Christmas will be here before we know it, with smarter business owners already planning their end-of-year festivities. Celebrating the season can be team-building or just a bit of fun, but the well-prepared business owner will also know that a little tax planning can help make sure there’s no unforeseen tax problems.

The three benefits typically provided include:

Christmas parties for employees (and perhaps their family members, and even clients)gifts to employees, their family members and clients, andcash bonuses.

The Christmas party

There is no separate FBT category that relates to Christmas parties. While such social functions may result in FBT, income tax and GST outcomes, these are covered under the existing relevant legislation. The provision of “entertainment” at Christmas therefore mirrors the tax treatment such benefits will receive at other times of the year.

The ATO says that “meal entertainment”, and therefore an FBT liability, arises when food or drink is provided in a way that has the character of entertainment. In fact, the ATO holds that in most cases the mere provision of food or drink satisfies the “entertainment” test, but adds that there is a narrow category of cases where the mere provision of food or drink does not amount to entertainment.

For example, it considers that the provision of morning and afternoon tea to employees (and associates of employees) on a working day, either on the employer's premises or at a worksite of the employer, is not entertainment. The provision of light meals (finger food, etc), for example in the context of providing a working lunch, is also not considered to be entertainment. Note however that providing any alcohol typically brings “entertainment” into the picture.

The implications of certain benefits provided at the year-end Christmas function for an employer may vary depending on:

whether the function is provided at the employer’s premises or provided externallythe cost of the function per attendee, andthe basis that the employer is using in working out the taxable value of such benefits.

FBT implications

With a Christmas party, FBT applies to an employer when they provide a benefit to an employee or their associate (for example, family members). Food, drink, entertainment and gifts provided at a Christmas party to employees and their associates may constitute either:

an expense payment fringe benefit (eg. reimbursing an employee for expenses incurred or paying an expense on their behalf)a property fringe benefit (eg. provision of property such as meals or gifts by the employer), anda residual fringe benefit (eg. the provision of any right, privilege, service or facility such as the right to use a venue).

These benefits are generally valued for FBT purposes at their face value – typically referred to as an “actual basis” of valuation. However, an employer may elect to apply special valuation rules by using either the 50/50 split method or 12-week register method. Ask us about these two valuation methods and if they are suitable for your business. If the employer does not make an election, the taxable value is determined according to actual expenditure.

However “meal entertainment” fringe benefits provided at a Christmas function can be exempt from FBT if it is:

a “minor benefit” (more below)an exempt property benefit (see below) is provided at the employer’s premises on a work day.

Minor benefits

Broadly, a minor benefit is one where it:

has a notional taxable value of less than $300 (inclusive of GST)is provided on an “infrequent” or “irregular” basisis not a reward for services, andsatisfies other relevant conditions (ask us for details).

Note that other benefits (such as gifts) provided at a Christmas party may be considered as separate minor benefits in addition to meals provided (referred to as an “associated benefit”).In such cases, the $300 threshold generally applies separately to each benefit provided.

Exempt property benefit

A Christmas party held at the employer’s business premises on a working day where food and drink, including alcohol, is provided is generally deemed to be an exempt property benefit, and is therefore usually FBT-free. This is no different to the occasional Friday drinks at work.

Tax law exempts such property benefits where:

·the benefit is provided to a current employee in respect of his or her employment, and

·it is provided to, and consumed by, the employee on a working day and on the business premises of the employer (our emphasis).

This exemption applies only to employees. Where members of the employee’s family (“associates”) also attend a function (such as the Christmas party), the cost attributable to each associate is subject to FBT unless it is a minor benefit. If clients are invited to the function, the cost of providing the entertainment to these attendees is excluded from the FBT regime as this not a “fringe benefit” to staff (and may qualify as a tax deduction — see below under “Gifts to clients”).

External Christmas functions

The costs associated with Christmas parties held off business premises (such as food, drink and transport to a restaurant) will give rise to FBT unless these costs are under the minor benefit threshold. Again, FBT will not apply to the extent that the benefit is provided to a client.

The following examples supplied by the ATO illustrate the difference in FBT and income tax treatment where a function is held on-premises compared to one being held offsite:

ATO EXAMPLES

Transport considerations

It may be the case that to get to the Christmas function, an employer will provide their staff with taxi travel or some other form of transport. Taxi travel provided to an employee will generally attract FBT unless the travel is for a trip that either starts or ends at the employee’s place of work.

For taxi travel to or from a Christmas function, employers should be mindful that:

where the employer pays for an employee’s taxi travel home from the Christmas party and the party is held on the business premises, no FBT will apply. where the party is held off premises and the employer pays for a taxi to the venue and then also pays for the employee to take a taxi home, only the first trip will be FBT exempt. The second trip may be exempt under the minor benefits exemption if the employer has adopted to value its meal entertainment on an actual basis.the exemption does not apply to taxi travel provided to “associates” of employees (for example family members).

If other forms of transportation are provided to or from the venue, such as bus travel, then such costs will form part of the total meal entertainment expenditure and be subject to FBT. A minor benefit exemption for this benefit may be available if the threshold is not breached.

Gifts

Gifts provided to employees or their associates will typically constitute a property fringe benefit and therefore are subject to FBT unless the minor benefit exemption applies. Gifts, and indeed all benefits associated with the Christmas function, should be considered separately to the Christmas party in light of the minor benefits exemption.

For example, the cost of gifts such as bottles of wine and hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits. Gifts provided to clients are outside of the FBT rules (but may be deductible, see below — also note that deductibility may still apply even if the gift is a “minor benefit”).

The income tax deductibility and entitlement to input tax credits (ITC) for the cost of the gifts depends on whether they are considered to be “entertainment”. For example, an unopened bottle of spirits is deemed to be a property benefit (the entertainment starts after the cap is unscrewed). Again, in most cases the entitlement to an ITC for expenses incurred for the employer mirrors the income tax implications — so an ITC is only available to the extent that the expense incurred is deductible.

Examples of “entertainment”:

glasses of champagnehot mealstheatre ticketsholiday accommodationhired entertainershired sporting equipment.

Examples – not “entertainment”:

Bottled spiritsgroceriesgamesTV sets, DVD playerscomputerscrockeryswimming poolsgardening equipment

Gifts to clients

Regarding a business providing a gift a client, even a former client, the ATO confirms that such outgoings are generally deductible as they are being made for the purposes of producing future assessable income. However, the outgoing is not deductible where it is of a capital nature, relates to the gaining of exempt or non-assessable non-exempt income, or some other provision of the income tax law prevents it from being deductible.

To explain this quirk, the ATO provides the following examples:

Example 1. Julia is carrying on a renovation business. She gifts a bottle of champagne to a client who had a renovation completed within the preceding 12 months.

Julia expects the gift will either generate future business from the client or make them more inclined to refer others to her business. Although Julia got on well with her client, the gift was not made for personal reasons and is not of a private or domestic character.

The outgoing she incurred for the champagne is not of a capital nature. Julia is entitled to a deduction.

Example 2. David is carrying on a business of selling garden statues. David sells a statue to his brother for $200. Subsequently, David gifts a bottle of champagne to his brother worth $170. Apart from this transaction, he provides gifts only to clients who have spent over $2,500 over the last year.

The gift has been made for personal reasons, and is of a private or domestic character. David is not entitled to a deduction.

Cash bonuses

Some generous/successful employers, budget permitting, may choose to provide cash bonuses to staff in their end-of-calendar-year payroll. Bonuses in the form of cash are considered to be a business cost, and therefore deductible under the general deduction provisions.

However, being a benefit in the form of “coin” there is another side to this coin, which is that cash bonuses are assessable in the hands of employees as ordinary income, no differently to salary and wages.

As a cash bonus is salary and wages, it is therefore not a taxable supply for GST purposes — so for these type of benefits, GST issues do not arise. Also there are no FBT issues to consider. However employers should consider PAYG withholding, superannuation guarantee and payroll tax issues.

FBT is a complex area of tax. So give us a call if you would like to discuss how this is relevant to your business.

The concept of a “sharing economy” has been around for long enough now to have had a very real impact on how we transact. Think Uber, think Airbnb. And, of course the ATO is keen to get its share of tax.

By now, most people will have realised that the “sharing” part of the concept does not refer to an absence of any monetary exchange, but rather to the use and access of shared physical or human resources or assets. The means of these transactions is usually conducted online, and there are many who therefore argue that rather than “sharing economy” a more accurate term that could or should have been adopted would be “access economy”. As for the taxation treatment of these transactions, the ATO has found it necessary to provide guidance.

How does the taxman define the sharing economy? For its part, the ATO states that it views the sharing economy as a system that “connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website”.

The ATO identifies some popular sharing economy services in Australia as those that include:

- renting out a room or a whole house or unit on a short-time basis

- providing “taxi” travel services (or ride-sourcing) for a fare

- providing personal services, such as creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly

- renting out a car parking space.

Tax considerations

The ATO says taxpayers who are involved with the sharing economy may need to consider:

if they are carrying on an enterprise,

if the price of the goods or services provided includes GSTif and when they need to provide tax invoices for salesif they need to declare this income in an income tax returnwhat GST credits and income tax deductions can be claimed for expenses related to earning incomehow all their sharing economy activities added together affect their GST and income tax obligations.

Uber drivers beware of your GST obligations

As a general rule, an entity is only required to register for an ABN and GST if they are carrying on an enterprise (say a business) and their current annual turnover or expected annual turnover is $75,000 or more.

The ATO says that if you carry on an enterprise of providing ride-sourcing services, under the GST law you need an ABN, need to be registered for GST, and are required to account for GST on the full amount of every fare regardless of how much or how little you earn (as the GST registration threshold does not apply to ride-sourcing services, but starts from the first dollar). But you can also claim the business proportion of your input tax credits.

A recent decision in the Federal Court of Australia confirmed that Uber drivers must register for an ABN and for GST from the moment that they start providing such services. As Uber drivers are typically taken to be conducting a business as a sole trader by the ATO, you’ll need to declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services.

GST and multiple enterprises If you are providing goods and services across multiple websites or apps, or through other enterprises outside of the sharing economy, the ATO states that this would require an ABN and registration for GST when total turnover for all activities together is, or is expected to be, $75,000 or more per year.

Further, the ATO says if you are registered for GST because you are already carrying on an enterprise, you must account for GST on all the sharing economy goods and services provided that are subject to GST. For example, if you have an enterprise that provides ride-sourcing services, and have to get an ABN and register for GST regardless of your turnover, you would also have to account for GST on a car park you rented out.

Record keeping Regardless of how much you earn, or the reasons for you providing goods or services, the ATO says you should keep records of income and expenses so we can keep track of your activities and assist with tax obligations when they arise. “You may intend to provide goods or services as a hobby or recreational pursuit,” the ATO says, “but your level of activity over the whole year may mean that you are in fact running a business and need to comply with income tax and GST obligations.”

Your duties and obligations under the sharing economy can be tricky, so please contact us if you have any questions.

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With an unprecedented number of changes to Super since the May 2017 budget, it is no wonder many people are confused about that they can contribute to super, pensions they can withdraw, and what has to be done to ensure compliance.

Our All About Super guide provides you a one page summary of the latest regulations and rates.

Some government amendments have been made to this measure and these have been incorporated into the information below.

The government announced a reduction in the small business tax rate from 28.5 per cent to 27.5 per cent for the 2016–17 income year. The turnover threshold to qualify for the lower rate will start at $10 million (in 2016-17) and progressively rise until the 27.5 per cent rate applies to corporate tax entities with less than $50 million aggregated annual turnover in the 2018-19 income year. From 2017-18, entities eligible for the lower tax rate will be known as base rate entities.

The corporate tax rate will then be cut to 27 per cent in the 2024–25 income year for corporate tax entities with less than $50 million aggregated annual turnover and by one percentage point in each subsequent year until it reaches 25 per cent for the 2026–27 income year.

The maximum franking credit that can be allocated to a frankable distribution paid by a company will be based on the company's applicable corporate tax rate.

Below is a table summarising the tax rate changes

The amended Bill is expected to be re-introduced into the House of Representatives for passage in early May 2017.

Taxpayers will need to take care when declaring dividends as there are multiple franking rates (ie for base rate companies and regular companies).

There were a few leaks, and a few surprises in last night's Federal budget. Here are some of the relevant tax proposals that could affect you...

Medicare levy to increase to 2.5% from 1 July 2019. It is expected that the top marginal tax rate will be 47.5% (with the removal of the 2% Temporary Budget Repair Levy)Small business instant asset write-offextended until 30 June 2018 for business assets under $20K, and small business turnover threshold test increased from $2M to $10M. First home savers can now salary sacrifice into superannuation from 1 July 2017

Contributions will be taxed concessionally at 15% on these savings and they will be able to then withdraw these funds for a first home purchase. Existing super accounts can be used but existing balances will not be accessible. Contributions will be capped at $15K per year, $30K all up

An individual would save around $4,500 tax if they contribute $30K into super under this scheme (based on an average 30% tax rate). Will this be enough to secure a property in this market?

Rental property travel expense claims Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property will be disallowed from 1 July 2017. All normal rental expenses will remain deductible.

The ATO has become increasingly concerned about travel claims that haven't correctly apportioned costs, or are private in nature e.g. joint holiday / inspection trips.

Rental property Depreciation

Plant and equipment depreciation deductions will be limited to amounts actually by investors in residential real estate properties from 1 July 2017.Super contributions from sale of main residenceintroduced for retirees. From 1 July 2018 people over 65 can make a non-concessional super contribution of up to $300K from the sale of their main residence. Couples can contribute $300K each on the sale of the same property. They must have owned their principal residence for at least 10 years

This allows retirees over 65 to recontribute into super, even if they have over the new $1.6m balance cap.

HELP (Higher Education Loan Program) repayment threshold lowered to $42K p.a., and repayment rates increased to 10% for those earning over $120KCourier and cleaning businesseswill join the construction industry and be required to lodge a Taxable Payment Report from 1 July 2018 Starts from budget night but grandfathered for existing properties until 30 June 2019Foreign investors capital gains withholdingincreased to 12.5% for non-residents from 1 July 2017Foreign worker levy of $1,200 per year plus $3,000 upfront for small businesses will be imposed

Please call or email us to discuss how these changes will affect you..

In late November 2016, the Australian parliament made significant changes to the superannuation laws. These have now received Royal Assent. Below is a summary of the key changes to superannuation that may affect you from 1 July 2017.

Cut in annual concessional (before-tax) contributions cap to $25,000Cut in annual non-concessional (after-tax) contributions cap to $100,000Introduction of a $1.6 million transfer balance cap for retirementCapital gains tax relief and the 1.6m cap Removal of tax exemption for transition-to-retirement pensions (TRIPs)Introduction of catch-up concessional contributions over 5-year period (from July 2018)30% tax on concessional (before-tax) super contributions for those earning over $250,000Greater access to claiming Superannuation Contributions Work test for over-65s to remain

Cut in annual concessional (before-tax) contributions cap to $25,000

From 1 July 2017, the general concessional contributions cap will again be lowered to $25,000 from $30,000 (and $35,000 for the over-50s cap).

Cut in annual non-concessional (after-tax) contributions cap to $100,000

Under the current rules, an individual under the age of 65 can make annual non concessional contributions of up to $180,000 (or up to $540,000 over a 3-year period using the bring forward rule.) From 1 July 2017, these limits will be reduced to $100,000 ($300,000 over a 3-year period.) Note you can only make non-concessional contributions if you have less than $1.6 million in your super account.

Introduction of a $1.6 million transfer balance cap

Effective from 1 July 2017, “a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.” The cap will be applied to “both current retirees and to individuals yet to enter their retirement phase.” This cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation). The financial consequence for current retirees is, if they have more than $1.6 million in pension phase, they will need to withdraw the excess balance OR revert the excess amount to accumulation phase (which is then subject to 15% earning tax), by July 2017. Subsequent earnings on this pension balance, from July 2017, will not be required to be withdrawn.

Capital Gains tax and the $1.6m transfer balance cap

If you move the excess funds (above $1.6 million) into the accumulation phase of a super fund, and you accumulate capital gains before 1 July 2017 on that transfer, you may be eligible for capital gains tax relief for that gain. The CGT relief allows complying super funds that CHOOSE TO APPLY the relief to reset the cost base on assets that are reallocated or re-proportioned from the retirement phase to the accumulation phase before 1 July 2017. The relief allows the super fund to deem the transferred asset has been sold and repurchased at current market value as at 30 June 2017. The deemed sale triggers a capital gains tax event, which means the cost base for the asset is reset at current market value. The implications of this deemed transaction is that when the asset is sold some time in the future, after 1 July 2017, only capital gains arising from 1 July 2017, will be taxable.

Since the asset is deemed as a new purchase, the eligibility for the 33% CGT discount restarts, and would not be available until the super fund holds the asset for a further 12 months. Important: Eligibility for CGT relief on transferred pension assets, only applies to assets held during pre-commencement period (of the legislation, that is, 9 November 2016) and up to 30 June 2017, at least. A super fund must actively apply for the CGT relief using an approved form, and submit it to the ATO by the lodgement due date for the super fund’s 2016/2017 income tax return. A super fund can choose not to apply for CGT relief, but if a super fund does apply, the application cannot be revoked.

Removal of tax exemption for transition-to-retirement pensions (TRIPs)

From 1 July 2017, the parliament has removed the tax-exempt status of super fund earnings supporting a transition-to-retirement pension (TRIP).

Introduction of catch-up concessional contributions over 5-year period (from July 2018)

From 1 July 2018, individuals can make catch-up concessional contributions.

How it works is that unused portions of the concessional cap each year can be carried forward on a rolling basis for up to 5 years, for the annual caps applicable from July 2018, but only if a members account balance is less than $500,000.

30% tax on super contributions for high Income earners

From 1 July 2017, taxpayers with adjusted taxable income of $250,000 or more will be hit with extra contributions tax, which means all concessional contributions will be hit with 30% tax rather than 15% tax.

Greater access to claiming Superannuation Contributions

From 1 July 2017, all individuals under the age of 75 will be permitted to claim tax deductions for personal super contributions (voluntary concessional contributions). This measure is designed to assist an employee where their employer won’t allow salary sacrifice contributions, or to help individuals who are both self-employed and employed, but fail to meet the current 10% income test.

Work test for over-65s to remain

The work test will now remain in place and works as follows: if a person aged 65 years or over wishes to make a super contribution, then he or she must work 40 hours in a 30-day period in the financial year in which he or she plans to make the super contribution.

The Turnbull Government has released further superannuation reforms first announced in the 2016-17 Budget.

If passed in Parliament, these measures will:

- Implement the Government’s $1.6 million transfer balance cap, which places a limit on the amount an individual can hold in the tax-free retirement phase;

- Lower the concessional contributions cap to $25,000 per year;

- Reduce the income threshold for Super surcharge from $300,000 to $250,000 (i.e. the level at which individuals are required to pay an additional 15 per cent contributions tax);

- Allow individuals with balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years;

- Ensure that transition to retirement income streams are accessed for the purpose for which they were designed and not for tax minimisation;

The Government remains on track to have these measures introduced into the Parliament before the end of the year.

Let's wait and see...

The Turnbull government's innovation statement was released in December 2015.

Here's some of what's on offer:

Tax: Investors will be able to get a 20 per cent tax offset, rather than a deduction and a capital gains tax exemption. The offset model has been chosen instead of a deduction as it benefits people more evenly across income groups. For example, if someone invests $200,000 and claims the offset they will reduce their income tax by $40,000. Then if the investor sells their shares three years later, their initial $200,000 will be exempt from capital gains tax.

Start-ups: For established start-ups this will bring forward the point at which they get their tax break, offering a 10 per cent tax rebate for venture capital investments to expand existing start-ups.

Bankruptcy: Laws will be changed to reduce the default bankruptcy period from three years to one year, and a new 'predominantly similar business test' will replace the 'same business test', allowing businesses to access past losses. This will be introduced via law changes brought on in the first half of 2016.

Read more at www.innovation.gov.au/audience/startups-and-entrepreneurs