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.
As an employer, you need to be careful at what you provide at Christmas. The rules are complex and the costs of getting it wrong can prove very expensive.
We will outline some of the more common scenarios and what to be careful of.
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 is the one used by most small businesses (as it usually results in the best outcome). It is beyond the scope of this briefing to address the 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 (which is the most common method for small businesses):-
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 or more 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 a DJ, musician, 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 (the FBT tax rate being the same as the top marginal tax rate). Please keep this in mind when completing the 2018/19 FBT Questionnaire in early April 2019.
All other entertainment during the year will be subject to FBT on a case by case basis.
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.
50% of all other entertainment during the year will be subject to FBT.
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.
The GST treatment of gifts is:-
- 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.
JobMaker is an additional incentive which was announced in the October Federal Budget. Employers will be paid a generous incentive which take on additional young employees between October 2020 and October 2021.
JobMaker payments will be paid quarterly and will start from February.
Payments will made for up to 12 months from an employee’s start date. This means entitlements run through to September 2022 for those employees employed as late as September 2021.
Registrations opened on 7th December and you need to be registered by 30th April. Those employers who would have been entitled to claim JobMaker will miss out on 3 months of payments if not registered by then. That could be as much as $2,600 per qualifying employee!
Registered employers will receive:-
$200 per week for each eligible employee aged between 16 and 29
$100 per week for each eligible employee aged between 29 and 35
JobMaker is not available to employers who are receiving JobKeeper.
To qualify, employers must:-
Have an ABN
Up to date with tax lodgements
Registered for PAYG WH
Be reporting through Single Touch Payroll
Have employed an additional employee – and not just replaced one employee with another
- Had an increase in the payroll amount.
Qualifying employees must have been in receipt of JobSeeker, Youth Allowance or Parenting Payment for at least one month of the three months preceding their being employed. They must also have worked an average of 20 hours per week.
There are many other criteria and considerations. Please fill in the contact form if you would like a copy of our JobMaker white paper.
We welcome any questions you may have.
And like JobKeeper you have to register to receive anything so don’t let this opportunity, or moreover the money, pass you by.
During the week the Victorian State Government handed down is budget.
It has been pitched as an incentive budget. Most of the breaks go to property. In part this is not surprising given its political appeal and that it has a great multiplier effect through the economy.
50% reduction in Stamp Duty for the acquisition of newly constructed property costing up to $1,000,000.
25% reduction in Stamp Duty for the acquisition of existing property costing up to $1,000,000.
This reduction is additional to the first home buyers concession.
And we remind you that there is also the previously announced 50% Stamp Duty reduction on the purchase of commercial properties.
Also announced was a 50% Land Tax discount for build to rent developments.
Pay-roll Tax relief:-
Employers with remuneration under $10,000,000 will receive a 10% credit for the 2020/21 and 2021/22.
From 2021/22, the monthly payment threshold will increase from $40,000 of pay-roll tax to $100,000.
There will also be 10% credit (capped at $10,000) for those employers who increase their wages by $100,000 during 2020/21 and/or 2021/22.
Unfortunately the threshold in Victoria will remain at $650,000. All other Victorian states and territories have thresholds of $1,000,000 to $2,000,000 before they levy Pay-roll Tax. This seems a significant disincentive to employ in Victoria, particularly for those Murray River border towns.
We welcome any question you may have about the State Budget or any other matter.
With a further fall of the official interest rate, interest rates paid to investors have fallen again.
Term deposit rates are pitiful. Not only are they low, they are pretty much half of the current inflation rate. What that means is that in real terms, balances are going backwards.
But what is really scary is what interest rates are being paid on “investment” accounts.
We have recently seen examples where clients are earning nothing (like zero) on account balances up to $250,000. Sometimes this has been missed by a client as there had been, until recently, a decent interest rate paid. Sometimes it has been missed due to a bank publicising the headline interest rate for balances over say $500,000.
But beware if chasing higher interest rates. If someone is paying over the odds, then tread carefully. Very carefully. Often it means the investment is risky. So is an extra % or two really worth the risk of losing your hard earned dollars?
The Family Tax Benefit is designed to support low and middle income with the cost of raising a family. It is not only a generous payment, it is non-taxable – meaning you get to keep the lot.
So generous that they must be taken into account when undertaking any tax planning.
There are two Family Tax Benefit components:-
Part A is based of combined family income.
Part B is based of the secondary earner’s income (but the main income earner’s income must be below $100,000).
Part A is paid in graduated levels:-
The full amount per child is paid where the combined family income is under $55,626.
For every dollar of income over $55,626, the Part A entitlement is reduced by 20 cents until it reaches what is called a base rate.
Families are paid the base rate until combined income exceeds $98,988. Every extra dollar of income then reduces the benefit by 30 cents in the dollar until any entitlement is exhausted.
The maximum payment rates are $4,929pa for each child under 13, $6,410pa for children aged between 13 and 15 and the same rate for children aged between 16 and 19 who meet study requirements.
The base rate is $1,583pa.
Part B is paid in respect of one child only:-
Is paid at $4,190pa where the youngest child is under 5.
Is paid at $2,927pa where the youngest child is aged 5 to 18.
After the first $5,767 of annual income of the secondary income earner, the rate of payment is reduced by 20 cents for extra dollar of income.
This means that no entitlement is paid where the youngest child is under 5 and the secondary income earner’s income exceeds $28,671; $22,388 for youngest child being 5 and over.
Payments can be received either fortnightly or after lodgement of your Tax Return for that year. But a Tax Return must be lodged by the following 30th June otherwise all entitlements are denied.
The amounts payable can be substantial. They can mean that a two child family can effectively be paying no income tax on incomes of $60,000.
A lack of proper planning by your accountant could see a loss of not just of tax of 39% but may be 30% of a Part A entitlement and even all of the Part B entitlement. As they say, proper planning prevents poor performance!
If your accountant hasn’t spoken to you about the Family Tax Benefit then you could be missing out on many thousands of dollars. We welcome the opportunity to discuss your situation.
First the background and then the good news.
Employers who qualified for the initial JobKeeper system were able to avail themselves of relaxed Fair Work Australia provisions.
Such employers were able to:-
Stand down employees.
Direct employees to change duties or work location.
Change their days of work.
Request employees to take annual leave at half rate.
The good news for employers still doing it tough (as in they qualify for JobKeeper past 27th September) is that all but the fourth relaxation can still be utilised.
So employers who have qualified for JobKeeper for this December quarter can use these concessions until 28th February 2021.
But there is good news for some employers who dropped out of JobKeeper after 27th September.
Such employers who suffered at least a 10% decline in turnover for the September 2020 quarter can continue to apply these concessions. Such employers are called legacy employers.
But it is not automatic. Such employers must:-
Have a certificate completed by their accountant or
For small businesses with less than 15 employees, complete a statutory declaration.
You can access a statutory declaration here.
That’s the short story. There are a number of other requirements and paperwork to attend to.
If you want to know more then please ask us.
How can I benefit from the Instant Asset Write off? This is common question we are receiving more often now that there is no upper limit.
Rather than claiming a portion of the cost of an asset used in a business (that being depreciation) over a number of years, a business can claim the cost in the year of purchase. That can deliver some income tax and cash flow outstanding outcomes.
And with the October 2020 Federal Budget the results can be even more outstanding now that:-
There is now no upper limit. Yes, the limit that was $20,000 at the start of the 2018/19 financial year that became within that year $25,000 and then $30,000 which applied to small businesses only to become $150,000 with the March stimulus relief now has no limit for all but the largest businesses.
And if that wasn’t good enough, stunning results can be used for companies who qualify for being able to carry back losses against tax paid in prior years and claim back tax previously paid.
And not only is it great for businesses claiming the concessional it can be sensational for those businesses which sell large assets to businesses – the tax savings and improved cash flow can make a compelling argument.
So to see a number of examples click here.
We welcome discussing how you can benefit from this. When doing so we can model out your cash flow to include future year finance instalments and the impact of the asset increasing revenue and/or reducing expenses.
As I said in parts 1 & 2, in all my years as a business and tax advisor to small and medium businesses, there has never been a tax incentive that attracts as much interest as the instant asset write-off.
And now with no upper threshold, that interest may grow.
In this the third and final part, we set out our last set of 7 tips.
Before jumping in and buying an asset , please consider these additional considerations:-
15/. You can only claim the business portion on an asset that is used both for business and privately – such as a car or lap-top. That said, one can deduct the whole cost of cars provided the Fringe Benefit Statutory Formula method.
16/. If your business has current or carried forward losses in excess of your intended asset purchase(s), then your business will not gain any tax saving in this financial year.
17/. Please refer to our separate blog about using this concession to claim back company tax paid in respect of the 2019 and 2020 tax years. The results can be amazing!
18/. Small businesses can also use this concession to deduct written down value of the depreciable (general pool) assets. As it was, a small business could write-off the carried forward written down value of assets at 1st July 2020 when less than $30,000.
19/. As the write-offs can be large, we are now running two depreciation schedules for our business clients – one at normal rates and one with accelerated tax rates The reason for doing so is that the financial won’t show an artificially low profit which may deny a financial application or even review of existing arrangements.
20/. It applies to tangible assets – ones you can touch. This write-off threshold does not apply to intangible assets such as web pages.
21/. Beware of glitzy app based products as their rates tend to start above credit card rates. We can put you in contact with financiers who have access to the best deals.
With these 7 and the previous 14 common consideration, please don’t jump in and commit to an expensive asset without being absolutely assured of all of its consequences. We therefore welcome any question you have about the instant asset write-off.
Click here to read the first two sets of tips:-
The cuts announced in the Federal Budget to personal income taxes were well covered in the press.
Not so well publicised was an inadvertent trap that many small businesses may fall into.
Those tax cuts are now law. Over recent days, cloud software providers have been migrating new tax scales into their cloud programs.
The trap is that employers who receive JobKeeper can’t continue to pay the same amount. Those employers paying tier 2 employees the minimum gross wage of $750 now have to pay $746 after tax and not $742 (as it was last fortnight). It doesn’t sound like much. But it means the world as an employer has to pay the base amount. If they do, they satisfy the wage condition and only then are entitled to receive JobKeeper.
So what if you have already paid employees for the fortnight ending Sunday 25th October?
Employers have until Friday 30th October to ensure they have met the minimum wage condition for these first two fortnights of JobKeeper Extension period 1.
What if I am on a desktop accounting program?
Then you are going to need to install an update. We can attend to this if you wish.
Want to know more about JobKeeper? Then check our other posts including:-
We also welcome any other other question you have.
As I said in part 1 last week, in all my years as a business and tax advisor to small and medium businesses, there has never been a tax incentive that attracts as much interest as the instant asset write-off.
And now the instant asset write-off has become even more attractive!
What was to be until December a $150,000 limit for small businesses has now become a complete write of all equipment purchases for any business with turnover under $5billion.
In such difficult times as this, it can deliver even greater outcomes when combined with the carry back of company losses.
But before doing so, please ensure you have factored in the following considerations (see part 1 last for the first 7 tips):-
8/. Your small business must own the asset. Your business either needs to pay for it or finance it by a loan, hire purchase or by way of a chattel mortgage contract.
9/. Assets that your business leases from others do not qualify for the write-off (as one does not own the asset until the final payment is made or the lease contract is paid out early).
10/. The incentive also doesn’t apply to assets that are leased by your business to others.
11/. It’s not about when you buy the asset. Your entitlement to claim is based on when you held the asset first ready for use. So for assets you need to have installed, it is not when you buy it; it is when you can first use it.
12/. Make sure you when buy an asset to have the installation date agreed upon.
13/. Installation and delivery costs comprise part of the cost of the asset.
14/. If you trade-in an asset, it is the cost of the new asset that qualifies. So if your business buys a car for $50,000 and trades in an old car for $8,000, then the deductible write-off is $50,000.
Please come back to this web page next week for a further 7 tips and traps.
You can read our first 7 tips here.
We welcome any question you may have in the meantime.