can be disregarded (but the balance of the contract remains in place).

We have all heard of cases or know of first hand situations where small business owners being unfairly treated by large businesses. This amendment to Australian Consumer Law is not only welcome, but long overdue.  Too many businesses and indeed family lives have been ruined by conduct that can now be prevented.

Very few accountants provide their clients with anything like the free tips, education, seminars and literature that we do. Please let all your small business owner colleagues know of this welcome relief.

If you would like to know more about these new provisions, please refer to the frequently asked questions provided by the Australian Competition & Consumer Commission (ACCC) at:-

https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms/unfair-contract-terms-faqs

 

At MRS, we will spend today planning for your success tomorrow.

 

Should your SMSF be registered for GST

Should your SMSF be registered for GST?  Unless it has to be because of its turnover, I suggest not. 

A fund can’t claim back all of the GST on its accounting, actuarial and audit fees. It therefore means that the cost of the time required by the trustees and the accountant are usually far less than any minor GST claim.

If your fund is registered for GST because of commercial rents, then that may be a different story. The fund will be able to claim back all of the GST it incurs on commercial property expenses – but gain it is an equation of time & cost versus GST claimed back.

We welcome your call if you are not sure what is best for your fund.

At MRS, we will spend today planning for your success tomorrow.

 

When cheap becomes costly

It never ceases to both sadden and amaze me how many people go for what is the cheapest offering – rather than what is right and best for them. The end result is that cheap becomes costly.

I was reminded of this in an article in the Sunday Age edition of October 30, 2016. In a letter to the editor within the financial section, the aggrieved consumer was complaining about being unable to claim for their full loss under their home insurance policy.  Their mistakes were (1) to take out the cheapest policy and (2) to do so without understanding what was excluded.

The basic idea of insurance is, for the cost of a minor annual fee, to pass a risk on to someone else. It is therefore critical to ensure that you are appropriately covered, particularly for the most important items such as your home, your future income, trauma insurance and against temporary and permanent disability.  Having the cheapest policy that provides incomplete cover is the most expensive.

There is also a lesson in that it is dangerous to do some things by yourself. The need to speak to a qualified insurance broker is as important as ever.  Don’t be fooled by ads, price and “simple” online applications.

At MRS, we will spend today planning for your success tomorrow.

 

Which PAYG instalment method to use

Which PAYG instalment method to use is a question that comes up at the start of every financial year – or rather with the September activity statement.

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.

One can pay PAYG instalments under one of two methods – by paying a fixed dollar amount as advised by the ATO or applying a percentage advised by the ATO against the income of that quarter. So what are the relative advantages and disadvantages of each method?

Under the fixed dollar method:-

  • You know what you are up for.
  • If the current year (in this case 2016/17) is much better than 2015/16, then any shortfall will not be payable until the Tax Return for 2017 is lodged – this could be as late as May 2018.
  • It’s a simple method as it doesn’t require any calculations.
  • If the amount is too high then it can be very downwards – but I would not do so on the September activity statement when the year is far from known.
  • Should it be that the PAYG Instalments already paid are too high then a variation can be made and any overpayment refunded.
  • This is a better method to use if you wish to avoid complex and costly calculations of your gross income years (which is required under the percentage method).
  • As it is a simple method, no extension to lodge is granted where there is only a PAYG instalment payable; the extensions to lodge through the Taxpayer or Tax Agent Portal are not available.

Under the percentage method:-

  • The ATO determines the percentage by dividing the prior year’s tax bill into the prior year’s tax liability. It is a rough method but one which usually approximates the appropriate tax.
  • One will pay more if the income in 2016/17 is greater than 2015/16. People who prefer to pay the appropriate (or should I say approximate) amount of tax each quarter as they go prefer this method.
  • It is a good method to use if one’s income is likely to be less than the year before as one will pay less tax. Under the fixed dollar method, one would be forced to vary the amount which could be problematical (see below).
  • As the percentage method requires a calculation of gross income, an extension to lodge is available to those who lodged through the Taxpayer or Tax Agent Portal

Two other important points to note are:-

  1. You are entitled to vary an amount or instalment downwards – but do so carefully as the ATO has the right to issue a fine for gross underestimations.
  2. It may be that your September activity statement offers only the fixed dollar or percentage method. If you do wish to change method, a request to the ATO can be made to reissue the activity statement with both methods being offered.

We would welcome the opportunity discuss which is the best method for you.

At MRS, we will spend today planning for your success tomorrow.

 

SG super obligations

Friday 28th October is the end date for satisfying Super Guarantee (SG) super obligations for the September quarter. 

SG super is payable on all forms of remuneration including:-

  • Commissions.
  • Bonuses (but see below).
  • Directors’ fees and all other forms of remuneration to directors.
  • Allowances (except where fully expended).
  • Contractors paid mainly for their labour.

But excluding the following remuneration:-

  • Overtime.
  • Reimbursements.
  • Unused annual leave on termination.
  • Remuneration of less than $450 in a month.
  • Bonuses that are only in respect of overtime.
  • Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).
  • In respect of employees younger than 18.
  • Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).
  • On quarterly remuneration greater than $51,620.
  • Non-residents performing work for an Australian business outside Australia.

SGC super should never be paid late as late payments attract substantial interest and penalties. Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SGC rate remains at 9.50%.

Please ensure that you make your payment with sufficient time through your Super Stream gateway. A SG commitment is only satisfied when the money is received by the fund; not when paid to the gateway.  Whilst some gateways pay into the respective super funds the next working days (such as the ATO’s free gateway), other gateways take up to 5 working days. 

We welcome any question you might have.

At MRS, we will spend today planning for your success tomorrow.