July 2024 – Accounting and SMSF Roundup

July 2024 Round Up - Tax time scams, claiming home expenses and Essential Tax reminders

This month we’re covering critical tips and strategies to protect yourself during tax time. Click to read below: 

1. Scams to watch out for at tax time

2. Being informed about what you can claim as ‘working from home expenses’ 

3. Critical reminders for small business

Scams to watch out for at tax time

1. SCAMMERS IMPERSONATING THE ATO 

As tax season approaches, it’s important to beware of multiple scams circulating through websites, email, SMS and social media. Despite efforts by the ATO and the National Anti-Scam Centre (NASC) to eliminate these scams they continue to increase around the taxation period. 

These scammers may contact you to:

  • Offer a refund
  • Help with tax issues
  • Alert you to suspicious activity on your account

What you should do: 

  • Do not respond to these contacts 
  • Verify the authenticity of any communication you receive by checking the ATO’s official contact numbers

What the ATO is doing:

To combat these scams, the ATO is implementing new measures to help you identify legitimate ATO SMS messages. These include:

  • Removing hyperlinks from all unsolicited SMS messages: Scammers often use these links in phishing schemes, directing victims to sophisticated fake websites, like a fraudulent myGov login page, to steal personal information or install malware. 
  • Creating a support team to monitor scams
  • Creating a service to assist victims providing comprehensive information about email, SMS, phone, and social media scams on its website. 
  • Created a service to report ATO impersonation scams.

2. SCAMMERS IMPERSONATING ASIC

ASIC has also issued a warning about an increase in the use of its logo in social media scams. There are 3 key tactics they are using:

  • Promoting fake stock market trading courses. This involves using social media ads to promote a “Stock Trading Master Class” that links to a private WhatsApp group called “Lonton Wealth Management Center,” which ASIC listed on its Investor Alert List in May 2024.
  • Cold calling: Posing as ASIC representatives making repeated cold calls and offering help with investment refunds. ASIC does not engage in cold calling about investments.
  • Fake Telegram accounts: A fraudulent Telegram account is impersonating ASIC, asking investors for money to release funds held in Australia. ASIC does not use Telegram and will never request upfront payments or taxes for releasing investments.

ASIC is also working with the NASC and social media platforms to actively remove this fraudulent content and reminds consumers that it does not endorse or promote investment training or platforms, does not cold call consumers, and is not affiliated with any investment offers.a

Be informed about what you can claim was ‘working from home’ expenses

Claiming work-related expenses is an area where taxpayers frequently make mistakes, and it’s something the ATO is flagging for tax time 2024.

Here are 3 key things to consider :

  • Keeping accurate records: Copying and pasting your working from home claim from last year may be tempting, but it’s something the ATO may flag and ask you to explain. Your claim will be disallowed if you’re not eligible or you don’t keep the right records.
  • Calculating correctly: There are two methods for calculating work from home expenses: the actual cost method and the fixed rate method.  Both methods require keeping detailed records and following the ATO’s three golden rules:
  1. The money must have been spent by the taxpayer without reimbursement
  2. The expense must be directly related to earning their income, and
  3. The taxpayer must have a record to prove the expense. 
  • Be eligible:  To be eligible to claim working from home expenses by either method, when working from home you must be fulfilling employment duties (not just minimal tasks like taking calls or checking emails); incur additional running expenses as a result of working from home (eg increased electricity or gas costs for heating/cooling or lighting)

Important: This is not advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. Liability limited by a scheme approved under Professional Standards Legislation. 

June 2024 – Accounting and SMSF Roundup

June 2024 Round Up - End of Financial Year Superannuation and Tax Check List.

With the end of the financial year approaching, here’s our checklist of the Top 10 things you should be focusing on this month for maximum returns. From super contributions and government co-contributions to reviewing asset depreciation and prepaying expenses, this quick checklist will make sure you maximise both your tax benefits and retirement savings.

  • Maximise your super contributions by 25 June 2024 at the latest
    Make sure you have maximised your annual concessional (tax deductible) and non-concessional (undeducted or after-tax) super contributions. Contact us if you’d like more information on concessionals caps and inclusions.
  • Carry-forward your concessional contributions cap
    If you’re on a high taxable income, carrying-forward your concessional contributions can offset your income provided you are eligible. If you have less than $500,000 in superannuation as at 1 July 2023 and have never made any concessional contributions since 2018, you may be eligible to make a concessional contribution of up $157,500 in the 2023-24 year.
  • Spousal contributions and tax offsets
    You can split up to 85% of your concessional contributions (including any unused carry forward concessional contributions) from a prior year with your spouse as long as they’re under their preservation age, or under 65. This may be a appropriate when your spouse has a low super balance (less than $500,000 before the start of the financial year) or is closer to retirement. You may also be entitled to an income tax offset of up to $540 for superannuation contributions for the benefit of a lower income (under $40,000) or non-working spouse who is under age 75.
  • Access the government co-contribution of up to $500
    If you are employed, under 71, and have a total income of less than $58,445, the government will co-contribute 50 cents for every $1 of any non-concessional (undeducted) super contributions that you make, up to a maximum of $500.
  • Draw your minimum pension before year end
    If you are drawing a pension from your super, make sure your fund has paid you the minimum amount by June 30. The minimum pension for the year is based on a percentage of your balance depending on your age. Contact us to find out more about the percentages for each age bracket.
  • Prepare your SMSF requirements
    Make sure you have obtained updated and independent valuations for all assets including unlisted assets and real property (residential and commercial), review your investment strategy and ensure related party transactions are made on arm’s length terms. If you haven’t already, also make sure you appoint an auditor no later than 45 days before the lodgement of your annual return.
  • Hold off on setting up an SMSF if you don't already have one
    If you are thinking of setting up an SMSF, now may not be the time. To avoid the fixed annual SMSF compliance costs, it may beneficial to defer until the new financial year.
  • Review your asset depreciation schedule
    You may be eligible to claim immediate deductions for assets under the instant asset write-off scheme to reduce your taxable income.
  • Prepay expenses and make any new asset purchases
    If possible, prepay expenses such as rent, insurance, and other business costs to claim them as deductions in the current financial year.
  • Review your business structure
    The EOFY is the perfect time to review your business structure for maximum benefits. Does your current structure meet your tax planning goals, does it provide adequate asset protection, and will it support scalability if you’re in a period of growth?

May 2024 – Accounting and SMSF Roundup

May 2024 Round Up - Business Valuation and Protection

In our latest roundup, we’re delving into two questions that, based on our experience, tend to catch business owners off guard:

“Do you know what your business is worth?” 
“Have you taken steps to protect it, and your family?”

It’s funny how we all seem to naturally keep tabs on the value of our homes or superannuation, but when we ask business owners about the value of their business, we’re often met with blank stares.

And that’s understandable. Because the idea of valuing your business has often been associated with something you only do when you want to sell it, or maybe when you’re looking for investors or applying for a loan. But just like keeping tabs on your house and super, your business is one of your most important assets that needs regular valuation, and more importantly, a plan in place to make sure you’re covered if anything unexpected happens.

So, this month, we’re breaking down three simple steps to help you get started:

  1. Value your Business – 5 Valuation Methods

  2. Know your End Game

  3. Protect the value of your business

1. Five methods to value your business 

We know that putting a price on a business can be challenging and there’s no single formula for to calculate it. Which model is best for you depends on the nature of your business, its size and the size and concerned risk factors. Today we’re going to give you a few basic guidelines to get you started. 

A great starting point for valuation is its profitability, balanced by the risks involved, but if you’d like to take it a step further there are several industry rules of thumb that you can consider to give you a more robust estimate. Today we’re covering the five most common methods we see:

1. Capitalised future earnings method:

The most common method for valuing small businesses is capitalized future earnings.. When you buy a business, you’re buying its assets and the right to all future profits it might generate, known as future earnings. The future earnings are capitalised or given an expected value. The capitalisation rate can be an expected return on investment (ROI), shown as a percentage or ratio. A higher ROI is a better result for the buyer. This method lets the buyer compare different businesses to determine which would give them the best ROI.

To calculate value based on the capitalised future earnings method, first, calculate the business’s average net profit for the past three years, considering whether any conditions might make this figure difficult to repeat. Then, divide the business’s average profit by using an expected ROI considering the sector and the business.

For example, if the expected ROI is at least 50% and the average profit is $100,000, the value of the business can be calculated using the formula below.

Value or selling price = (100,000/50) x 100 = $200,000.

2. Multiples of revenue method:

The multiples of revenue method is a simple valuation method for finding a business’s maximum value. Annual revenue can be considered for a set period of time, and then a multiplier can be used to determine value. The multiple varies by industry and other factors; however, it usually varies from less than one to three or four.

Small business valuation often involves finding the lowest price someone would pay for the business, known as the “floor.” This is often the liquidation value of the business’s assets. Then, a ceiling is set. This is the maximum amount that a buyer might pay, such as a multiple of current revenues. However, the growth potential of a specific business can impact the multiplier. For example, the multiplier might be higher if the company or industry is poised for growth and expansion. A high percentage of recurring revenue and good margins can also boost the multiplier. The multiplier might be one if the business is slow-growing or doesn’t show much growth potential. Economic and industrial conditions can also impact the multiplier.

3. Earnings multiple method:

The earnings multiple method is similar to multiples of revenue. This valuation method can be used to value larger businesses. The earnings before interest and tax (EBIT) are multiplied to give a number, the multiplier. The multiplier can be found by dividing the stock price by earnings per share (EPS) to find the P/E ratio.

The simplicity of multiples makes it easy for most to use. However, this simplicity can also be considered a disadvantage because it simplifies complex information into a single value.

4. Asset valuation method:

This method adds assets such as cash, stock, plant, equipment and receivables. Liabilities, like bank debts and payments due, are deducted from this amount, leaving the net asset value. For example, Raymond wants to buy a manufacturing business. It has $300,000 worth of assets and $200,000 of liabilities. With the asset valuation method, its net asset value is $100,000, so this business is worth $100,000.

The asset valuation method may consider the business’s goodwill on top of the net asset value. Goodwill represents features of a business that aren’t easily valued, such as location, reputation and business history. It’s not always transferred when you buy a business since it can come from personal factors like the owner’s reputation or customer relationships. The asset valuation method may not consider goodwill if the business is underperforming.

5. Discount cash flow method:

The discount cash flow (DCF) valuation method does not consider other companies’ results. Instead, it focuses on your company’s projected cash flow. You’ll give your best cash flow forecast for three to five years. Then, using a formula, you will calculate the present value of those cash flows.

Present value is a concept that compares the business’s current value in terms of future cash flows to how much the purchaser would pay now. This method uses a discount rate, which is the likely interest rate the business purchaser could have gotten from saving the money in a bank account. If your company’s present value exceeds the investment amount, it’s a good investment for the business purchaser.

The projection of cash flow sometimes requires assumptions of future business conditions. Hence, it can be complex and prone to error. This valuation method can be used in conjunction with the other methods.s

April 2024 – Accounting and SMSF Roundup

April 2024 Round Up

This month we bring you updates from the senate on the new super tax bill, compliance tips as FBT season kicks off and solvency tips from our team. Click to read below:

1. Support Growing for changes to new super tax bill

2. Common FBT mistakes flagged as FBT season kicks off

3. Never say Never – Accountant and SMSF tips for staying solvent

Support growing for changes to new
super tax bill

There is growing support from the Senate crossbench for the government to rethink its plans to tax unrealised gains in the proposed $3 million super tax.

Last week, the legislation was before the House of Representatives, along with the Objective of Super bill, following which it was reported that a number of Independent MPs spoke out against it highlighting the unintended consequences of taxing unrealised gains and lack of indexation.

SMSF Association CEO, Peter Burgess, said the Teal crossbenchers have always been strong supporters of the association’s position on the taxation of unrealised capital gains and indexation.

“As we have said on many occasions this new tax introduces an unprecedented treatment of assets, and it’s encouraging to see this now being called out,” he said.

“It could have far reaching implications for future tax changes beyond superannuation.”

In parliament last week, North Sydney representative Kylea Tink said the proposed tax was a “moment-in-time cash grab” and asserted it introduces an unprecedented treatment of assets in Australia.

“At the same time it doesn’t seem to be in any way, shape or form future-proofed,” she said, adding it was reasonable to expect asset classes held by super funds, such as property, to fluctuate over time,” she said.

She added that despite submissions from leading industry associations, there had been little change to the bill since it was first proposed.

Moreover, Goldstein MP Zoe Daniel said taxing unrealised gains of large balance super accounts was “out of line with their treatment in other areas of tax policy where capital gains are normally taxed on realisation, not accrual” and added that the “refusal to entertain indexing the cap” was the “superannuation equivalent of bracket creep”.

Meanwhile, Wentworth MP Allegra Spender argued the tax could potentially deter investment from SMSFs in venture capital in early-stage start-ups.

“There’s a real danger that we will basically disincentivise angel and other investors making these early or midsize investments in their super funds,” Spender said.

“Superannuation has a disproportionate sway in the Australian investment space, it’s where people put their discretionary income … so at a time when cash is already going out of that [start up] system, they could lose more.”

Burgess said the government has previously acknowledged that economic growth requires investment and the common ingredient for success in a more challenging economic world is business investment.

“SMSFs have historically been a strong source of venture capital. Taxing unrealised capital gains will discourage investment, particularly investment in technology where it is common for valuations to increase significantly long before the payment of any income,” he said.

By Keeli Cambourne (SMSF Adviser)

Common FBT mistakes flagged as FBT season kicks off

BDO has outlined several areas within fringe benefits tax that employers and accountants should pay close attention to.

Accountants and their business clients should be closely considering their fringe benefits (FBT) tax compliance as they approach the FBT compliance season this year, with employee benefits now much more of a focus in the current labour market, says BDO.

In a recent article, BDO said there is a need for “heightened awareness and diligence among employers” concerning FBT compliance, with many still struggling to understand the law in this area.

“There are several specific areas within FBT that employers should pay particular attention to, with both the ATO and our advisers commonly seeing mistakes in these areas,” the accounting firm said.

One of the key areas where mistakes happen is the misclassification of a vehicle for
either private or business use and not understanding which vehicles are FBT-exempt and which are not.

“This particularly relates to commercial vehicles such as dual cab utes,” said BDO. BDO said it also commonly sees issues with businesses not accurately keeping logbooks.

Other areas where businesses can fall into trouble with FBT compliance are inconsistencies between FBT and income tax returns, where employee contributions are miscategorised during reporting, and incorrect application of employee contributions.

“[Other issues include] employers applying a consolidation approach to filing FBT returns and not lodging a separate FBT return for each employing entity or not submitting a notice of non-lodgement when there is no FBT to declare,” said BDO.

Other problem areas include fringe benefit amounts being incorrectly reported and failing to take prompt action when a mistake has been made.

Recent changes with FBT

“Employers should also be aware of the recent changes to the FBT regime and other areas of tax reform that affect FBT application for FBT compliance season 2024,” said BDO.

Updates have been made to the electric vehicle home-charging rate in PCG 2024/2. “This is the introduction of a safe harbour of 4.2 per cent per kilometre that can be used for calculating electric charging costs of vehicles at home-charging stations in effect from 1 April 2022 for FBT tax and 1 July 2022 for income tax purposes,” the article explained.

“While electric vehicles are exempt from FBT, they are required to be included on individual’s employee’s earnings statement meaning that this safe harbour method provides a practical alternative where employers use the operating cost method to calculate the taxable value.”

Alternative record-keeping measures have also been introduced to reduce and simplify FBT record-keeping requirements for employers while producing similar compliance outcomes with lower compliance costs.

“It allows employers the choice to use existing records in place of travel diaries or
employee declarations for certain types of benefits. This applies to the 2025 FBT year
(1 April 2024 to 31 March 2025) and onwards,” said BDO.

By Miranda Brownlee (Accountants Daily)

March 2024 – Accounting and SMSF Roundup

March Round up

February 2024 – Accounting and SMSF Roundup

February Round up

Keeping you up-to-date in February 2024, we explore crucial aspects of property ownership, diving into the differences between joint tenants and tenants in common. Additionally, we shed light on the downsizer contribution rules, allowing those 55 and above to boost their superannuation. Don’t miss the insights on the last year for the five-year catch-up contribution rules, offering valuable tips for financial planning. Whether you’re a property buyer or planning for retirement, this edition has essential information for you. Read on to stay informed and make well-informed decisions.

  1. Understanding Joint tenants versus Tenants in Common
  2. Boost your superannuation with the superannuation downsizer
  3. Plan now to take advantage of 5-year carry forward rule

Joint Tenants and Tenants in Common

When buying a property with another person, you are given the option of how to be registered on the title of the property with them: joint tenants or tenants in common. But what is the difference between the two, and is one better than the other? In this article, we explain everything you need to know.

What is Joint Tenants?

Joint tenants means you own 100% of the property jointly with the people registered as joint tenants with you.

Practically this means:

  • When joint tenants die, the surviving owner(s) automatically become entitled to be registered as the sole owner(s) of the whole of the interest in the property. This means that any property owned in joint tenancy do not form part of a deceased’s estate, rather their interest automatically goes to the surviving owner(s). This is called “the right of survivorship”.
  • You even split the property’s profits, losses, and risks.
  • You cannot have an uneven share of the property. All joint tenants own the property 100% jointly. For tax purposes, the shares are even.

What is Tenants in Common?

Tenants in common means you have a defined ownership share of a property title. This can be 50-50, 60-40, 99-1 or any other combination.

Practically this means:

  • On the death of either of the owners, the deceased’s interest in the property passes to his or her beneficiary (not necessarily the surviving owner on the title). The beneficiary is dictated by the deceased’s Will or if they do not have a Will by State law.
  • The defined ownership share splits the property’s profits, losses, and risks.

Can you do both Tenants in Common and Joint Tenants at the Same Time?

Yes, you can if you have three or more owners on the title. For example, persons A and B hold a 50% share of the property as tenants in common jointly, while person C holds their 50% share as a tenant in common individually.

Practically this means:

  • On the death of either person A or B, who holds their 50% share jointly, the survivor of A or B will get the full interest of the deceased share. Person C will not have any claim to this share as they did not hold that 50% share jointly.
  • If Person C passes away, Persons A and B will have no automatic interest in Person C’s share of the property. Rather, person C’s share in the property will go to their beneficiary in accordance with their Will or State law if no Will exists.

Touch base with us if you would like more advice about the ownership structure you should adopt when acquiring property.

Superannuation Downsizer

Are you looking to boost your superannuation balance as you near retirement?

Put simply, the intention of the downsizer contribution rules is to allow older Aussies to sell their current home and use the proceeds to contribute to their super account.

Starting 1 January 2023, new rules have lowered the minimum eligibility age to allow people aged 55 and over to access downsizer contributions. Originally, the minimum age was 65, but this has progressively been lowered to age 55.

The lower age limit (55 years) is based on your age when you make the contribution, and there is no upper age limit. Normally, once you reach age 75, the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.

Contribution limits

Under the downsizer rules, you are allowed to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible family home.

The contribution limit is the lesser of $300,000 and the gross actual sale proceeds. This means if you gift your home to a family member and the sale proceeds are $0, you cannot make a contribution.

Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute to your super account.

Eligible homes

While the downsizer rules are generous, ensuring your home is eligible before you sell is essential.

The key criteria are:

  • You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property to the settlement date when you sell it.
  • The property being sold must be your family home (main residence) at the time of the sale, or it must be partially exempt from capital gains tax (CGT) under the main residence exemption.
  • The home you sell must be in Australia.

Some types of property are not eligible under the downsizer rules. These include an investment property you have not lived in, caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.

If you sell your home and want to make a downsizer contribution, you are not required to buy a new home with any sale proceeds. That is, there’s no requirement to buy a cheaper or smaller home after making your downsizer contribution, so you can even decide to purchase a more expensive replacement home.

Time frame of making the contribution

The contribution must be made within 90 days of receiving the proceeds of sale, usually at the date of settlement.

How to make the contribution

First off, you must contact you super fund to see if they will accept the downsizer contributions. Assuming they do, you will have to submit Downsizer contribution into super form to your fund(s) with or before your contribution is made. If you don’t, your fund may not be able to accept your contribution as a downsizer contribution.

Plan now to take advantage of 5-year carry forward rule

By Keeli Cambourne (2 February 2024)

This is the last year that the five-year catch-up contribution rules for concessional contributions can be used for those who are eligible, warns a leading educator.

Meg Heffron, director of Heffron, said trustees who started using the scheme in its first financial year in 2018–19, now need to start planning regarding their next steps.

“This year is slightly unusual in a couple of respects when it comes to contributions. That makes it even more important to get the planning right well before 30 June 2024,” she said.

“Perhaps most importantly, for those eligible to use the five-year catch-up contribution rules for concessional contributions, this year (2023–24) is the last year in which the unused cap carried forward in the very first year of the scheme (2018–19) can be used. Next year, it drops off because these amounts can only be carried forward for five years.”

Ms Heffron gave an example of how these changes will work for a fictitious client called Anna, who had $400,000 in super at 30 June 2023, meaning she can use the catch-up rules this year if she wants.

Anna doesn’t sacrifice her salary but has compulsory contributions from her employer. She earns $150,000 per annum and is in a high tax bracket (37 per cent), plus the Medicare levy, and is looking to make some tax deductions.

In 2018–19, Anna only used part of her concessional contributions cap and has $10,000 left, which she can use this year, but if she doesn’t by 1 July 2024, the opportunity will be gone and she can only use the caps she has left over from 2019–20 onwards.

“It’s important to note she would need to use all of this year’s cap ($27,500) first before being allowed to use the $10,000 she has left from 2018–19 and unfortunately she can’t elect to use that $10,000 while carrying forward some of her 2023–24 concessional contribution cap for future use,” Ms Heffron said.

“But if she can manage it, there’s a $10,000 tax deduction up for grabs in 2023–24 that will otherwise go begging.”

Ms Heffron said if Anna doesn’t use the $10,000 from 2018–19 this year, she should plan to do so in future years, as each year going forward, another unused amount from five years ago will drop away. Once her balance goes over $500,000, she won’t be able to use any of the previous years’ cap amounts that she’s carried forward.

Ms Heffron added there is a strategy Anna can use if she has a partner who has not used their old concessional cap amounts.

For example, if Anna’s partner has $600,000 in super, Anna could consider “splitting” all her concessional contributions, even her super guarantee contributions, with her partner.

“In effect, they come into her super account during the year but get moved to the partner’s in the following year which will allow her to keep adding money to super using all possible tax deductions without growing her balance too quickly and ruling her out of using the carry forward rules,” Ms Heffron said.

“Once Anna has more than $500,000 in super, her partner can return the favour and split their future concessional contributions to Anna which would also make sense if her partner didn’t have any unused concessional cap amounts to carry forward or if their super contributions were subject to Division 293 tax.”

Ms Heffron said the stage 3 tax cuts will make a difference to the tax paid by people on high incomes and although they may not be getting as large a tax break as originally planned, the principles are the same.

“In a way, that incentivises them to contribute as much as they can this year via concessional contributions because the deduction is worth more in 2023–24 than 2024–25,” she said.




November 2023 – Accounting and SMSF Roundup

November and Christmas Round up

With Christmas just around the corner, this month’s accounting and SMSF round up looks at the Fringe Benefit Tax and how to keep your Christmas parties and gifts tax friendly.

1. Christmas Parties and Fringe Benefit Tax
2. Christmas Gifts and Fringe Benefit Tax

Christmas Parties and FBT

With work Christmas parties just around the corner, we look at the tax treatment of such occasions.

Key concepts

To begin with, there are two critical issues to understand.

  1. Entertainment

Typically, fringe benefits tax (FBT) will only apply to a party if it involves the provision of ‘entertainment’. This means the provision of (a) entertainment by way of food, drink, or recreation, or (b) accommodation or travel in respect of such entertainment, such as taxis, hotel accommodations, etc.

In this case, recreation includes amusement, sport and similar leisure-time pursuits and provides recreation and entertainment in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

  1. Minor Benefits

In simple terms, a minor benefit is provided to an employee/associate (spouse) if done so on an infrequent or irregular basis (typically, no more than twice per year), and the cost is less than $300 inclusive of GST per employee/associate. This is $300 per expense (i.e., $300 per meal and drinks and a separate $300 per accommodation, etc.).

Note that for this piece, we will assume the employer (like most employers) uses the Actual method to calculate FBT, whereby FBT is paid only to employees and their associates (not clients or other outside individuals).

Venue

  1. Business premises

Holding your Christmas party on the business premises on a working day (logically, Friday after work) usually gives an employer the most tax-effective outcome. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. The reason why FBT does not apply is because there is typically no “recreational” component in play. Thus, the following rules apply to parties on the business premises:

Employees Tax Treatment
Food and drink per person (no dollar limit) – No FBT applies, no tax deduction, and no GST credit is claimable.
Recreation (e.g., band) per person < $300 – No FBT, no deduction, no GST credit.
Recreation $300 or more – FBT applies, is tax deductible, and GST credit is available.
Associates  
Food and drink <$300 per person – No FBT, no deduction, no GST credit
Food and drink $300 or more FBT applies, is tax deductible and GST credit available
Recreation <$300- No FBT, no tax deduction, no GST
Recreation >$300- FBT applies, is tax deductible and GST credit available.

EXAMPLE – Christmas party on business premises

A company holds a Christmas lunch on its business premises on a working day.

  • Employees, their partners and clients attend.
  • The company provides food and drink and taxi travel home.
  • The cost per head is $125.

Entertainment is being provided. A party for employees, associates and clients is entertainment because the purpose of the function is for the people attending to enjoy themselves.

Employees – no FBT; exemption applies.

The employer doesn’t pay FBT for the following:

  • food and drink for employees, because it is provided and consumed on a working day on the business premises.
  • taxi travel because there is a specific FBT exemption for taxi travel directly to or from the workplace.

Associates – no FBT; exemption applies.

The employer doesn’t pay FBT for the food, drink and taxi travel provided to the employees’ partners (associates) because it is a minor benefit – that is, it has a value of less than $300, and it would be unreasonable to treat it as a fringe benefit.

Clients – no FBT

There is no FBT on benefits provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.

  1. Offsite (e.g., restaurant)

The party is held offsite, and the tax treatment is slightly different as follows:

Employees Tax Treatment
Food and drink <$300 per person – No FBT, no deduction, no GST credit.
Food and drink $300 or more – FBT applies, tax-deductible, GST credit available.
Recreation (e.g., band) <$300 –  No FBT, no deduction, no GST credit.
Recreation $300 or more – FBT applies, tax-deductible, GST credit available.
Associates  
Food and drink <$300 per person- No FBT, no deduction, no GST credit.
Food and drink $300 or more – FBT applies, tax-deductible, GST credit available.
Recreation <$300 – No FBT, no deduction, no GST.
Recreation >$300 or more – FBT applies, tax-deductible, GST credit available.

Clients

Irrespective of the cost or the party’s location (business premises or offsite) under the Actual method, there is no FBT, nor is there a tax deduction or GST credit available for food and drink or any recreation component provided to clients or suppliers. The reason for this is that FBT applies to employment. As a result, clients and suppliers fall outside the FBT system (except where the employer elects to use the 50/50 method to calculate their FBT liability).

Christmas Gifts and FBT

To correctly determine the tax treatment of a gift given to an employee or their associate, e.g., spouse (not just at Christmas time but at any time during the year), a distinction needs to be drawn as to whether the gift is categorised as a “non-entertainment gift” or on the other hand as “entertainment”.

“Entertainment” type gifts include movie theatre tickets, sporting tickets, holiday vouchers or admission to an amusement centre. Whereas “Non-Entertainment” type gifts include Christmas hampers, a bottle of whiskey or wine, gift vouchers, perfume, flowers or a pen set.

 

For gifts given to entertainment-based clients, no FBT is applicable nor a tax deduction is available. However, these would be tax deductible if you give a client a bottle of wine, a carton of beer or a Christmas ham rather than movie tickets.

 

Mindful of this, the treatment is as follows:

 

Entertainment gifts

EmployeesTax Treatment
Cost <$300 per person –No FBT, no deduction, no GST credit
$300 or more –FBT, tax-deductible, GST credit available
Associates 
<$300 –No FBT, no deduction, no GST credit
> $300 or more –FBT applies, tax-deductible, GST credit available

 

Non-entertainment gifts

EmployeesTax Treatment
Cost <$300 per person –No FBT, no deduction, No GST credit
$300 or more –FBT, deduction deductible, GST credit available
Associates 
<$300 –No FBT, tax-deductible, GST credit available
$300 or more-FBT applies, tax-deductible, GST credit available

No FBT would apply for gifts costing less than $300 to employees and associates, but these are tax-deductible, so feel free to hand out Christmas hams, perfume or shopping vouchers. This is the most tax-effective and economic option.

The rules regarding the minor benefit exemption have changed, so you should feel free to give the gifts at the Christmas Party rather than a few weeks before, as was previously the case. This is because the gift and the cost of the function are considered separate benefits and have their own $300 threshold. 

The FBT implications for Christmas parties and gifts can be quite complicated. There are many different variables and combinations that can change the tax-deductible nature and the fringe benefits implications for having an event or giving a gift. Speak with us if you have any questions.

October 2023 – Accounting and SMSF Roundup

October Round up

Our October Roundup focuses on:

1. Cryptocurrency
2. Deductions for superannuation contributions
3. Gifts and donations

Cryptocurrency

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically.

Crypto assets are a subset of digital assets that use cryptography to protect digital data and distributed ledger technology to record transactions. They may run on their blockchain or use an existing platform such as Ethereum. A blockchain is a secure digital ledger used to store a record of crypto transactions.

Crypto generally operates independently of a central bank, authority, or government. However, crypto asset transactions usually are subject to the same tax rules as assets. There are no special tax rules for crypto assets. The tax treatment will depend on how you acquire, hold, and dispose of the purchase.

For tax purposes, crypto assets are not a form of money.

Taxation

You can acquire or dispose of a crypto asset on a crypto trading platform or directly from a digital or hardware wallet. You can exchange or swap crypto assets for other crypto assets, fiat currency or goods and services.

Using or transacting with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them).

Generally, for investors:

  • crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto assets.
  • rewards for staking crypto are ordinary income for tax purposes.

Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense, depending on the nature of the transaction.

In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered personal use assets.

 Tax Calculation

As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is:

  • total capital gains.
  • less any capital losses.
  • less entitlement to any CGT discount on your capital gains.

Before you calculate CGT on your crypto assets, you will need to:

  • check you have records for your crypto assets and crypto transactions.
  • convert the value of the crypto assets into Australian dollars.

You need to keep details for each crypto asset as they are separate CGT assets. You can work out your CGT using the ATO’s online calculator and record-keeping tool.

This can be a complex area of the taxation law. For this reason, reach out to us if you are still determining your crypto tax position and the records you are required to keep.

Deduction for Superannuation Contributions

Did you know you can make retirement provisions while improving your tax position? This can be achieved by creating a personal, after-tax contribution to your superannuation fund.

You’re eligible to claim a deduction for personal super contributions if:

  1. You made the contributions to your fund that was not a:
    • Commonwealth public sector super scheme in which you have a defined benefit interest.
    • constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income.
    • super fund that notified us before the start of the income year that they elected to treat all member contributions to the super fund as non-deductible.
      • defined benefit interest within the fund as non-deductible.
  1. You meet the age restrictions. If you are under 67, you meet the limits. If you are 67 to 74, you must meet the work test, meaning you must work 40 hours or more in a consecutive 30-day period in the financial year to make contributions.
  2. You have given your fund a notice of intent to claim in the approved form.
  3. Your fund has validated your notice of intent form and sent you an acknowledgement.

Example

Narrelle is a fulltime teacher. During 2022/23, she earned $85,000 before tax.

She makes a personal $15,000 contribution to an eligible superannuation fund during the income year and notifies it that she intends to claim a deduction.

Narrell’s superannuation fund acknowledges that she will claim a $15,000 deduction and taxes the contribution at 15% ($2,250).

Narrelle is eligible to claim a deduction for $15,000 and does this in her 2022/23 income tax return.  This deduction will increase her tax refund by $5,175, an overall tax saving of $2,925.

Please feel free to contact us if you have any questions about this strategy or the taxation of superannuation more generally.

Email: david@ppatkins.com.au77 Willarong Rd
Caringbah, nsw 2229 Australia

September 2023 – Accounting and SMSF Roundup

September Roundup

Our September Roundup focuses on GST rules and maximising GST claims, differences in paying employees travel or living-away-from-home allowances, considerations for appointing SMSF auditors and tax implications of the sharing economy.

Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.

Small Business Lodgement Penalty Amnesty

Small Business Lodgement Penalty Amnesty

The ATO is offering a lifeline to eligible businesses with outstanding tax debts.

Small businesses have a one-off amnesty to lodge outstanding tax returns without penalties.

The amnesty operates until 31 December 2023 and allows small businesses to lodge outstanding tax returns and business activity statements (BAS) that were due between 1 December 2019 and 28 February 2022, without incurring penalties.

The Federal Government has established the amnesty as part of the 2023-24 Federal Budget, to recover some of the estimated $30 billion in small business tax debt.

It applies to businesses with an annual turnover of under $10 million at the time the original lodgement was due.

How will the amnesty assist my business?

Lodging a tax form late can expose your small business to a $1,100 penalty. If you utilise the amnesty, that penalty will be automatically waived. Lodgements need to be done by 31 December 2023.

ATO repayment options

The outstanding lodgements are only one part of the issue. Many small businesses have outstanding tax debts, and getting your tax lodgements up to date may crystalise further tax debts.

If you are concerned about finding the funds to make payment, you should contact an advisor to discuss your available options and effectively manage your obligations. We are already seeing an increase in ATO debt recovery actions and we expect the ATO to further ramp up enforcement activities once the amnesty has ended.

An option that might be available to your business is establishing a repayment plan with the ATO. At present, the tax office has around 400,000 active payment plans – 300,000 of which belong to small businesses.

There are several repayment options offered by the ATO:

  • Self-service payment plan: This is only available to tax debts under $100,000 and has a standard 28-day processing time. The proposed plan should enable the debt to be paid off in two years or less, and the first payment must be scheduled within seven calendar days of the request.
  • Proposing a payment plan: These plans are offered on a case-by-case basis and the ATO considers many factors when assessing eligibility including compliance history, risk mitigation and the size and age of debts

How do I access the amnesty?

To access the small business lodgement penalty amnesty, lodge your relevant forms either independently or through a registered tax agent.

Failure to Lodge penalties may appear on your business’s ATO account, however eligible fines will be remitted.

While the amnesty only covers outstanding tax obligations originally due for lodgement within the period mentioned above, we urge businesses to lodge all overdue forms as the Australian Taxation Office considers circumstances on a case-by-case basis and may waive penalties.

It’s also important to communicate with the ATO because outstanding obligations and a lack of communication can trigger an ATO review or audit.