December 2019
Christmas gifts
With the holiday season upon us many employers and businesses want to reward their staff and loyal clients/customers/suppliers. Again, it is important to understand how gifts to staff and clients, etc., are handled 'tax-wise'.
Gifts that are not considered to be entertainment
These generally include a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers or a pen set, etc.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible; and
gifts to clients, suppliers, etc. – no FBT, and tax deductible.
Gifts that are considered to be entertainment
These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible (unless they are exempt from FBT); and
gifts to clients, suppliers, etc. – no FBT and not tax deductible.
Non-entertainment gifts at functions
CAS: What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees are given a gift or a gift voucher (for their spouse) to the value of $150?
Actual method used for meal entertainment
Under the actual method no FBT is payable, because the cost of each separate benefit (being the expenditure on the Christmas party and the gift respectively) is less than $300 (i.e., the benefits are not aggregated).
No deduction is allowed for the food and drink expenditure, but the cost of each gift is tax deductible.
50/50 method used for meal entertainment
Where the 50/50 method is adopted:
50% of the total cost of food and drink is liable to FBT and tax deductible; and
in relation to the gifts:
the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and
as the gifts are not entertainment, the cost is tax deductible.
CAS: We understand that this can all be somewhat bewildering, so if you would like a little help, just contact our office.
ITR - common errors guidance
The ATO has released the most common errors found in individual taxpayer returns, with a section of the guide targeting tax agent errors.
The two primary areas of concern are work related expenses and rental property deductions:
Work-related expenses
Claiming deductions when no money was spent, including exceptions to substantiation rules being used as ‘standard’ deductions, where taxpayers claim up to or around the substantiation exception amount, but have not incurred the expenses
Claiming deductions for private expenses
Not correctly apportioning expenses between work-related and private purposes
Not having records to prove claims
Rental property deductions
Claiming deductions for properties that are no genuinely available for rent
Claiming deductions for loan interest expenses when a portion of the loan was used for private purposes
Incorrect categorisation of capital works and capital allowances
Not having records to substantiate income received and deductions claimed
Incorrectly apportioned claims for interest deductions
There is also guidance on the most common errors for specific types of work-related expenses (such as laundry expenses, car expenses and self-education expenses).
PAYG and deductions for payments to workers
The ATO has reminded business taxpayers they can no longer claim deductions for certain payments to workers if they have not met their PAYG withholding obligations from 1 July 2019.
If the PAYG withholding rules require an amount to be withheld, to claim a deduction for most payments to a worker, a business taxpayer must:
withhold the amount from the payment before they pay their worker; and
report that amount to the ATO.
Importantly, where a taxpayer simply makes a mistake and withholds or reports an incorrect amount, they will not lose their deduction, although any such errors should be corrected as soon as possible so as to minimise penalties.
Additionally, a deduction is still available if they voluntarily disclose to the ATO prior to the commencement of an audit or other ATO compliance activity involving their PAYG withholding obligations or deduction claims.
STP and Super Guarantee timing trap for employers
How employers are being caught out by the timing of superannuation guarantee payments.
Employers can generally only claim a deduction for superannuation contributions in the income year in which the contribution is made. Super contributions are made when the payments are received by the trustee of a complying superannuation fund.
It’s not uncommon for employers to be caught out by timing problems, many in the belief that the contribution has been made at the point the payment is made rather than when it is credited to the superannuation fund provider’s account. Many forms of electronic transfer however are not guaranteed to be automatic or next day. BPay for example may take up to 2 days, a delay that is often not factored in.
A new practice statement from the ATO highlights the problem created by the use of clearing houses.
There is a specific element of the law that enables payments made to the Government’s Small Business Superannuation Clearing House (SBSCH) to be accepted as contributions when the clearing house receives them, rather than when the trustee of the superannuation fund has received the contribution. The SBSCH is only available to small businesses with 19 or fewer employees, or with an annual aggregated turnover of less than $10 million.
Private clearing houses are treated differently and as such, employers need to allow sufficient time for their superannuation contributions to be received, processed and paid by the clearing house to the superannuation fund, before their SG obligation is discharged.
Take the example of an employer who brings forward superannuation contributions before 30 June to be able to claim the tax deduction in that year. If a private clearing house was used, and time was not allowed for the clearing house to process the payment, and as a result the payment was not received by the trustees before 30 June, then the deduction cannot be claimed until the next financial year.
The ATO's Deputy Commissioner confirmed that as a result of STP, the ATO now has an "unprecedented level of visibility" of super information.
In particular, the ATO's examination of Super Guarantee ('SG') contributions of some 75 million payment transactions for the first three quarters of 2019 (for approximately 400,000 employers) has shown that 90 - 92% of contribution transactions by volume and 85 - 90% of transactions by dollar value were paid on time.
The ATO is now starting to actively use this data to warn employers who appear not to be paying the required SG on time (or at all).
As a result, it has notified 2,500 employers that they have paid their SG contributions late during 2019. Due-date reminders were also sent to a further 4,000 employers.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, give Adrian and the team @ Clear Accounting Solutions a call.