Monthly Archives: December 2015

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.



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 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.

Reporting on segments and divisions

We had a meeting with a new client during the last week. We discussed tax matters of course.  But what was of much greater importance and interest was the performance of the business.

Like most business owners, the owner wasn’t an accountant. Nor had they been trained in the features of their accounting software.  Their previous accountant hadn’t discussed this with them.  As it turns out, things that the new client wondered about were just a click away.

The three major software providers (MYOB, Reckon and Xero) are all remarkably cheap software for what they do. However, some have features the others don’t.  In this case they already had the software that best reported on the segments/divisions within their business.

We have shown and will now train them on how to segment and report on the different sections of their business. We also went on to discuss the most appropriate way to allocate proportional overheads to each section so we can begin to understand the real return from each segment of the business.

Does your software report on what is important to your business? Are you using the features within the software that can better assist you to run your business?  Or does you system only work for your accountant’s compliance needs and those of the Tax Office.

And are you using the best software for you?

At MRS, preparing a Tax Return is just part of what we do. It is not the end product.  Our focus is helping you run a more successful business (and to protect yourself).  We would welcome the opportunity to discuss how we can assist you in an obligation free one hour meeting.  Give us a call – you have nothing to lose and a lot to gain.

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


Some good tax news at last – the government’s Innovation Statement

The Federal Government today released its Innovation Statement.  Part of the overall package includes some attractive tax announcements.

There have been few favourable tax announcements over the last 7 years so I relish the opportunity to pass on these attractive and common sense intended reforms with you.

Of the announcements, there were 4 that would most likely apply to our collective client base:-

  1. The existing same business test will be relaxed. This test applies to companies who are trying to offset current year profits against past tax losses. The existing law is mean and unrealistic as it punishes a company from undertaking any form of new activity; at times it even punishes those companies barely tweaking their existing business model. It was announced today that companies will be able to enter into new business activities and transactions and do so without jeopardising the ability to offset past tax losses.
  2. Newly formed companies (not trusts) will be able to attract investors with a non-refundable 20% tax offset. The investors will be able to reduce their personal tax liability by the amount of this tax offset. And there are steak knives with this – there will also be a 10 year CGT exemption for investments held for at least 3 years.
  3. The existing insolvency laws will be relaxed for “risky projects.” Directors will be able to obtain a safe harbour from personal liability by appointing a “professional restructuring officer” who develops a plan to turn around a company in financial difficulty.
  4. The existing default bankruptcy period of 3years will be reduced to 12 months.

Please remember though that there are only announcements.

We await the fine print which will appear in bills to be put before parliament some time in 2016.  We particularly await to see what if any announcements relate to those who are or would otherwise structure their operations through a discretionary or unit trust.

We welcome the opportunity to advise our clients as to how they may be able to utilise one or more of these announcements.

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


Afraid of increasing prices?

Most business owners are.

It always amazes how many clients happily pay increased prices to their suppliers and give wage increases to their staff, yet either don’t pass on the full increase, do so in arrears or worse still, not at all.  So they end up making less – and often working harder to make up the loss of profits.

We have some software that, amongst its other fabulous features, will calculate how many customers one would have to lose for a particular price rise and yet still make the same profit as before.  Now it remains unknown just how many customers will be lost – but with this software, I can tell a client what the magic number is at which the business makes less than before.

There have been three common outcomes from using this software with clients:-

  1. They don’t lose as many clients as they first feared.
  2. They lose few if any of their better customers.
  3. The business performs a whole lot better, they worry less and they sleep better.

There is of course a process put in place to advise customers why prices are increasing.  On occasions, it has even been initially tested on a group of customers.

One of the initial such sessions in which I used this with a client started with them saying they would lose half their customers if they increased their prices by 10% (their prices had been the same for 2 years).  The calculated number was 42%.  Less than 30 seconds after saying he would lose 50% of his customers, upon seeing that tolerable customer loss rate was 42%, he said categorically that he would lose nowhere near 42% of his customers.  This is what replacing fear with probable fact does to the decision making process.

And what happened you ask – he lost barely any (and they were his worst customers anyway).  And the result – the bottom line (after allowing for salaries, super and fringe benefits to the owners) tripled.

This is one of the many ways we help our clients to understand what can become of changing the key drivers in their business.

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