Posts Categorized: Tips of the week
Why getting your FBT exposure right is so critical
So why getting your FBT exposure right so critical?
Before we answer that question, I will answer the base question of what is a fringe benefit. A fringe benefit is anything provided by an employer to an employee other than by wage/salary and super.
As such it includes such things as:-
- Passenger cars
- Car parking
- Entertainment
- Selling firm’s goods at a discount
- Providing accommodation
- Paying any employee bill whether that be school fees, mortgage, health club membership and so on.
And this leads to the understanding of how to address your FBT exposure.
To avoid over-paying FBT and not coming unstuck in an audit you need to:-
- Determine whether you the employer are exempt (charities, public hospitals) or subject to a reduced rate (private schools).
- Determine what fringe benefits you have provided to whom
- Assess whether an exemption or concession applies to that type of benefit. There are some special rules which benefit small businesses.
- Calculate the taxable value
- Then, and this what most people get wrong, determine whether the employee is better off making a contribution to reduce the fringe benefit rather than pay FBT tax (which is equivalent to the highest marginal tax rate).
- Prepare and lodge the FBT Tax Return.
The reality is that all too many employers get this wrong as the ATO is successful in making an adjustment in 50% of FBT audits. That’s every second audit!
And don’t think the ATO doesn’t think this is a big audit target.
A couple of years ago, they recorded the number plates of all utes parked at an AFL game at the MCG. Those plate numbers registered to companies were then cross matched with lodged FBT and Income Tax Returns. The ATO had a field day! And perhaps are doing the same again now that we are returning to the footy and other activities post covid.
So what should you do?
Well for our clients we run through a checklist to make sure all benefit s provided are identified. We will then work through (a) quantifying the benefit before (b) determining the most efficient manner of dealing with the benefit and then (c) lodge an FBT Return (we do this even if the taxable value has been reduced to nil as the ATO have therefore issued an assessment and then only have two years to audit.
And with that I return to the question of why is getting your FBT exposure right is so critical? As you will now be able to appreciate there is more than answer to this question:-
- It is a key ATO audit area.
- If it is wrong in one year, the ATO will start auditing all years.
- With the FBT tax rate being the equivalent of the highest marginal tax rate, the tax can be significant.
- The ATO readily applies both interest and penalties.
- The audit clock will start clicking once an FBT Tax Return is lodged – after that the ATO can’ t go back further than 3 years.
And this year due to covid work backlogs, the ATO have extended the FBT Return lodgement date by 4 weeks to 27th to June if lodged by a tax agent. But don’t leave it to then – lodge now and get the audit clock ticking!
Do you have any questions? We would welcome the opportunity to discuss them with you.
How does the 2022 Federal Budget affect you?
So how does the 2022 Federal Budget affect you?
What do you stand to gain?
What do you stand to lose?
We have written our tips and traps newsletter as to how the 2022 Federal Budget affects the typical small & medium sized business as well as individuals.
You can access it by clicking on Budget 2022 Tips & Traps
In coming weeks we will be amending our pre year end planning checklist accordingly. We so look forward to the valuable process of ensuring clients take up all benefits and avoid any pitfalls.
Whilst we will be on the front foot proactively guiding our clients, we welcome any questions you may have.
2022 Federal Budget
Please find attached a briefing paper outlining the various announcements within the 2022 Federal Budget. This will shortly be followed by a more detailed tips and traps analysis.
It is important to remember that a Federal Budget is only a series of announcements. The announcements still await being passed into law even if the starting date was stated to be Tuesday night. That said, the fuel excise reduction legislation was passed yesterday.
Moreover, we have an election just weeks away and very possibly a change of government. Labor has already stated that they intend to hand down their own Budget later in the year should they win the election.
I take this opportunity to highlight what I believe are the 6 most important announcements that affect most clients. Not all of these may affect you personally and other announcements may, but these are the 6 with the widest impact:-
- Cost of living support through the $250 cost of living payment and the $420 increase in the Low and Middle Income Tax Offset.
- I must admit that even with low interest rates, I didn’t see this one coming given prevailing share and property prices – an extension of the 50% minimum pension reduction for the 2022/23 year.
- 20% extra deduction for small business expenditure on digital adoption expenditure.
- 20% extra deduction for skills and training expenditure.
- 50% reduction in the fuel excise tax for 6 months.
- Covid test expenses paid by employees and employers will be tax deductible and employers will not be subject to Fringe Benefits Tax.
And as far as I can read so far, there was no announcement as to another extension of the instant asset write-off. So this means that after 30th June 2023, small businesses will not be able to deduct in one year the full cost of any asset they buy; noting that cars are subject to a limit. It will be some time before supply chains revert to pre-covid norms, so best to start planning any asset purchase sooner rather than later. And remember, this means that any asset purchased must be installed ready for use before July 2023.
As I said, we will come back to you with a more detailed tips and traps analysis. In the meantime, I leave you to read the attached briefing paper and moreover welcome any questions you may have.
You can access our briefing paper by clicking here.
Next Director Identification Number (DIN) requirement
We have made aware in past blogs of the staged requirement for directors to apply for and hold a Director Identification Number (DIN).
As of Monday night, we now enter the next DIN stage.
From Tuesday 5th April, a first time director of an Australian company must have been issued with their DIN before they apply to become a director.
Those directors that were directors before November 2021 still have until October 2022 to apply for their DIN. But please don’t leave it until the last minute, particularly if you want to apply by paper!
Warning
Those first time directors since October 2021 have 28 days to apply for their DIN. Those that have not applied for one are now being actively reminded. It is good that there has been a gently, gently approach as the fines are eye watering.
Please find following the DIN registration link.
Due to privacy reasons, we are prohibited from applying on your behalf – yes it does seem odd given we apply for personal Tax File Numbers and handled passports and drivers licences when applying for various state covid grants.
That said, we welcome any query you may have.
You may also wish to view our past blogs on DINs.
- Requirements – click here
- Update – click here
SG super reminder
Friday 28th January is the end date for satisfying your Super Guarantee (SG) super obligations for the December 2021 quarter.
Please note that super clearing houses take up to 10 days to pass the money through to the super fund. It therefore means that processing and payment to the clearing should be made no later than this Friday.
And please make sure you have been calculating super at 10% since it increased on 1st July 2021.
SG super should never be paid late as late payments attract substantial interest and penalties. Furthermore, SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.
We welcome any question you might have.
Worried about your cash flow?
Worried about your cash flow? It’s the number 1 concern at this time of year. And understandably so as cash flow is the oxygen that keeps any business running.
Cash flow concerns this year are a bit different.
Whilst some business have sold their socks off over the last 18 months, others have got by whilst others have struggled. Now that many businesses have been able to fully trade again, a Christmas holiday slowdown hasn’t exactly come at the right time for many.
It also appears as the ATO, who haven’t been chasing unpaid debts, now seemingly appears to be actively be chasing unpaid tax debts. And for those with tax debts unreported and unpaid for more than three months, there is particular concern as it has been said by liquidators that the ATO will use the Director Penalty Regime to assign and collect business tax debts from directors.
Not being able to pay wages and other expense sin January and February is what keeps small business owners awake at this time of year. And the problem is publicly available accounting software reports on the past. Some may now market cash flow forecasting but that is very short term and incomplete.
So what do you need to understand and control your cash flow?
- We can provide you with a number of tips gained form any years working with and advising a vast array of industries.
- We have a specialised cash flow tool that provides full 4 way forecasts.
So what should you do?
We invite you to a free 30 minute meeting in which we can again understanding of your situation and concerns and then explain ways in which we can help. You have nothing to lose and may end up sleeping better and enjoy Christmas.
Should you change business structure?
Trust, company, partnership or sole trader? Choosing the right structure to run your business is not an easy task.
You have to take into account such things as:-
- Asset protection
- Family succession
- Tax
- Admitting or removing unrelated business partners.
Each structure has their own advantages and disadvantages depending on your personal circumstances.
But even with the right choice made at day one, personal circumstance often change over time to the extent that the original entity that once served its purpose no longer does. Or becomes a hindrance.
There are two main obstacles to changing structure:-
- Cost – both monetary and time (as in notifying customers etc as well as getting insurance and telecommunication contracts re-set in your new entity)
- Transaction costs – in particular Capital Gains Tax, but also there can also be considerations such as Stamp Duty
But there are forms of relief under the Tax Act which either defer, reduce or eliminate and capital gain.
Too many accountants are focused on processing the past, whether that be a Tax Return or a BAS. At MRS, we are focused on our clients’ long term success and security. We are currently re-structing two clients structure – one to allow the admission of business partners and the other to obtain greater protection, greater tax efficiency and eventual exit of the business founder at a much reduced capital gain.
Are you concerned that you are not in the best structure? Or may this is not something your accountant has not discussed with you. Either way, we welcome a free 45 minute exploratory discussion.
The 5 key things to implement in 2022
Hard to be believe this year is almost over! It has been a tough year for many. But that said, the economy has performed surprisingly well, we have high vaccination rates and statements from our leaders that we are not going back into lockdown.
It seems as though we can relax over the Christmas break with a degree of calm.
The Christmas break is a great time to take a breath and re-asses your work and personal life.
But having started work on the back of the 1983 recession and worked through the ealry’90’s recession, not to mention the GFC, the 1997 Asian crisis and other such events, the effects of covid will play out for a couple of years yet. We are not out of the woods yet.
In light of the uncertain times that lie ahead, on Wednesday 12th January we will explore 5 key things to address and implement in 2022
- Re-evaluate how covid has changed your business and moreover how your business needs to adapt. In particular we will explore who is now your customer target base and how to find them.
- Amend your STP payroll reporting to not fall foul of Fair Work Australia obligations.
- Making a profit is the goal but the oxygen to a business is its cash flow. We will explore how to better manage and improve your cash flow.
- With a federal election looming, take up any advantage under existing tax laws.
- Being in business carries the risk of getting sued. We will examine key asset protection strategies to protect the wealth you have worked hard to generate and/or inherited.
You can reserve your place at this 45 minute webinar by clicking here
And as we are passionate about helping small business owners through these difficult times, we welcome your passing on this invitation to family, friend and business associates.
A stinging case for reviewing your asset protection planning
An over-riding goal of asset protection planning is to split personal wealth assets from business risks. A common strategy has therefore been to have the non-working non-risk spouse hold the family home in their name.
This strategy has worked well.
Until that is the recently decided case of the Commissioner of Taxation v Bosanac.
In this case, the Australian Taxation Office was successful in recovering tax debts of Mr Bosanac against the family home despite the fact that Mr Bosanac’s name was not listed on title. And it never was from the time the house was bought 15 years ago in 2006.
The key facts were:-
- The house deposit was paid from a joint bank account.
- The house was subsequently used as security for other loans.
- The couple lived in the house for 9 years until they separated. Thereafter the wife continued to live in the house.
- The husband subsequently used the house as security to fund share trading.
The Federal Court decided that on the basis of what they saw as objective facts, the property had always been held by both husband and wife. Moreover, it seems unlikely that the case will be appealed to the next and highest court, the High Court, as the presiding Federal Court relied on precedents from the High Court.
It is of great concern that a prime asset protection strategy may no longer be effective. Asset protection (including estate planning) is never a set and forget matter. And with so much economic harm inflicted by covid on small business around Australia solvency risks have increased, arguably greatly so for some.
Now is a great time to review your asset protection strategies. We welcome the opportunity to assist you and ensure that your family’s wealth is not left open to creditors.
SG super reminder
Thursday 28th October is the end date for satisfying Super Guarantee (SG) super obligations for the September 2021 quarter.
But as super clearing houses take up to 10 days to pass the money through to the super fund, it means that processing and payment to the clearing should be made no later than this Friday.
And please make sure you have been calculating super at 10% since it increased on 1st July 2021.
And being the start of a new financial year, we take the opportunity t remind you that 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).
- Individual contractor paid mainly for their labour.
But excluding the following forms of 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 $58,920.
- 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.
We welcome any question you might have.