WSC E-News – November 2009 Newsletter

Business Tax Break Available until 31 December 2009
Christmas & Year End Parties and Gifts
The Small Business Hit List - Is the Tax Office Targeting Your Business?
Trade Marks, Business names, Company names and Domain names
Changes to Non-Commercial Loss Rules Target Hobby Farms for the Rich
Saying of the Month

 

Business Tax Break Available until 31 December 2009

The end of the calendar year is approaching – and that means businesses need to act quickly if they want to access the additional tax deduction for eligible, new, tangible depreciating assets.

Small businesses (those with an annual turnover of less than $2 million) can claim a 50% tax deduction on the cost of eligible assets that they buy between 13 December 2008 and 31 December 2009, and first use or install by 31 December 2010.

Other businesses may be eligible for a 30% tax deduction for assets they bought by 30 June 2009, otherwise a 10% deduction may be available depending on when they buy and first use or install the assets.  The tax break is an extra benefit - you can still claim a deduction for the decline in value of eligible assets.

Small business need to spend at least $1,000 on an eligible asset.  For all other businesses (where annual turnover is $2 million or more) it is $10,000.  To help reach these thresholds, businesses can combine the cost of assets that form part of a set or are identical or substantially identical.

Where the asset is used for personal as well as business use

To qualify for the Investment Allowance, an asset needs to be for the “principal purpose of carrying on a business.”  There has been a lot of confusion around what “the principal purpose of carrying on a business” really means, particularly for assets like cars where the asset might be used for personal as well as business use.

The Tax Commissioner has since concluded that where a taxpayer is expected to use an asset for more than 50% of the time for the purpose of carrying on a business, this will meet the eligibility criteria for the Investment Allowance.

Timing of purchase

To qualify for the Investment Allowance the “investment commitment time” must occur after 12.01am, 13 December 2008 and before 1 January 2010.  Also, in order for a non-small business entity to qualify for the 30% Investment Allowance, the investment commitment time must have occurred before 1 July 2009.

Hire purchase agreements

When it comes to hire purchase agreements, the Tax Commissioner has stated that the “investment commitment time” is the time at which the hire purchase agreement was entered into.  It is not when the deposit was paid or order placed.  So, be careful you have the right dates in place if you are claiming the investment Allowance.

Demonstrator vehicles

Generally, the Investment Allowance only applies to new cars.  The exception is where the car has been used as a demonstrator vehicle held for “testing and trialling”.  But be careful, just because the dealer calls it a demonstrator vehicle doesn’t mean the Tax Office will accept their definition. To qualify you need to prove that the car was only held for a reasonable period of testing and trialling.  As a general rule, the ATO have stated that a demonstrator vehicle will be considered ‘new’ where it has been used for demonstration purposes for a period up to three months.

For assistance on how to claim the Investment Allowance in your business, contact your adviser today.

Christmas & Year End Parties and Gifts

The year end is on the way and many employers will be planning to celebrate Christmas with their annual year end “party”. In addition, many businesses will be considering what gifts, if any, they will provide to clients and employees.

However, an important issue to consider is the possible fringe benefits tax (“FBT”) and income tax implications of providing “entertainment” to staff and clients.

If you would like some assistance in this complicated area please contact us.

One major consideration is the “less than $300” minor benefit exemption and the fact that the Tax Office now accepts that different benefits provided at (or about) the same time, are not added together when applying this threshold.

This means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300!

Gifts which are NOT Entertainment generally include:

• A Christmas hamper, a bottle of whiskey, wine, etc; and

• Gift vouchers, a bottle of perfume, flowers, a pen set, etc.

Gifts which are Entertainment generally include:

• Tickets to attend a theatre, live play, sporting event, movie or the like; and

• A holiday airline ticket or admission ticket to an amusement park.

Example of a party and gifts

An employer holds an external Christmas party for employees and their spouses.

The cost of food and drink per person is $250, and no other benefits are provided.

If the “Actual Method” for calculating entertainment is adopted:

• For employees attending with their spouses – no FBT is payable (i.e., the per head cost is less than $300); and

• For employees attending alone – no FBT is payable (i.e., the per head cost is less than $300).

In either case, no tax deductions will be allowed.

If the “50/50 Method” for calculating entertainment is adopted:

• 50% of the total expenditure is subject to FBT and is tax deductible.

The Small Business Hit List – Is the Tax Office Targeting Your Business?

Last month, the Tax Office released a raft of new benchmarks for small business. Under the gentle guise of “helping small business with their tax compliance”, the benchmarks are, in reality, one of the key indicators used to identify who is likely to be scrutinised by the Tax Office.

The industries benchmarked are high on the “likely offenders” list for the cash economy and the Tax Office makes it clear that “businesses reporting outside of these benchmarks are likely to attract attention.”

The small business benchmarks provide an indication of likely costs relative to turnover for different industries.

The danger is that if your business falls outside of the benchmark for legitimate reasons, you still need to ensure that you can justify the reasons for the variations. This will be a common problem where businesses do not neatly fit into an industry definition.

The Tax Office Small Business Benchmark Hit List is as follows:

Accommodation and Food Services	Rental, Hiring and Real Estate Services
Chicken Shops	Video and other electronic media rental and hiring
Coffee Shops
Fish and Chips Shops
Kebab Shops	Retail Trade
Pubs, Taverns and Bars	Clothing retailing
Restaurants	Computer retailing
Sandwich Shops	Floor covering retail
Sushi Takeaways	Florists
Takeaway Food Services	Footwear retail
Takeaway pizza shops	Fresh fish and seafood retailing
	Fresh poultry retailing
Administrative and Support Services	Fruit and vegetable retailing
Building and other industrial cleaning services	Furniture retail
Pest Control services	Grocery retailers and general stores
	Houseware retailing
Construction	Liquor retailing
Air Conditioning, refrigeration and heating services	Meat retailing and butchers
Bricklaying	Newsagents
Blocklaying	Tyre retail
Concreting Services
Electrical Services	Transport, postal and warehousing
Fence construction	Courier services
Painting services	Delivery services
Plasterboard installers	Furniture removalists
Plastering and ceiling services	Road freight transport services
Plumbing services	Taxi drivers and operators
Roof guttering Installation	Towing services
Roof painting and repair
Roofing services - includes roof tiling and metal roofing services	Other Services
Tiling and carpeting services	Barber and men's hairdressing
Tiling - floor and wall	Beauty services
Timber floor installation	Laundry and dry-cleaning services
Timber floor sanding	Nail salons
Manufacturing
Bakeries and hot bread shops
Cake shops and patisseries

Trade Marks, Business names, Company names and Domain names

The difference between trade marks, business names, company names and domain names sometimes causes confusion for both traders and the public.

Registration of a business name, company name or domain name does not in itself give you any proprietary rights - only a trade mark can give you that kind of protection.

The same word or words may be registered by different people as business names and trade marks. However, the registered trade mark owner can sue the business owner for infringing the trade mark if the business name owner uses it on goods or services similar to those covered by the trade mark registration.

It is important that when business owners register a business name or company name, they are careful not to infringe on someone else's trade mark. It is always wise to search the trade mark databases first.

IP Australia (Govt organisation) provides a professional search service called the Business Names Applicant Search Service (BASS) for a fee of $40 (GST inclusive).  Their staff can conduct a thorough search of the database and issue a report showing if there is an existing registered trade mark which is identical or very similar to your proposed business name.  You can apply for a search by calling 1300 651 010 during normal business hours (if paying by credit card), or you can mail or fax them your request.  They will generally report back to you within one or two business days.

Alternatively, you may conduct a search yourself by searching the trade marks database over the Internet.  However, it often pays to use a professional such as a Patent Attorney, Trade Marks Attorney, or Trade Mark agent.

A company name must be registered under the national Corporations Law administered by the Australian Securities and Investments Commission.  If a company wishes to trade using a name other than the registered company name, it will be necessary for the company to register that name as a business name.

A business name is a name under which a business operates. Registration serves as a means of identifying the owners of the business and is obtained under state or territory legislation.  Where trading occurs in more than one state or territory, the business name must be registered under the laws of each one. Registration of a business name is compulsory and must be completed before the business starts trading.

A domain name is a textual address for a location on the Internet which corresponds to the actual alpha numeric address which the Internet computers can read.  You can register your domain name as a trade mark as long as it meets the requirements of the Trade Marks Act 1995.

A trade mark is used to distinguish the goods or services of one trader from those of other traders. Registration of a trade mark gives the registered owner exclusive use of the trade mark throughout Australia.  It generally takes around 7 months to have a Trade Mark application fully processed and approved including 3 months listed on IP Australia for people to lodge objections.  Upon lodgement of an application (priority date), the trade mark is reserved.  This does not mean it will be approved.

Trade marks can be registered Australia-wide and also in different countries around the world.  The cost varies from country to country.

Please contact Brett Woods or Matt Bell if you would like to discuss how to get your business name and/or logo protected by Trade Mark.  For a set fee we can manage the whole project of getting your business name and/or logo better protected.

Changes to Non-Commercial Loss Rules Target Hobby Farms for the Rich

Changes to the non-commercial loss rules were introduced into Parliament on 21 October in Tax Laws Amendment (2009 Budget Measures No.2) Bill 2009.

The legislation is aimed at closing the “hobby farms loophole” and similar non-commercial pursuits.

The new non-commercial loss rules will prohibit individuals with an adjusted income over $250,000 from applying losses from non-commercial business activities against their other income, unless they have applied to the Commissioner of Taxation and the Commissioner has assessed the activity as genuinely commercial.

Client Corner

Just Promotions is one of the leading providers of high impact family and children’s entertainment, promotions and event management for major festivals, events and shopping centres internationally.  Just Promotions’ expertise range from driving traffic, sales and brand awareness in the retail shopping centres, to drawing huge crowds at festivals with unique licensed characters, roving entertainment and more!  With partners including 20th Century Fox (Alvin & the Chipmunks and Ice Age), Paramount, Marvel (Spiderman, Hulk, etc) and Universal Studios, Just Promotions can tailor activities to suit any event or budget.

Their affiliated business, Just Projects is a comprehensive strategic management and marketing consultancy firm, servicing the shopping centre sector.

For more information, refer to their website at http://www.justpromotions.com.au or contact the Sydney office on 02 9528 0800.

Saying of the Month

If the person you are talking to doesn’t seem to be listening, be patient.  It may simply be that they have a small piece of fluff in their ear - Winnie the Pooh.