WSC Caringbah E-News – December 2009 Newsletter

This issues includes:

Christmas Parties
Gifts to Employees
Gifts to Clients, Suppliers or Associates
ATO looks closely at Employers Employing "Contractors"
Cash Economy in the firing line
NSW moves to National Industrial Relations System
ATO trials payment by credit card
Superannuation "Clearing House" Service
Fringe Benefits Tax Audits prove costly for Employers
Self Managed Super Fund (SMSF) Enduring Powers of Attorney
 

Christmas Parties                    

The rules are different depending on whether the party is held on your business premises or externally.

If the party for employees is held on your business premises on a working day, the provision of food and drink to employees is classified as an ‘exempt property benefit’, so it is not counted for Fringe Benefits Tax (FBT) purposes.

This rule does not apply to family members, so FBT will be triggered if they attend but your business should be entitled to deductions and GST credits for part of the cost.

If you hold the party at a restaurant or somewhere away from the business premises than you are inside the FBT net but you still may be able to avoid any liability. Under the minor benefits exemption, provided the total cost per person is less than $300 then the benefit will not be counted for FBT purposes. If your staff are bringing their partners or family to the party this exemption extends to them.

The bad news is that if you avoid paying FBT on the Christmas party you cannot claim GST credits or a deduction for the expense.

If your party costs more than $300 per person then you will be caught by FBT but you can at least claim GST credits as a deduction.

The cost of providing a Christmas party for clients is not deductible and not subject to FBT.

Gifts to Employees            

If you are really taken with the Christmas spirit and decide to provide your staff with a gift, then the minor benefit exemption also applies to this gift. So, if you give your team a gift with a value of less than $300, this would generally be exempt from FBT. Gifts of over $300 or more will generally be subject to FBT in the hands of the employer. The $300 threshold for gifts applies in full even if the gift is provided at a Christmas party.

Employers can generally claim deductions and GST credits for the cost of gifts that are provided to employees. The main exception is where the gift relates to entertainment (e.g., theatre or sporting tickets, holiday accommodation etc). If the gift relates to entertainment, the business can only claim deductions and GST credits if the gift is subject to FBT.

Gifts to Clients, Suppliers or Associates

Gifts to clients should be deductible and should give rise to GST credits if the business expects that:

• The gift will promote the business and create good will, leading to further business being generated in future; or 

• The gift will motivate the client to refer the business to others.

   

Businesses cannot claim deductions or GST credits if the gifts relate to entertainment. Gifts to clients are not subject to FBT.

To avoid any FBT liability simply plan your Christmas celebrations around these minor benefit numbers and, as with all things, make sure you keep the paperwork to support your calculations. This should include details of the cost of the party plus a list of attendees so you know the total number you can apply the minor benefit exemption to. Armed with this information, the Tax Commissioner will not spoil your party.

ATO looks closely at Employers Employing ‘Contractors’

In a recent speech, a senior tax officer indicated that the ATO was now taking a good hard look at employers arrangements with ‘contractors’, to ensure that they are in fact, genuine contractors and not just employees being treated as contractors to cut costs.

He said that “Evidence suggests that the current tighter economic conditions have increased the prevalence of such arrangements as more businesses feel the need to cut costs and labour market conditions can make employees more vulnerable to these practices.”

“Increasingly it seems that many employers prefer to treat workers as contractors as it can enable them to cut costs in terms of workers compensation, payroll taxes and superannuation guarantee. They can also negotiate pay rates outside of normal wages and conditions and do not withhold tax.”

The Tax Office has commenced an audit campaign that will tackle non-compliance in this area by focusing on businesses that do not withhold from payments to workers as required and fail to make superannuation guarantee contributions.

Cash Economy in the firing line

The Tax Office has released copies of letters which will be sent out to thousands of taxpayers who are in the cash economy.

The ATO stated that it was sending letters to businesses that have:

• Made substantial bank deposits that do not appear to be consistent with reported income; or
• Made multiple international transfers out of their bank accounts that don’t appear to be consistent with their reported income; or
• Reported income that doesn’t appear to support the owner’s personal living expenses.

One of the letters sent out advises the taxpayer that their business has reported a net income that appears to be lower than required to support a reasonable level of personal living expenses.

It states that the Tax Office uses a range of indicators to identify businesses for reviews and audits including:

• Identifying businesses with the opportunity for cash economy activity;
• Comparing tax return information to other similar businesses in their industry;
• Using information from organisations such as Centrelink, business suppliers and banks; and
• Reviewing information provided by the community.

The letter finishes by saying that the ATO will be monitoring the taxpayer’s activity statements and/or income tax returns during the next six months. This may result in the business being selected for an audit.

NSW moves to National Industrial Relations System

From 1 January 2010, a Fair Work Information Statement is to be provided by employers to all new employees as soon as possible after the commencement of employment. The Statement provides basic information on matters that will affect  employment.  If you require further information, you can contact the Fair Work Infoline on 13 13 94 or visit www.fairwork.gov.au.

To access a copy of the Fair Work Information Statement, click here  

ATO trials payment by credit card

The tax Office is trialling payment by credit card for all taxation liabilities. Initially, payments between $10 and $10,000 will be accepted.

To make credit card payment, taxpayers will need:

• A current Visa, MasterCard or American Express card;
• Their ATO electronic funds transfer EFT code; and
• To use the Government EasyPay website or telephone service.

Taxpayers will be informed of the bank fee amount on the transaction before they are asked to confirm payment.

Superannuation ‘Clearing House’ Service

The government has announced a new measure to cut red tape for may businesses which have to make superannuation contributions to numerous super funds for their employees.

From July 2010, small business will be able to pay one superannuation contribution to a ‘clearing house’, which will then forward payments on to super funds nominated by the employer.

Medicare is the nominated clearing house and small businesses will be able to begin registering with it online in May 2010 (for a July start).

How will the service work?

• Small businesses with less than 20 employees will register online and pay their superannuation contributions to Medicare, which will split them up and forward on to the nominated super funds.
• Employers will pass on choice-of-fund nominations to Medicare.
• Medicare will develop an online system for registration and on-going payments, with payments initially being made via electronic funds transfer (EFT).

Fringe Benefits Tax Audits prove costly for Employers

A recent case at the Administrative Appeals Tribunal (AAT) meant an employer had to pay $87,739 plus penalties and interest.

The case involved a company employer and employee director.  The employer did not lodge a Fringe Benefits Tax (FBT) return for a number of years.  An audit of the company discovered a car fringe benefit liability.

The employer was not aware that cars garaged near an employee’s home are available for the employee’s private use.

If a car is garaged at or near an employee’s home, the FBT law says it is available for the employee’s private use, regardless of whether the employee has permission to use the car privately.

It is very important to keep accurate and up-to-date log books.

The ATO are continuing to check car benefits through data matching and compliance verification.

Based on historical data, when the ATO reviews employers’ practices, the average liability per case is around $77,000 with an associated general interest charge of over $19,000.

When the ATO escalate cases and issue assessments, additional penalties average over $38,000 per case.

What this means for employers

• If employers don’t meet the FBT obligations, they may receive a default assessment and associated penalties.
• Lodging an FBT return late is better than getting caught not correctly accounting for FBT.
• If employers voluntarily disclose an FBT mistake before the ATO contact them, they minimise penalties, although the general interest charge (GIC) will normally still apply.

Self Managed Super Fund (SMSF) Enduring Powers of Attorney

A person who holds an enduring power of attorney for a super fund member must be appointed as a trustee or a director of the corporate trustee in place of the member.  The member must resign as a trustee or as a director of the corporate trustee.

In this situation, the fund does not have to stop being a Self Managed Super Fund (SMSF).

The enduring power of attorney must be current and meet the relevant state and territory laws relating to enduring powers of attorney.

 A person who holds an enduring power of attorney for a member qualifies as a legal personal representative.

The legal personal representative performs their duties as a trustee of the SMSF, or a director of the corporate trustee of the SMSF, according to their appointment to the position rather than as an attorney for the member.