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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 and from the place of entertainment.

For FBT purposes there may be different consequences for payment of the taxi fare. For 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, the taxi trip is FBT exempt if it is a single trip beginning or ending at the employer’s premises. For example, 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.

The Australian Taxation Office are aware this distinction is illogical, so the rule may change for 2019. Uber and other ride-sharing services are exceptions. The FBT Act defines a “taxi” as a motor vehicle that is licenced to operate as a taxi. Despite Uber drivers requiring an F-extension to their driver’s licence to allow them to operate, they are not required to be licenced taxis. Hence, an Uber trip for Christmas function will not qualify for the FBT exemption.

By AcctWeb

Behavioural Coaching and your financial plans

Behavioural coaching is a major component in how a financial planner adds value to your portfolio.

Last month’s topic was “How a Financial Planner adds value to a Portfolio?”, a major component being Behavioural coaching. The month before the topic was “The Value a Planner Adds to a Portfolio”.

This month the focus is on “What is Behavioural Coaching?”.

There are many long-term investment charts that show how portfolio values increase over time but even with this proof many investors react to short term market volatility which can often undermine attainment of long-term objectives.

Managing this reactionary behaviour is the definition of behavioural coaching.

Behavioural coaching is how a financial planner manages investor 'emotion' and 'reaction’ to market ‘noise' to ensure long term goals are achieved. A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, those who played the long game have recovered well.

This form of control is hard to achieve when acting alone, it often requires teamwork and professional help.

Behavioural coaching centres on four issues:

A financial plan is the anchor to all actions.
Set clear expectations at the beginning.
Managing the emotions that accompany periods of market volatility.
Work together to ensure an effective planner / client relationship rather than simply reacting to markets.

Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.

A planner, though, will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life.

There are four components that you and your planner need to work on together. These are:

Goals

Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan then in most cases the better the outcomes.

Discipline

Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to do on your own so help in this area is a major contributor to attaining long term goals.

Balance

This simply means not to put all your eggs in the one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.

Cost

A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.

This series of articles is based on a 16-year study by Vanguard Investments Pty Ltd.

Peter Graham
BEc, MBA
AcctWeb / PlannerWeb

Our Advent calendar for 2018

On behalf of all our staff we wish our clients a Merry Christmas, Happy New Year and a great holiday period.

Come back each day for an inspirational quote or poem about Christmas, summer and life in general from some of the great writers and poets.

(Please click on the image to open the Advent Calendar and then click on a date)

‘Please do not panic’: ATO boss addresses STP concerns

ATO Commissioner Chris Jordan has urged small businesses not to panic over the transition to single touch payroll as he commits to ensuring businesses will not be forced to purchase payroll software.

Speaking on the ATO’s webcast on STP, Commissioner Chris Jordan reiterated that micro employers – those with four or less employees – will not be forced to purchase payroll software, with alternative solutions including using their registered tax or BAS agent, among the options for such businesses.

At present, legislation to extend STP to employers with 19 or less employees from 1 July 2019 is still before the Senate.

“We’re not going to force people to put in a business, accounting system and payroll software. A lot of people will have basic accounting software but not the component that does the payroll. Some of the software providers might be looking at that as an opportunity to get people in to maybe a more upgraded sort of accounting system,” said Mr Jordan.

“With some of these low cost payroll solutions added on, they have to realise everyone is going digital – with e-invoicing, the way people order and dispatch.

“It is the way it happens. We’re not forcing people to go digital to get the accounting software and payroll,” he added.

Further, Mr Jordan said tax and BAS agents will be able to help micro employers transition to payday reporting by first helping them report on a quarterly basis.

“For micro employers… they can actually for the first couple of years do the STP requirements quarterly. There will be a whole array of opportunities that either aren’t yet in the market or have already flagged like that quarterly BAS-type approach,” said Mr Jordan.

“Please, people do not panic, do not be concerned. We will take a very reasonable approach to this. We expect people to take a while to come on.

“I’m firmly of the view that solutions will come into the market, low-cost solutions. We are a capable bunch of people in Australia, and we will certainly take a reasonable approach.”

Last month, the ATO began seeking expressions of interest from digital services providers to develop Single Touch Payroll software for the micro employer market, looking at a low or no-cost solution, software that has a simple user experience and a solution that will enable STP reporting within no more than 5 minutes.

The Tax Office has now received over 20 expressions of interest, with a plan to publish a public register of ‘tailored micro solutions’ over the next week.

“At this stage it will be [the] name of those providers, and over time as we work with those providers, we will actually be publishing more details around the actual products – who you should be contacting if you want to talk to those providers, and start that process,” said ATO STP assistant design director Angela Lehmann.

Jotham Lian
29 November 2018
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, on a working day on business premises and consumed by current employees of that business.

Exempt Minor Benefits

(Applicable 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.

Source: AcctWeb

Tax Office sounds alarm on popular property strategy

Both the Tax Office and the corporate regulator see property investment in superannuation as a “live issue”.

Speaking in a panel hosted by the SMSF Association and the ATO this week, Kate Metz, ASIC technical adviser to the deputy chair, said that based on some of the recent work ASIC has done speaking to consumers about their experience and why they choose to set up an SMSF, it is clear that property continues to be an ongoing issue for SMSFs.

“Many [SMSF trustees] chose to set up a fund to invest in property. They [tended] to solely invest in property, have fairly low balances, borrow money and often bought an off-the-plan property from a property developer,” said Ms Metz.

“For us, that rings a number of alarm bells, and we think the number of those people will not be well placed to self-fund their retirement.”

Ms Metz noted that ASIC has already publicly announced that it would be looking at one-stop shops.

“These are organisations that will set you up an SMSF, find you a property, work out your borrowing arrangements and also do your legal advice as well. We are very concerned about those sorts of arrangements,” she said.

“There are a number of policy debates going on at the moment around limited recourse borrowing arrangements and whether they should still be allowed to continue on and allowed personal guarantees as well. At the moment, it is very much a live issue that people are turning their minds to.”

Ms Metz said there is also very little discussion with SMSF advice relating to property around issues such as liquidity and falling property prices.

“People are set up with a property, but there is no discussion of what happens when you retire – does the property need to be sold? Will you be able to live off the rental yield? What happens if prices drop?” she warned.

“I think that is a real issue, and as people age or are older when they go into that sort of arrangement, the implications become even more significant for them.”

Speaking in the same panel, ATO deputy commissioner James O’Halloran said the ATO has likewise seen inpiduals who have not properly considered the risks with setting up an SMSF and investing in property.

“On the ground, we see people who may not have made an informed decision or one that appears to be a very binary decision of, ‘I want a house to invest in’, and maybe that is not an informed decision, or one that does not consider risks,” said Mr O’Halloran.

As part of the ATO’s vetting process for SMSFs, Mr O’Halloran said some of the reasons from inpiduals for setting up a fund have included a family member telling them to do so or to buy a house or holiday.

“To some of you, you might think this is laughable. The naivety of those elements reinforces the point. The seriousness of this decision for your future is not a reason not to do it, but go in informed,” he said.

“It is an obligation as a trustee. It is not a free ticket. As much as we recognize the appropriateness of people setting up an SMSF, there is an obligation.”

SuperConcepts executive manager of SMSF technical and private wealth Graeme Colley said that whether limited recourse borrowing arrangements get banned may be determined by the market with the big banks pulling out and trustees looking to mezzanine lenders instead.

“People are taking risks on mezzanine companies, which is adding more recourse to limited recourse borrowing.”

Mr Colley said he expects a decrease in borrowing by SMSFs as it becomes increasingly complex and property prices in capital cities continue to fall.

Miranda Brownlee
21 November 2018
accountantsdaily.com.au

Client Alert – November 2018

Transfer balance cap: ATO highlights admin issues

On 30 August 2018, ATO Assistant Commissioner Superannuation Tara McLachlan gave a speech on “Administration issues under the transfer balance cap” at the Tax Institute Sixth National Superannuation Conference.

TIP: The superannuation transfer balance cap is a limit on the total amount of super that you can transfer into retirement phase. The current cap is $1.6 million.

Ms McLachlan highlighted several issues regarding common superannuation events that will need to be reported to the ATO (such as the start of new pensions that began to be in retirement phase on or after 1 July 2017), multiple transfer balance events, excess transfer balance determinations and more.

Australian Small Business White Paper: tax reform a key

After more than 18 months of extensive research and consultation, the Institute of Public Accountants (IPA) and the IPA Deakin SME Research Centre have released the second edition of the Australian Small Business White Paper.

“Numerous policy recommendations have been adopted from the first edition which was launched in 2015. However, we recognise that the state of our economy is reliant on the productivity, growth and prosperity of the small business sector, so this work must be ongoing”, said IPA CEO Professor Andrew Conway.

The Paper covers a range of topics, including productivity, regulation and workplace relations, and makes several tax reform recommendations relevant to small businesses and personal income tax.

ATO expects 200,000 to miss out on refunds by failing to lodge

The ATO expects that 200,000 people could miss out on a tax refund this year because they haven’t lodged a tax return.

Assistant Commissioner Kath Anderson has said that many salary and wage earners end up with a tax refund, but some are missing out because they fail to lodge on time.

Taxpayers had until 31 October to either lodge their own return, or ensure they are on an agent’s books, Ms Anderson said. Failing to lodge by the deadline can attract a penalty of $210 for every 28 days that the return is overdue, up to a maximum of $1,050.

TIP: Have you run out of time to sort out your tax return this year? We’re here to help – get in touch to talk about your options.

Black economy: electronic sales suppression tools now banned

Activities involving electronic sales suppression tools (ESSTs) and that relate to people or businesses with Australian tax obligations are now legally banned under recent changes to the law.

ESSTs come in many forms, such as:

an external device connected to a point of sale (POS) system;
additional software installed into otherwise-compliant software; or
a feature or modification, like a script or code, that’s part of a POS system or software.

These tools generally misrepresent or hide income by deleting or changing electronic transaction information, and falsifying sales or POS records.

TIP: The ATO recognises some businesses may have bought POS software without knowing it contains suppression functions. There is a grace period to self-report without penalty. If you think you may be affected, contact us to find out more.

People and businesses may face penalties of up to $1 million if they produce, supply, possess or use an ESST or knowingly assist others to do so.

Super work test exemption for recent retirees

The Government has released draft legislation and regulations to provide a one-year exemption from the work test for superannuation contributions by recent retirees aged 65–74 who have a total superannuation balance of less than $300,000. This proposal was announced in the 2018–2019 Budget.

Currently, people aged 65–74 must pass the “work test” – working at least 40 hours in any 30-day period during the financial year – in order to make voluntary super contributions.

Bringing forward small business tax cuts by five years

The Prime Minister has announced that the Government will bring forward its planned tax cuts for small business by five years. The Labor Party has also indicated it supports bringing forward the tax cuts.

This means businesses with a turnover below $50 million will pay a tax rate of 25% in 2021–2022, rather than from 2026–2027 as currently legislated.

Corporate tax rates and small business tax offset changes

The Bill to accelerate the reduced tax rates for base rate entities has passed through Parliament and will soon become law. Under the new law, the corporate tax rate will reduce from 27.5% to 26% in 2020–2021, before being cut to 25% for 2021–2022 and later income years.

The new law also increases the small business income tax offset rate to 13% for 2020–2021. The offset will then increase to 16% for 2021–2022 and later income years.

TIP: A “base rate entity” is a company that receives less than 80% of its taxable income from “passive” sources such as dividends, franking credits, interest, royalties and rent.

Residential rental property travel expenses: ATO guidance

Since 1 July 2017, people, self-managed super funds (SMSFs), “private” trusts and partnerships have not been permitted to claim non-business travel costs connected to residential rental properties as tax deductible. These costs also cannot form part of the cost base or reduced cost base of a capital gains tax (CGT) asset.

The ATO has released new guidance about this, including details about the legal meanings of “residential premises” and “carrying on a business”.

TIP: Not sure if you can deduct the costs of maintaining your investment rental property?
Talk to us today to work it out.

Tax on compensation received for inappropriate advice

On the heels of the banking and financial services Royal Commission, the ATO has published information about how tax applies for people who receive compensation from a financial institution that provided inappropriate advice and/or did not provide advice it should have. This can include compensation for the loss of an investment, or a refund of fees or interest.

Capital gains tax comes into play, and the compensation amount may count as part of your assessable income if it’s a refund of adviser fees that you’ve already claimed as a tax deduction.

TIP: Contact us if you’ve received compensation from your bank or adviser and need to know more.

ATO set to issue excess super contribution determinations

The ATO has started issuing excess concessional contributions (ECC) determinations for the 2017–2018 financial year. Superannuation fund members will receive these ECC determinations if they have made super contributions above the concessional cap amount for 2017–2018.

TIP: “Concessional” contributions are taxed at the reduced rate of 15% in your super fund, but there’s a limit to how much you can contribute at this rate ($25,000 for 2017–2018).

Fund members may also receive an amended income tax return assessment together with the ECC determination, and may need to pay additional amounts to the ATO. This is because any super contributions you make over the concessional cap need to be included in your assessable income for the financial year, and an interest charge applies.

Proposed introduction of Director Identification Numbers

On 1 October 2018 the Government released draft legislation to modernise and consolidate Australian business registers and to adopt a new system to create Director Identification Numbers (DIN) for company directors.

The policy would compel all company directors to register with the Commonwealth. Their identities will be verified by a registrar who would create a unique identifier that will stay with the director for life, even if they move onto other companies.

It is proposed that: –

For existing Directors the transitional provisions at the time the new requirement commences will be 15 months to apply for a DIN.
For a new Director being appointed will be required to apply for a DIN within 28 days of being appointed as a director

A detailed business case is being developed over the next few months, which will include details around the implementation and timeframe.

Guests Accounting will endeavour to keep you informed of the upcoming introduction of the DIN.

Unlocking equity crowdfunding in Australia

Equity crowdfunding has been a popular method to raise capital in many countries for the last few years.

Equity crowdfunding enables a large group of individuals (‘the crowd’) to invest in private businesses. The legislation authorising this is Crowd-sourced Funding Act of 29 September 2017.

The legislation means retail investors can now crowd fund companies by investing $50 to $10,000 each year per business. Previously, only angel investors or venture capital firms had access to these sorts of investment opportunities.

Equity crowdfunding legislation allows un-listed public companies to raise as much as $5 million over a 12-month period.

A company approaches an equity crowdfunding platform to raise funds. The platform performs due diligence on the company and ensures it complies with a range of obligations put forward by Australian Securities & Investments Commission.

If a company does not raise the minimum target, then the offer is cancelled, and the funds are returned to investors.

While investing in early-stage businesses is high risk, there can be high rewards.

AcctWeb