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‘Beware the tax man’ eyeing holiday period activity

 

The ATO is poised to home in on fringe benefits tax (FBT) on celebrations and gifts this festive season, according to one mid-tier firm.

           

 

Depending on where a Christmas party is held, how much is spent on each guest, and whether gifts count as entertainment, FBT may be applicable, said Mariana von-Lucken, tax partner at HLB Mann Judd Sydney.

“Businesses should keep in mind that there are two main methods for reporting FBT, the ‘actual’ and the ’50-50’ split method, and understanding how each of these work can help minimise the FBT liability,” she said.

“With the 50-50 method, FBT exemptions generally do not apply, regardless of the cost of any entertainment, so as a general rule, businesses are better off using the ‘actual’ method if entertainment expenses are likely to be under $300 a head,” she said.

Ms von-Lucken stressed the importance of keeping accurate records, adding that while the 50-50 split method usually requires less record-keeping, it can mean more FBT needs to be paid.

“It will depend on who is being entertained – clients or staff. If more staff attend, then the 50-50 method may help reduce the FBT liability,” she said.

“The 50-50 method basically means that FBT is payable on 50 per cent of the expense of providing meal entertainment to all guests, whether staff, clients or family.

“The actual method, on the other hand, means FBT is paid on all expenses for staff, but if any clients attend the event then there is no FBT payable on their expenses. Keep in mind that the client portion is not tax deductible and employers are not able to claim the GST in their business activity statements.

“Generally, using the actual method to report liabilities tends to ensure a lesser FBT liability; however it is important accurate records are kept to verify claims.

“Also, the method chosen applies for the entire FBT year, not per event, although for many businesses a Christmas party is the sole event they host for the year.”

Using business premises for a Christmas party is a fairly safe bet, however.

If the party is held on the business’ premises, on a normal working day, with just employees attending, there will be no FBT liability as long as the actual method of reporting is used, said Ms von-Lucken.

“There is also no limit on the amount that can be spent, and this includes expenses such as taxi fares for employees to get home after the party,” Ms von-Lucken said.

“If other people attend the party, such as spouses, the total cost per person must be less than $300 (including GST) to remain FBT-exempt.

“If the 50-50 method is used, then 50 per cent of all expenses will be subject to FBT regardless of how much or little is spent per guest. However, a GST credit is claimable for 50 per cent of the GST-inclusive cost of the food and drink, and a deduction is available for 50 per cent of the GST-inclusive cost, less any GST credit claimable.”

Further, if the party is held off the business premises, it will still be exempt from FBT if the cost per head is less than $300 as long as the actual method is used. No tax deduction is available or GST credits claimable in this instance.

KATARINA TAURIAN
Wednesday 20 November 2016
accountantsdaily.com.au

Employee Christmas Parties and Gifts – Any FBT?

 

The Christmas break-up party and/or gifts to employees can be exempt from Fringe Benefits if a few rules are followed.

         

 

The cost can be exempt as either an exempt property benefit or an exempt minor benefit.

Exempt Property Benefits

  • Costs like food and drinks provided for employees as part of a Christmas party, provided on a working day on business premises and consumed by current employees of that business.

Exempt Minor Benefits

The rule can apply when the property benefits exemption doesn’t apply, i.e. because the party is held at a restaurant or separate venue.

  • Cost per employee must be less than $300 (GST inclusive)
  • Associates of employees such as spouses and children are regarded as employees (hence the limit for an employee and partner would be $300 each)

Gifts are also considered separately from the Christmas party, so provided the cost of a gift and the party are each less than $300, then both would be exempt from FBT.

The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.

 

AcctWeb

FBT – Christmas Parties and Taxi Fares

 

Some employers, who are commendably anxious to protect their employees and clients from the drink/driving laws, also pay for taxis to take employees to and from the place of entertainment.

         

 

For FBT purposes there may be different consequences for payment of the taxi fare.  In respect of clients, the taxi fare is considered to be part of the entertainment expense and no deduction is allowable.  For employees, if the fare is for travel from home to the place of entertainment (not being their place of employment) and return home again, the benefit is considered to be for the facilitation of entertainment and is not a separate benefit from the entertainment itself.

The result is that the employer would then have to rely on the total entertainment package being under $300 for the minor benefit rule to apply.

However, if the Christmas function is held on the employer’s premises and the employer chooses to send the employee home by taxi, the taxi trip is FBT exempt provided that the trip is a single trip, which began at the employee’s place of work.  The exemption would apply if the employee went from the work place to home, or any other place.  However, the exemption would not apply if the trip was broken and continued at some other time.  For example, the employee gets a taxi from the workplace and goes to a nightclub; that trip is deductible and exempt from FBT.  If the employee later gets another cab to home, that leg of the trip would be deductible to the employer but FBT would be payable.

Note however, that if the employer is using the 50/50 split method of calculating FBT and deductions, the taxi travel would always be included in the cost of entertainment, and there would be no exempt journey for travel from the workplace to home.

 

 

AcctWeb

Big-ticket tax set for government review

 

The government has announced it will make moves to ensure that multinationals pay the appropriate amount of tax on their activities in Australia.

         

 

Treasurer Scott Morrison yesterday announced a review into the operation of the petroleum resource rent tax (PRRT), the crude oil excise and associated Commonwealth royalties. 

Independent expert Michael Callaghan AM will lead the review with the support of a secretariat within the Commonwealth Treasury.

The review will advise the government on the extent to which the PRRT is operating as originally intended, and address the reasons for the rapid decline of Australian PRRT revenue.

“We will ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry,” a statement from Mr Morrison read.

“The government welcomes the recognition and support to date from the industry on the potential for reform to the PRRT and we look forward to working with the industry on how we can ensure this important tax measure is working in the way it was intended.”

The review will invite submissions from the public and report back to the government by April 2017 with its recommendations for the reform of the PRRT.

 

LARA BULLOCK
Thursday 1 December 2016
accountantsdaily.com.au

Getting a tax valuation from the ATO

 

We all know that the ATO is the guardian of the tax laws, administers tax regulations and can provide advice and guidance on how they apply. But ….

…. not every personal situation fits neatly with the tax laws as they stand. Sometimes, an individual may need help understanding and meeting their tax obligations. In such circumstances, private rulings are one form of ATO advice that you can access.

         

 

Under the tax law, you can apply for a private ruling about the value of an asset, such as an item of plant. Particularly under capital gains tax, there are a number of instances where a valuation may be necessary.

In doing this, there are two choices:

  • ask the ATO to provide the valuation, or
  • provide the ATO with a valuation of the item and ask it to confirm that valuation.

The ATO may take the option to use a professional valuer to undertake or review your own valuation. The valuer usually charges the ATO a fee, which the law allows it to pass onto you. Consequently, when you apply for a private ruling requiring a valuation, it is also required that you pay for the work of the valuer.

The ATO cannot provide a private ruling to determine or confirm either the:

  • appropriateness of a valuation methodology, or
  • value for a future event.

Cost to you for valuation

Whenever the ATO uses a professional valuer, it will first give an estimate of how much the valuer will charge. This amount is generally required to be paid before the ATO will proceed.

You can however withdraw your application for a private ruling if you do not want to proceed with, or pay the cost of, the valuation, which will be confirmed in writing by the ATO. If however the valuation work has already started, it will generally be required that you pay for the work already undertaken.

If you provide the ATO with a valuation that meets the requirements set out in the ATO guidance Market valuation for tax purposes, it will generally cost less to confirm it than to undertake a new valuation.

If the ATO decides that the valuation you have provided is not acceptable, before it issues a private ruling the ATO will ask if you want to either:
•    submit a new valuation for review, or
•    ask the ATO to provide the valuation.

You will need to pay any further costs the professional valuer charges to the ATO. And if the ATO does not receive any such advice, it generally will issue a private ruling stating that your valuation is not acceptable and that it will not provide an alternative valuation.

What happens when applying for a private ruling about the value of an item?

When the ATO receives the application for a private ruling that asks to determine or confirm the value of an asset, the following occurs:

  • if it needs to use a professional valuer, before it starts the valuation process it will tell you, and ask you to agree in writing, to use a professional valuer
  • it will ask for your input when selecting and instructing a valuer
  • it will ask the professional valuer to provide a quote for the work – either to value the thing, or to review the valuation that has been supplied
  • the ATO will provide you, perhaps via your tax agent, with a copy of the valuer's quote, which contains
    • the cost of their work
    • the time it will take to provide a report
    • any additional information they require to complete the work.

For complex valuation cases, the valuer may need to do the work in stages. In these situations, they will provide a quote for each stage before starting work on it. And before the valuer starts work, the ATO will ask you to:

  • pay the estimated amount for the relevant stage, and
  • provide any additional information the valuer requests.

Within 28 days of receiving the quote, you need to pay the quoted amount, which may be the whole amount or the amount for the stage in question.

he ATO generally does not ask the valuer to do the work until payment is received. Once the ATO receives your payment, it will:

  • ask the valuer to start the work, and
  • send you a receipt for your payment.

The receipt the ATO issues is also a tax invoice – and note that you may be able to claim the GST included in the valuer’s fee as a GST credit. Also note that as the cost of the valuation work is considered to be a cost of managing your tax affairs, it may be deductible for income tax purposes.

The ATO will tell you:

  • when the valuation is finished or confirmed, and
  • if there are any changes to the final cost of the valuation or review.

It will then either:

  • refund any extra amount you paid, or
  • ask you to pay any shortfall.

If there is a shortfall, this will need to be paid this before the ATO will provide your private ruling. Generally however, it can complete your private ruling within 28 days of receiving the valuer's report.
Private rulings involving a valuation may take longer than other private rulings because of the possibility of having to engage a professional valuer. Generally, the ATO will make contact within 14 days of receiving such an application to discuss an appropriate reply date.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

5 tips to get home office deductions right

 

You might be sick of the daily commute, or want more flexibility of hours – or it could be that you have a talent or skill and feel sure that this can translate into a fulfilling career in your own business.

         

 

Or it could just be that the idea of working from home seems to offer a better work/life balance.

So if you’re in the position to be able to have your cake and eat it too, there just may be icing for that cake in the form of tax advantages. 

Indeed Australian Bureau of Statistics (ABS) reports indicate that home-based work is prevalent in the Australian community. The 2006 Census showed that 426,523 Australians said they worked from home, and the 2011 survey had 443,939 similarly employed. The upward trend is expected to continue, and it will be interesting to see what data comes out of the recently completed 2016 Census.

Deductible expenses that crop up from working at home are generally classified by the ATO as being either: 

  • “occupancy” expenses, or
  • “running” expenses.

As a rule of thumb, someone operating a home business from a dedicated area of the house will be able to claim both types of expenses. Employees who do some work from home for convenience are generally only entitled to claim running expenses but not occupancy costs. Of course there are exceptions to this general rule and it depends on the person’s circumstances.

Occupancy cost deductions

These relate to expenses for using the home obviously, but not necessarily directly tied to the business itself. These can be rental costs, perhaps mortgage interest if you qualify, council rates or insurance premiums.

To claim a deduction for any occupancy expense, the area you set aside for working needs to have the “character of a place of business”. In other words, the room in your house that hosts “Hilda's Hair Salon” or “Collin’s Consulting” should have the characteristics of a place that is exclusively set aside to offer whatever product or service that home-based business is involved in. 

Taxpayers can generally claim the same percentage of occupancy expenses as the percentage area of their home that is used to make income (for example, if the home office is 10% of the total area of the home, then you can claim 10% rent costs, council rates and so on). However opting to claim occupancy expenses, especially mortgage interest, will mean you will be expected to account for any capital gain attributable to that same business area of the home when the house is sold.

The physical size of the business area is not always the most appropriate measure. The ATO may for example also accept an apportionment based on the proportionate market value of the area used for the business compared to the rest of the property, if this differs markedly from proportionate size. The ATO will also expect you to pro-rate your deductions on a time basis if you use the room for private purposes for a part of the year.

No specific work area – no occupancy expense deductions

You may still work from home but may not have a particular area set aside primarily or exclusively for these income-producing activities. Tim the teacher, for example, could be writing student reports next to the kitchen radio one day or on the front porch another day. There is no defined area from which the work is done, but Tim can still claim deductions for some utility usage such as gas or electricity (running expenses – see below). He just needs to apportion expenses and be able to show how he reached these amounts. 

Then there are phone costs for business use, and even the decline in value of “plant and equipment” (chair, desk, computer) to the extent that those items were used for his income producing activities. He will however be unable to make any claims based on renting or owning the house, and also rates or insurance (that is, occupancy costs).

Running expenses

These can generally be viewed as those costs that directly result from using facilities in the home to help run the business, or to enable you to do a bit of work from home. These would include electricity, gas, phone bills and perhaps cleaning costs. 

Running expenses may be deductible where someone with a home office can establish that they have incurred additional expenditure on the running expenses as a result of their income producing activities. Essentially, taxpayers can claim a deduction actually incurred through their income earning activities that is additional to their private expenditure (our emphasis). 

Bundled phone and internet plans

It is common for households to subscribe to “bundle” plans. These subscriptions typically give the household access to two or more services (typically phone, internet, and subscription television services) from the same service provider. One periodic (usually monthly) fee is charged for the single bundle. 

The bundle fee is always lower than the sum of the fees that the taxpayer would have to pay if they subscribe to each service separately. This is a critical characteristic of a service bundle as it affects the calculation of the amount that is deductible. 

It is necessary to appropriately match work-related use to particular costs. The ATO suggests that the bundle cost can be separated into different components as follows: 

  • an apportionment based on the supplier’s breakdown of the relative cost of the bundled components 
  • an apportionment based on the relative costs of the bundled components as if they were purchased separately from the same supplier, or 
  • if there is no breakdown available, then an apportionment based on information obtained from a comparable supplier. 

The “cents per hour” method – an easier way to calculate running expenses deductions

The ATO offers taxpayers an administrative concession for calculating running expenses deductions. The home office deduction can be calculated at the rate of 45 cents per hour. (This rate applies from 2014-15, and was 34 cents per hour from 2010-11 to 2013-14.)

You are still required to keep a record of number of hours worked at home, but are relieved of the burden of calculating the precise deductible amount for each type of running expense.

So if you’ve been diligently working away at home, whether as an employee or in your own business, it could pay to find out more about claiming all your rightful deductions.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

ATO fires warning shots at cash economy exploiters

 

The ATO has warned businesses in the cash economy are a major focus area for the regulator as it ramps up its scrutiny of third party data, in an effort to ensure  a fair marketplace for businesses doing the right thing.

           

 

Looking ahead to 2017, ATO assistant commissioner Colin Walker told AccountantsDaily that the ATO will continue to home in on the cash economy.

“We're very much looking at the cash and hidden economy,” Mr Walker said.

“That is a major focus for us and in the past it would've been viewed as catching people who are involved in the cash economy. The focus these days is very much around protecting the honest businesses from unfair competition.”

Mr Walker said the ATO now understands that it needs to deal with the impact of wrongdoers on law-abiding businesses.

“We don't want to have a situation where businesses are struggling because they are suffering from unfair competition,” he said.

“So we're very focused there in areas such as the restaurant and cafe, hair and beauty, and building and construction [sectors], and other areas such as the sharing economy industries will be focuses into the future in that space.”

IPA senior tax adviser Tony Greco added that the increased amount of third-party data available to the ATO is helping to facilitate its crackdown on the cash economy.

“For small business there are benchmarks: the cash economy benchmarks, for example. They've been up and running a while and they use those quite extensively,” Mr Greco said.

“If a business is looking like it’s under-reporting income or is not as profitable on paper as the average, then what they'll do is they'll match that up with other data.”

Mr Greco said third-party data is useful because the benchmarks are averages and don’t take into consideration factors like location and number of hours worked.

“So there's a lot of third-party data making its way into the ATO and the ATO has that at its disposal, and it also has the ability to ask for information,” he said.

“It can go to eBay, it can go to Airbnb, it can go Uber, and it can basically suck up all that information and then compare it to its record of activity that has been lodged,” he said.

“There's no limit to the amount of data. The issue nowadays is how effectively that data is mined, what's coming in to the black box and comparing it to what returns have been lodged.”

 

LARA BULLOCK
Monday 12 December 2016
accountantsdaily.com.au

ATO ramps up surveillance on unusual assets

One national accountancy network has reminded professionals the ATO is obtaining more than 100,000 insurance policies in an effort to identify non-compliance with reporting obligations, saying there is “very little chance” offenders won’t be caught.

           

 

The ATO's program aimed at identifying assets that it believes have not been properly accounted for or taxed is now in full swing, said Daryl Jones, HLB Mann Judd Brisbane's senior tax consultant. 

The tax office will be utilising data from a number of insurance companies to assess and identify the owners of these assets, allowing it to formulate an opinion on taxpayers who have reported very little taxable income in their personal tax returns but who have accumulated significant assets such as marine vessels, aircraft, thoroughbred horses and enthusiast motor vehicles.

The ATO will match the details on the insurance policy with the information it already holds on the taxpayer to identify non-compliance with registration, lodgement, reporting and payment obligations.

Those who are not complying with their reporting obligations have a “significant” chance of being identified, said Mr Jones, with the ATO's data-matching capabilities and connections with institutions and other government bodies now at their most advanced. 

Mr Jones explained the data collected will be used by the ATO to better understand the assets and wealth of particular taxpayers, and allow it to identify possible compliance issues with income tax, capital gains tax, fringe benefits tax, GST and superannuation.

“Where there appears to be a discrepancy, the ATO will contact taxpayers and give them the opportunity to verify the accuracy of the information prior to amending any income tax return,” Mr Jones said.

“It is therefore a good idea to revisit the insurance policy of any lifestyle assets owned to ensure that all the details are correct and information is correctly reported on financial statements and income tax returns.”

KATARINA TAURIAN
Tuesday, 13 September 2016
Accountantsdaily.com.au

Charities need to lodge Annual Statements

 

A warning from the ACNC about not doing the paper work.

             

 

The Australian Charities & Not-for-profits Commission (ACNC) was recently warned that charities that fail to complete two Annual Information Statements face immediate risk of losing their charity registration.

The ACNC says there are over 2,000 charities which have failed to provide both a 2014 and 2015 Annual Information Statement.  Each charity has been notified that their registration is at risk.  That assumes ACNC have received a current address.

This means they are probably putting at risk their Income Tax Exempt status or their DGR status.

 

AcctWeb

Got your car log book ready?

 

Failing to maintain a valid car log book can cost taxpayers dearly in an ATO audit. 

           

 

The car log book is an important piece of tax substantiation for those who use their vehicle in the course of performing their duties. Most will be familiar with the two main instances where a car log book is required.  

These include:  

  • where the individual is claiming a deduction in their personal tax return for work-related car expenses using the log book method, or 
  • where the individual or their associate has been provided with a car by their employer and is required to maintain a log for fringe benefit tax (FBT) purposes.

Why is a “good” log book important?

Over the last several years, the ATO has undertaken a motor vehicle registry data matching program to assess the overall taxation compliance of individuals and businesses involved in buying and selling motor vehicles.  

The program involves the ATO requesting details from the state and territory motor vehicle registering authorities where a vehicle has been transferred or newly registered and the purchase price or market value is equal to or exceeds $10,000.

FBT compliance under scrutiny

The initial appeal to some family businesses in acquiring a car through a company or trust is understandable. These entities are generally entitled to claim input tax credits under the GST regime, with the maximum credit capped for the GST inclusive cost of cars that exceed the current car limit.  

Notwithstanding this immediate cash flow benefit, the sting in the tail is that some businesses may not be fully aware of their FBT obligations and may be liable to FBT. Through its data matching process, the ATO has identified poor FBT compliance by family businesses that provide newly acquired vehicles to the business owner or their family members.   

Changes to car expense claims make log books critical

Not to long ago, the government recently changed the way that individuals claim their work-related car expenses. These changes include:

  • the cents per kilometre method will use a standard rate of 66 cents per kilometre rather than a rate based on the engine size of the car, and
  • the one-third of actual expenses method and the 12% of original value method were abolished because the ATO found that only 2% of taxpayers used these methods.

With the above changes, greater emphasis has been placed on individuals who travel more than 5,000 business kilometres to maintain a valid log book, if they opt for the log book method.  

The log book method will therefore benefit an individual if their estimated deduction exceeds the figure that would result from the 66 cents per kilometre method. The log book method does however require receipts and a log book to be kept. For some, this may require some diligence!   

There’s an app for that

The ATO’s smartphone app containing the myDeductions tool may solve the record keeping dilemma, as it enables the individual to capture receipts for work-related car expenses as well as to enter information for a log book. And there are other apps that can satisfy the requirements under FBT law.  Users should satisfy themselves that such apps fulfil the requirements under the tax law.

What are the requirements for a valid log book?

The purpose of the log book and accompanying odometer records is to determine the business use percentage of the vehicle. As a general rule, the higher the business-use percentage:

  • under income tax — the greater the deductions that may be claimed for work-related car expenses 
  • under FBT — the lesser the amount of FBT payable for car benefits.

The requirements for maintaining a log book for income tax and FBT purposes are mostly identical, although there are some small differences. The main one is that an FBT log book applies to the relevant FBT year (that is, ending March 31) while an income tax log book applies naturally to an income year (that is, ending June 30).
Things to be mindful of when using a log book include:

  • the log book is valid for five years – after the fifth year, a new log book will need to kept.  A new one can be started at any time (for example, if it no longer reflects the business use)
  • the log book must be kept for at least a continuous 12 week period – note that the year in which the log book is first kept is referred to as the “log book year”; otherwise it is referred to as a “non-log book year”
  • for two or more cars – for income tax, the log book for each car must cover the same period. For FBT, one log book must be maintained for each where multiple cars are provided by an employer
  • the log book must reflect the business use of the vehicle – this can be tricky where there is home to work travel, travel between workplaces, or if the individual’s work is itinerant in nature
  • odometer records must also be kept – this is crucial for working out the total distance travelled during the year and also for the relevant period that the log book is kept.

What information needs to be kept?

Each log book kept must contain the following information:

  • when the log book period begins and ends
  • the car’s odometer readings at the start and end of the log book period
  • the total number of kilometres the car travelled during the log book period
  • the number of kilometres travelled for each journey recorded in the log book (if two or more journeys are made in a row on the same day, this can be recorded as a single journey). The following will need to be recorded:
    • start and finishing times of the journey
    • odometer readings at the start and end of the journey
    • kilometres travelled
    • reason for the journey
  • the business-use percentage for the log book period.
Note: The business-use percentage broadly is the business kilometres for the year divided by the total kilometres travelled (obtained from odometer records).

In the ATO’s view, when recording the purpose of the journey, an entry stating “business” or “miscellaneous business” will not be enough. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey. Private travel is not required to be shown, but it may help to include in the records to help with calculations.  

Generally, most odometer records will be kept as part of the log book, showing the starting and closing odometer records for the relevant period. 

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

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