News

Can we claim the Christmas Party?

This is a question that we as accountants are typically asked this time of year and unfortunately our response is not always in the affirmative.

With the December/January break fast approaching, many employers and business owners are planning to reward their staff with a Christmas Party and/or provide a gift of some description. Before we delve into the intricacies of the FBT, Income Tax and GST Acts let’s start at the outset saying that in the majority of cases the ATO will disallow tax deductions for entertainment benefits provided to employees unless certain criteria are met.

Now for the intricacies (summarised of course)…

  • FBT
    Generally speaking fringe benefits tax (FBT) applies to most forms of “entertainment” style benefits provided by an employer to their employees. There are several methods available to calculate FBT however both typically incur additional tax costs to the employer which can be a unexpected surprise when it comes time to actually registering for FBT and paying the appropriate FBT tax itself (this is obviously in addition to the cost of providing the actual Christmas party and/or gift so can have the potential effect of doubling the cost of providing the benefit in the first place!).Many small business owners rely on an FBT exemption called the Minor Benefit Exemption which allows the employer to avoid paying FBT on benefits provided to employees (and their family/associates) when the cost is less than $300 and the benefit is provided on an infrequent and irregular basis. The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and gift) are not added together when applying this less than $300 exemption.
  • Income Tax
    Income tax deductibility of Christmas parties and employee gifts generally depends on how you choose to treat the same for FBT purposes.If registered for FBT and pay FBT on the actual entertainment and gift expenditure then the ATO allow tax deductions for the expenses. If however the employer relies on the FBT minor benefit exemption (which has the effect of exempting the expense for FBT as discussed above) the trade-off is that the expenditure generally becomes non-deductive from an income tax perspective. Generally because for entertaining expenditure (i.e. the cost of the Christmas party) if exempt from FBT there is not tax deduction for the cost however the cost of the gift, if not entertainment in nature (i.e. Christmas hamper, bottle of wine, flowers, etc.) would still remain tax deductible. If the gift is considered entertainment in nature (i.e. movie tickets, sporting tickets, etc.) then they fall outside what the ATO accept as tax deductible gifts to employees. Clear as mud?!?
  • GST
    The general rule of thumb is if the expenditure qualifies as tax deductible then GST typically is claimable on the expenditure. If however the expenditure is not tax deductible then GST should generally not be claimed on the same.

We understand that these areas of tax law can all be somewhat bewildering, so if you would like a some assistance to work out exactly where you stand this year with your Christmas Party and employee gifts, please contact the team at Aspect Accountants & Advisors where we will be more than happy to work through the particulars with you.

The ATO and its regulation of SMSFs

Editor:  In a recent speech, Kasey Macfarlane, Assistant Commissioner, SMSF Segment, Superannuation, discussed the issues facing SMSFs and their aging trustees.  The following is an excerpt from her speech.

Planning ahead – cognitive decline
“I’d like to touch on the increasingly important topic of cognitive decline. Dementia is on the rise and currently affects one in ten people over 65, and three in ten over 85.”

“Even mild dementia will affect a person’s ability to make financial decisions.  SMSF numbers continue grow, and . . . require a high level of financial decision making.

“While many trustees remain perfectly capable of effectively managing their financial affairs well past retirement age, there is a risk that some with diminished capacity to effectively manage their fund may nevertheless continue to do so.

“As my colleague Matthew Bambrick said back in March, ‘These issues are a time bomb waiting to go off if not addressed now’.

“It’s essential to ensure that all trustees are genuinely involved in managing SMSF funds, to agree in advance about decision points and exit decisions, to have a will, and appoint an enduring guardian and power of attorney.”

Editor:  If you would like to discuss this important issue further, please contact our office.

Small Business Protections from unfair contract terms

Editor:  There are laws protecting consumers from unfair terms in ‘standard form contracts’ where the person has little or no opportunity to negotiate with the business concerned.

Businesses use standard form contracts to more efficiently deal with their customers.  However, because the business is often in a somewhat superior bargaining position, there are laws in place to protect consumers from unfair terms in a standard form consumer contract.

The government has announced it will extend consumer unfair contract term protections to small businesses as well.

The changes will cover standard form contracts where at least one of the parties employs less than 20 people, and where the upfront price of the contract does not exceed $300,000 or $1 million for contracts longer than 12 months.

Immediate deductibility of capital start-up expenses

From 1 July this year, new provisions apply to allow certain small businesses, or an entity that is not in business, to immediately claim some start-up costs, including business costs associated with raising capital.

Claimable business-related start-up costs

Expenses can be fully deductible in the year in which they are incurred if the expenditure relates to a small business that is proposed to be carried on and is either:

  • incurred in obtaining advice or services relating to the proposed structure or the proposed operation of the business (e.g., advice from an accountant or lawyer); or
  • a payment to an Australian government agency of a fee, tax or charge incurred in relation to setting up the business or establishing its operating structure (e.g., the ASIC fee for registering a company).

It does not include the cost of acquiring assets that may be used by the business.