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Christmas Parties & Gifts 2019

Your Comprehensive Tax Guide to Year-end Staff Parties & Christmas Gifts

With the well earned holiday season around the corner, many employers will be planning to reward staff with a celebratory party or event. However, employers need to be aware of the FBT and income tax implications of providing 'entertainment' to staff and clients.

Year-end (and other) staff parties - FBT and 'entertainment'

Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the 'actual method' or the '50/50 method', rather than the '12-week method'.

Using the actual method

Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients). Such expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT and not tax deductible.

Using the 50/50 method

Rather than apportion meal entertainment expenditure on the basis of actual attendance by employees, etc., many employers choose to use the more simple 50/50 method. Under this method (irrespective of where the party is held or who attends) 50% of the total expenditure is subject to FBT and 50% is tax deductible.

However, the following traps must be considered:

  • even if the function is held on the employer's premises – food and drink provided to employees is not exempt from FBT;
  • the minor benefit exemption* cannot apply; and
  • the general taxi travel exemption (for travel to or from the employer's premises) also cannot apply.

(*) Minor benefit exemption

The minor benefit exemption provides an exemption from FBT for most benefits of 'less than $300' that are provided to employees and their associates (e.g., family) 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 a gift) are not added together when applying this $300 threshold.

However, entertainment expenditure that is FBT exempt is also not deductible.

Note: 'Less than' $300 means no more than $299.99! A $300 gift to an employee will be caught for FBT, whereas a $299 gift may be exempt.

 

Example: Christmas party

An employer holds a Christmas party for its employees and their spouses – 40 attendees in all. 

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

If the actual method is used:

For all 40 employees and their spouses – no FBT is payable (i.e., by applying the minor benefit exemption), however, the party expenditure is not tax deductible.

If the 50/50 method is used:

The total expenditure is $10,000, so $5,000 (i.e., 50%) is liable to FBT and tax deductible.

 

Christmas gifts

With the holiday season approaching, 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.

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.

 

As these tax considerations can be bewildering and overwhelming, please do not hesitate to contact us if you have any queries.

December 2019

No CGT main residence exemption for non-residents

The Government recently tabled legislation, making its second attempt to deny access to the CGT main residence exemption for individuals who are foreign residents (i.e., non-resident taxpayers for Australian tax purposes). The restrictions to this CGT exemption will apply to taxpayers who are a non-resident at the time of the relevant CGT event (i.e., generally as at the contract date). If enacted, the proposed changes will potentially impact foreign residents in the two ways outlined below.

1. Transitional rules for properties held before 7:30pm (AEST) on 9 May 2017

Firstly, for properties held prior to the 2017 Federal Budget (i.e., before 7:30pm AEST on 9 May 2017), the CGT main residence exemption will only be able to be claimed, for a non-resident, for disposals that occur up until 30 June 2020. 

For disposals of properties occurring on or after 1 July 2020, foreign residents will have no access to the CGT main residence exemption, unless specified 'life events' occur within a continuous period of six years of the taxpayer becoming a foreign resident. These 'life events' include:

  • The terminal illness of the taxpayer, their spouse or a child under the age of 18 years.
  • The death of a spouse or child under the age of 18.
  • A transfer of the relevant asset as a result of a divorce, separation or similar maintenance agreement.

2. Properties acquired at or after 7:30pm (AEST) 9 May 2017

Secondly, for properties acquired at or after the 2017 Budget night, the CGT main residence exemption will no longer be available for nonresident taxpayers, unless the same specified 'life events' (as outlined above) occur within a continuous period of six years of the taxpayer becoming a foreign resident.

If you own Australian real property and are thinking of moving overseas, or have moved overseas, please do not hesitate to contact us.

Also in this month's issue:

  • PAYG and deductions for payments to workers
  • STP and superannuation guarantee
  • ATO November 2019 bushfire assistance
  • SMS notifications for SMSF members

Read more

 

November 2019

Reporting asset disposals for CGT

As the ATO's data-matching capabilities increase, they are paying close attention to capital gains made on shares, property and cryptocurrency.

If you've disposed of any assets, and are unsure how to calculate the capital gain or loss on disposal, please do not hesitate to contact us.

Also in this month's edition:

  • Super guarantee opt-out for high income earners now law
  • ATO recommends updating ABN details for disastrous reasons
  • Government passes other superannuation legislation
  • Super Lookup 'status' will change if SMSF annual returns are late
  • Taxpayer liable for excess transfer balance tax despite commutations

Read More

October 2019

$30,000 instant asset write-off

The ATO is reminding businesses that are looking to expand or improve their business and thinking of buying new or second hand assets, that medium sized businesses with a turnover up to $50 million (but at least $10 million) are eligible for the instant asset write-off.

This now applies to assets that cost up to $30,000 and which were purchased and first used or installed ready for use from 7:30pm (AEDT) on 2 April 2019 to 30 June 2020. Medium sized businesses may purchase and claim a deduction for each asset that costs less than the $30,000 threshold. For assets over $30,000 the general depreciation rules apply (which may depend on the entity).

If you have any queries in relation to small business depreciation, please do not hesitate to contact us.

Also in this month's edition:

  • Federal Court provides clarification on the PSI rules
  • Deductions for a company or trust home-based business
  • ATO impersonation scam update
  • Using the cents per kilometre method
  • Measuring the integrity of the ABR

Read more

September 2019

"Outrageous" deductions rejected

The ATO has published some of the most unusual claims that they disallowed last financial year including:

  • Lego "gifts" for children
  • Dental expenses for "believing a nice smile was essential to finding a job"
  • The cost of a "gift" for the purchase of a car for a taxpayer's mother

and so on...

If you have any queries in relation to deductions, please do not hesitate to contact us.

Also in this month's edition:

  • ATO guidance regarding incorrect ENCC determinations
  • ATO watching for foreign income this Tax Time
  • The ATO hits the road tackling the black economy
  • Motor vehicle registries data matching program protocol

Read More

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