2014 Practical Updates

DECEMBER 2014 UPDATE

DECEMBER 2014 UPDATE

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Year-end and other staff parties

Year-end and other staff parties

With the December/January break on the way, many employers and businesses will be planning to reward staff with a celebratory party or event.  However, important issues for our clients to consider are the possible FBT and income tax implications of providing ‘entertainment’ (including Christmas parties) to staff and clients. 

FBT and Entertainment

Under the FBT Act, employers must choose how they calculate their FBT entertainment liability and most use either the ‘actual method’ or the ’50/50 method’.

Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients and suppliers).

Expenditure on employees is deductible and liable to FBT.  Expenditure on non-employees is not liable to FBT, and not tax deductible.

Using the 50/50 method instead?

Rather than apportion entertainment expenditure on the basis of actual attendance by staff, etc., many employers choose to use the more simple 50/50 method.

Under this method (irrespective of where the party is held or who attends) – 50% of the total expenditure is subject to FBT and 50% is tax deductible.

However, the following traps must be considered:

·       even if the function is held on the employer’s premises – food and drink provided to employees is not exempt from FBT;

·       the minor benefit exemption* cannot apply; and

·       the general taxi travel exemption (for travel to or from the employer’s premises) cannot apply.

(*) Minor benefit exemption

The minor benefit exemption provides an exemption from FBT for most benefits of ‘less than $300’ which are provided to employees (and their family/associates) and which are infrequent and irregular.

The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and gift) are not added together when applying this threshold.

However, entertainment expenditure that is FBT exempt is also not deductible.

And that’s ‘less than’ $300, i.e., no more than $299.99.  A $300 gift to an employee will be caught for FBT, whereas a $299 gift can be exempt.

Example: Christmas party

An employer holds a Christmas party for its employees and their spouses – 40 attendees in all.

The cost of food and drink per person is $250, and no other benefits are provided. 

If the actual method is used: 

For all 40 employees and their spouses – no FBT is payable (i.e., applying the minor benefit exemption), however, the expenditure is not tax deductible.

If the 50/50 method is used:

Expenditure is $10,000 and 50% (i.e., $5,000) is liable to FBT and tax deductible.

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Giving “Tax Friendly” Christmas Gifts

Giving “Tax Friendly” Christmas Gifts

With the holiday season approaching, many employers and businesses want to reward their staff and loyal clients/customers/suppliers.

Again, we thought we would now discuss how gifts to staff and clients, etc., are handled “taxwise”.

Gifts which are not considered to be entertainment

These generally include, for example, a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.  

Briefly, the general FBT and income tax consequences for these gifts are as follows:

·       gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and

·       gifts to clients, suppliers, etc. – no FBT, and tax deductible.

Gifts which are considered to be entertainment

These generally include, for example, tickets to attend a theatre, live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

·       gifts to employees and family members – are liable to FBT (except where the ‘less than $300’ minor benefit exemption applies) and tax deductible; and

·       gifts to clients, suppliers, etc. – no FBT and not tax deductible.

Non-entertainment gifts at functions

What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150?

Under the actual method, for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the gift) is less than $300 (i.e., the benefits are not aggregated). 

No deduction is allowed for the food and drink, but the gift is tax deductible.

Where the 50/50 method is adopted:

·       50% of the total cost of food and drink is liable to FBT and tax deductible; and

·       the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300.

·       As the gifts are not entertainment, the cost is tax deductible.

We understand that this can all be somewhat bewildering, so if you would like a little help, just contact our office.

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Director liable for company’s PAYG withholding

Director liable for company’s PAYG withholding

A recent case before the Administrative Appeals Tribunal (AAT) involved a company that had withheld nearly $850,000 in pay as you go (PAYG) withholding that it had deducted from its employees’ salaries and wages. 

It was obviously in some financial trouble, and failed to remit any of the monies to the ATO before being wound up.

Company directors have a legal responsibility to ensure that their company meets its PAYG withholding and superannuation guarantee charge (SGC) obligations.

This doesn’t only apply to companies that are wound up, as a director of any company that fails to meet a PAYG withholding or SGC liability by the due date can become personally liable for a penalty equal to the unpaid amount.

The ATO issued director penalty notices (DPNs) to the director (the DPN is the first step in the process for the ATO to start legal proceedings to recover the unpaid PAYG).

The director tried to fight the case, but the DPNs were valid in the opinion of the AAT

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Project DO IT – ATO says act now!

Project DO IT – ATO says act now!

With only weeks until the ATO’s offshore voluntary disclosure initiative – ‘Project DO IT’ – closes on 19 December 2014, the ATO is reminding those with undisclosed offshore income and assets that they should act now or risk audit action and significant penalties.

Note that the ATO has stated they are far more concerned with the taxpayers who don’t disclose, rather than those who do, and the aim of Project DO IT is to provide one last chance for taxpayers to disclose before the net closes completely on offshore tax evasion.

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NOVEMBER 2014 UPDATE

NOVEMBER 2014 UPDATE

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Can you access your super fund for medical procedures?

Can you access your super fund for medical procedures?

The following relates to a newspaper article that appeared recently in a national newspaper and was then subsequently picked up by national TV and radio. 

As it concerns a taxpayer withdrawing all of her $30,000 balance from her superannuation fund for weight loss, a tummy tuck and breast implants, clients who heard about it or saw it on TV may be incorrectly contemplating accessing their super.

Compassionate grounds to withdraw superannuation

The taxpayer involved suffered from obesity.  On this basis, she obtained a written statement from her medical practitioner in which it was argued that without this stomach reduction procedure, it was likely that she would experience severe ill health that could possibly be a life threatening condition.

However, applications for early release of superannuation on medical grounds:

1.     must be approved by the Department of Human Services (DHS); and

2.     applicants need to supply letters from their GP and a specialist certifying that their condition is life threatening, and provide proof that expenses cannot be met by other means, including savings.

The taxpayer said that given her family history of diabetes, cancer and hypertension, her case met the criteria.

Breast implants and tummy tuck?

However, the taxpayer apparently made a second withdrawal (of approximately $20,000) from her superannuation fund to pay for breast implants and a tummy tuck.

Clients need to understand that there are only very limited circumstances under which superannuation monies can be withdrawn to pay for a medical procedure, under the umbrella of ‘compassionate grounds’. 

When can super monies be released on ‘compassionate grounds’

Where an SMSF member is suffering a severe medical condition and cannot afford to pay for such medical expenses, they can apply to the DHS (not the ATO) to have some of their super funds released on ‘compassionate grounds’.

Basically, a member will be entitled to claim ‘compassionate grounds’ where:

·       the medical treatment (which is not readily accessible through the public health system) is necessary to treat a life threatening condition, to alleviate acute or chronic pain, or to alleviate an acute or chronic mental disturbance/illness; and

·       two registered medical practitioners (one of whom is a specialist) have certified that the above requirements have been satisfied.

However, there are many other issues involved, including significant penalties where funds are withdrawn incorrectly, so clients should contact our office before trying to withdraw any funds from their superannuation fund. 

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How to protect your identity – ATO’s (anti) fraud video

How to protect your identity – ATO’s (anti) fraud video

The ATO continues to warn taxpayers about the dangers of not protecting important details such as their tax file number, date of birth, current address and driver’s licence number.

So it has put out a video called “Don’t let yourself disappear”, which shows what can happen when personal information gets in the wrong hands.

In it, while discussing identity fraud, one of the characters says, “Yeah, I saw an ad for a cleaning job.”

“Great pay, low hours. I thought awesome, extra cash. So I gave them all my details, and then I never heard back about the job.”

“Then at tax time my refund was taking forever, so I called the Tax Office and they told me that it’s already been issued.”

“So the scammer stole my identity and my refund.”

“The Tax Office is helping me sort it out, but I should have thought twice about giving out my details.”

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ATO’s data matching program on specialised payment systems

ATO’s data matching program on specialised payment systems

The ATO has announced a data matching program in relation to electronic payments made to businesses through specialised payment systems.

For the period 1 July 2013 to 30 June 2014, it will request and collect data from the following businesses:

·       Ausfit

·       Debit Success      

·       EzidebitEzyPay

·       Integrapay

·       Paymate

·       PaySmart

·       Quickpay

·       BillBuddy

·       eDebit

·       IP Payments

·       PayPal Australia

·       POLi Payments

and the following banks BPAY data:

·       ANZ Bank

·       Commonwealth Bank

·       National Australia Bank

·       St George Bank

·       Westpac

The ATO will collect details of merchant and biller business names, contact details, settlement amounts, and transaction records.  Records relating to approximately 25,000 individuals will be matched.

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Changes to employee share schemes

Changes to employee share schemes

The government has announced that, effective 1 July 2015, it will claw back many of the former government’s changes to the taxation of Employee Share Schemes.

While the Treasurer will consult with industry in finalising the draft legislation, the main proposal centres around discounted options generally being taxed when they are exercised (converted to shares), rather than when the employee receives them.

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