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Working-From-Home Deductions For Employees

More people are working from home than ever before. Employees who work from home may be able to deduct some of the expenses they incur in running a home office or for phone and internet usage. The key to claiming these deductions is to understand when expenses are deductible and what taxpayers must do to support their claim.

 

If you are an employee and you sometimes work from home, you may be able to claim deductions for some of the expenses you incur, provided you are not reimbursed by your employer. Here, we consider two common types of expenses that employees may claim and how you must substantiate your deductions.

 

Home office running expenses

Running expenses such as heating, cooling and lighting costs are only deductible if you exclusively use these services while performing work at home.

 

For example, the ATO says that you would not be able to claim deductions for these expenses if you work on your laptop while sitting next to your partner who is watching TV.

 

 

However, if you perform work in a room when others are not present, or in a separate room dedicated to work activities, you may be able to claim some running expenses. This is because you are entitled to a deduction when you incur additional running expenses as a result of your income-producing activities (ie above what you incur for domestic or private use).

 

In practice the ATO accepts two methods for calculating your deduction:

-A simple rate of 52 cents per hour worked (effective from 1 July 2018), which covers all the running expenses you can claim (including decline in value of home office items such as furniture). To substantiate your deduction, you only need to record how many hours you worked from home in the income year. If your hours are regular and constant throughout the year, the ATO will accept a diary of a representative four-week period as sufficient record-keeping.

-Alternatively, you can claim the work-related proportion of actual expenses incurred by maintaining thorough records and evidence. This is a more complex method suitable for taxpayers who would be entitled to claim more than the 52 cents per hour rate would allow. You should seek advice about this method to ensure your evidence will meet ATO requirements.

 

Phone and internet usage expenses

You can claim up to $50 in total for all work-related device usage charges (phone calls, text messages and internet) with basic documentation only. The ATO accepts these methods of calculation:
-Home phone: 25 cents per work call
-Mobile phone: 75 cents per work call and 10 cents per work-related text message.
-Internet data: basic records reflecting time spent or data used for work purposes.

However, if you need to deduct more than $50, you must maintain detailed written evidence to substantiate the work-related proportion of your expenses. The ATO has some guidelines about apportionment, taking into account complexities such as bundled phone and internet plans, and itemised versus non-itemised phone bills. The key is to use a “reasonable” basis for your apportionment.

 

Deductions for electronic devices are calculated separately. If you purchase these items to help you earn income, you may be entitled to an immediate deduction for items costing $300 or less, or a deduction for decline in value for more expensive items.

 

What can’t employees claim?

Occupancy expenses such as rent, mortgage interest, council and water rates, land taxes and insurance premiums are usually not deductible for employees who work from home.

The ATO also says that casual employees cannot claim deductions for telephone rental expenses. This is because they are not “at call” and do not derive assessable income until they commence duties at their place of employment.

 

Check your expenses

If you work from home as an employee, talk to us today to check whether you are claiming all of the expenses you are entitled to. We can also help you ensure that you are keeping adequate records and evidence to protect you in the event of an ATO audit.

Extra 44,000 Taxpayers Hit With Div 293 Super Tax

An extra 44,000 taxpayers have been hit with an additional 15% Division 293 tax on their superannuation contributions for 2017-18. The ATO has issued these Div 293 tax assessments to a further 90,000 taxpayers after an initial run in late 2018. Of these, around 44,000 taxpayers will receive their first Div 293 assessments following the reduction in the income threshold to $250,000 for 2017-18 (previously $300,000). And with Labor proposing to further reduce the income threshold to $200,000, even taxpayers who didn’t receive a Div 293 assessment this year should start planning now.

 

Individuals with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their “low tax contributions” (ie concessional contributions). Concessional contributions include all employer contributions, such as the 9.5% super guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.

 

As a result of this Div 293 tax, the effective contributions tax is doubled from 15% to 30% for certain concessional contributions (up to the concessional cap).

 

 

The maximum Div 293 tax payable is $3,750 ($25,000 x 15%). Despite this extra 15% tax, there is still an effective tax concession of 15% (ie the top marginal rate – excluding the Medicare levy – less 30%) on concessional contributions.

 

An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017-18. This follows the reduction in the Div 293 income threshold to $250,000 for 2017-18 (previously $300,000). The income threshold of $250,000 uses a broad tax definition and also includes the low tax contributions (up to $25,000). This means that the Div 293 tax can be triggered for taxpayers with incomes below $250,000 (although the additional tax only applies to amounts above the threshold).

 

A taxpayer has the option of paying the Div 293 tax liability using their own money, or by electing to release an amount from an existing super balance by completing a Div 293 election form. If a taxpayer makes such an election, the ATO will direct the nominated super fund to release the amount elected to the ATO. Although the election can be made within 60 days using the ATO approved form, a taxpayer still needs to pay the additional tax by the due date to avoid interest charges.

 

Negative gearing and many salary packaging arrangements generally will not assist in bringing a taxpayer under the $250,000 income threshold. However, astute taxpayers should be aware of the following:

 

-A person who expects to exceed the high-income threshold may wish to consider scaling back their super contributions to only the mandatory 9.5% super guarantee contributions (which are still subject to the Div 293 tax).

 

-Reconsider making additional contributions for a financial year if also anticipating a large one-off amount of taxable income during an income year. For example, an employment termination payment or a large net capital gain (eg from the sale of an investment property) will flow through into the taxpayer’s taxable income and may push them above the high-income threshold and trigger the Div 293 tax for that income year.

 

-Taxpayers that only exceed the $250,000 income threshold due to their investment income (especially franked dividends) should consider transferring such investments into another structure, such as a bucket company, rather than in their personal capacity, so that this additional income (grossed up for franking credits) is not counted towards their Div 293 income threshold. Such a structure would have its own additional costs, CGT implications and reduced flexibility but could nevertheless save an impacted taxpayer up to $3,750 per year in Div 293 tax.

 

-Labor, if elected, has proposed to further reduce the Div 293 income threshold to $200,000 and drag more taxpayers into the Div 293 net.

 

Need more guidance?

If you are one of these unlucky taxpayers to be hit with Div 293 tax, talk to us today about your options to pay the tax personally or withdraw an amount from your super fund. Likewise, we can discuss your income tax and superannuation situation to investigate strategies to stay under the Div 293 threshold or minimise the amount of tax payable.

What Expenses Can I Deduct For My Holiday Home?

The ATO is on the lookout for holiday home owners who may be over-claiming their expenses. Where a property is used partly for private purposes and partly to earn rental income, it is essential to identify what proportion of the income year is attributable to each use. Importantly, some property owners may be over-claiming their expenses because their property is not “genuinely available” for rent, despite the property being advertised to some extent.

 

Renting out your holiday home for part of the year can help to finance the costs associated with purchasing and maintaining the property. As well as providing an income stream, this will also allow you to deduct some of the expenses such as interest payments on a loan you have taken out to buy the property, repairs, cleaning services, council rates and insurance. Last year the ATO announced it will scrutinise holiday home deductions because of concerns that some taxpayers with mixed-use properties are over-claiming. Holiday home owners should therefore ensure they understand the ATO’s guidance on claiming deductions.

 

The basic rules

Your total expenses relating to the property for an income year should be apportioned on a time basis, ie how much of the income year the holiday house was rented out. You should apportion between three time periods:

 

-When it was rented out or genuinely available for rent – you may deduct a proportion of your expenses equal to this proportion of the year. For example, if your holiday house was rented out (or available for rent) for 80% of the year, you may deduct 80% of your expenses.

-When it was used privately by you, or by family, relatives or friends free of charge – you may not deduct the proportion of expenses that relates to this private use period.

-When it was rented out to family, relatives or friends below market rates – you may deduct a proportion of your expenses equal to this proportion of the year, but only up to the amount of rent actually received during this period. That is, the dollar amount of total deductions claimed in respect of this period cannot exceed the dollar amount of rental income received.

 

If your expenses are not fully deductible today, they may be taken into account if you make a capital gain when you eventually sell the property. The proportion of expenses that you are not able to deduct now may reduce the size of the future capital gain.

 

“Genuinely available” for rent
You may deduct expenses for a period when the holiday home is not rented out but is “genuinely available” for rent. However, the ATO is concerned that some taxpayers have been incorrectly claiming deductions for properties that are not genuinely available. The ATO considers the following to be indicators that a taxpayer does not have a genuine intention to make income from their property:

 

Setting a rental rate that is above market rates.

 

-Using the property for private use during high-demand periods, and only making the property available to rent when there is little or no demand for the property.

-Failing to advertise the property to a wide audience. (Advertising to restricted social media groups, at your workplace or by word-of-mouth is considered insufficient.)

-Placing unreasonable conditions on prospective tenants, such as requiring tenants to provide references for a short holiday stay.

-Turning away prospective tenants without providing adequate reasons.

 

Check your holiday home expenses

Given the ATO’s compliance focus in this area, it is vital that holiday home owners maintain good records and ensure they are not over-claiming deductions. Contact us to discuss your property and review your expenses. We can also check whether you have any additional deductible expenses that you might have previously overlooked.

Vested In Trusts

 

Vesting of trusts and tax consequences related to such events are complex issues which may end up costing the trust and beneficiaries needless headaches and hip pocket pain. The ATO has recently released a long awaited draft ruling which seeks to clarify some of the issues surrounding deferring vesting dates and consequences of vesting.

 

Have you looked at your trust deed recently? If you have a trust, chances are it was set up by your accountant or solicitor, and you didn’t have to do too much of the legwork. Look closely at your deed and you’ll notice that it will specify a date on which the interests in the trust vest and contain a clause which specifies the consequences of that date being reached.

 

Put simply, on the vesting date of a trust, the interests in the trust property become vested interest and possession; the beneficiaries become takers who hold a fixed interest in the capital and income of the trust property. This will have CGT and tax consequences for the trust and the beneficiaries. 

 

The ATO has recently released a long awaited draft ruling to clarify when the vesting date can be changed and the consequences of trusts vesting.

 

Broadly, the draft ruling states that prior to the vesting date, it may be possible for the trustee or a Court to postpone the vesting of the trust by nominating a later date. Once the vesting date has passed, it is not possible to change the vesting date as the trust has vested. According to the ATO, the consequences of vesting cannot be avoided by the parties continuing to carry on as though the trust had not vested or by an exercise of power to vary the deed.

 

Once the trust vests, depending on the clauses contained in the deed, there could be no CGT consequences, the creation of a new trust could occur, or a situation could arise where a beneficiary becomes absolutely entitled to the assets of the trust. The outcome depends entirely on the clauses contained in the deed and differs in each individual circumstance as each trust deed may be different.

 

The income of trust after vesting is also taxed differently. Prior to vesting the trustee had discretionary power to distribute the income or capital of the trust to certain beneficiaries entitled under the trust. However, after the vesting of the trust, the takers (beneficiaries) hold the present entitlement of the trust in proportion to their vested interests in the property of the trust and are assessed on the portion.

 

An example to illustrate this concept would be, prior to the vesting of the ABC Trust, the trustee determined that all the income would go to beneficiary X. At the vesting date, the trust deed specified that trustee was to hold the trust property in equal shares for beneficiary X, Y and Z. Therefore, for the income year that the trust vests, beneficiaries X, Y and Z are assessable on 1/3 of the share of the net income that relates to their share in the total income of the trust estate.

 

Vesting of a trust is a very complex matter and needs to be treated very carefully. The tax consequences stemming from a trust vesting could be very significant on both the trust and beneficiaries, and it cannot be undone by either the trustee or the courts. Therefore, understanding your own trust deed and forward planning is advisable to ensure that the purpose of the trust is met and maintained.

 

Too complicated?

Confused about all the potential CGT and income tax consequences for your trust? Or do you just want to make sure that plans are in place to protect your trust from falling afoul of the vesting rules? Talk to us today.

Director Identification Numbers Coming Soon

As a part of anti-phoenixing measures, the government is seeking to introduce a “director identification number” (DIN), a permanent and unique identifier to track directors’ relationships across companies. It will apply to any individual appointed as a director of registered body (ie a company, registered foreign company, registered Australian body, or an Aboriginal and Torres Strait Islander corporation) under the Corporations Act (or the CATSI Act).

 

Being a director of a company comes with many responsibilities, this could soon increase with a government proposal to introduce a “director identification number” (DIN), a unique identifier for each person who consents to being a director. The DIN will permanently be associated with a particular individual even if the directorship with a particular company ceases. Regulators will use the DIN to trace a director’s relationships across companies which will make investigating a director’s potential involvement in repeated unlawful activity easier.

 

Although this initiative was conceived as a part of the anti-phoenixing measures, the introduction of the DIN will also provide other benefits. For example, under the current system, only directors’ details are required to be lodged with ASIC and no verification of identify of directors are carried out. The DIN will improve data integrity and security, as well as improving efficiency in any insolvency process.

 

At this stage, it is proposed that any individual appointed as a director of a registered body (ie a company, registered foreign company, registered Australian body, or an Aboriginal and Torres Strait Islander corporation) under the Corporations Act (or the CATSI Act) must apply to the registrar for a DIN within 28 days from the date they are appointed.

 

Existing directors have 15 months to apply for DINs from the date the new requirement starts. Directors that fail to apply for a DIN within the applicable timeframe will be liable for civil and criminal penalties.

 

In addition to the penalties for failing to apply for a DIN, there are also civil and criminal penalties which apply to conduct that undermines the requirement. For example, criminal penalties apply for deliberately providing false identity information to the registrar, intentionally providing a false DIN to a government body or relevant body corporate, or internationally applying for multiple DINs.

 

The proposal initially applies only to appointed directors and acting alternate directors, it does not extend to de facto or shadow directors. However, the definition of “eligible officer” may be extended by regulation to any other officers of a registered body as appropriate. This will provide the flexibility to ensure the DIN’s effectiveness going forward. Just as the definition of eligible officer may be extended, the registrar also has the power to exempt an individual from being an eligible officer to avoid unintended consequences.

 

Recently, there have been cases in the media where individuals have unknowingly or unwittingly become directors of sham companies for various nefarious purposes. The DIN proposal inserts a defence for directors appointed without their knowledge, due to either identify theft or forgery. However, it notes that the defendant will carry the evidential burden to adduce or point to evidence that suggests a reasonable possibility that the defence exists, and once that’s done the prosecution bears the burden of proof. The government notes that the evidential burden has been reversed because it is significantly more costly for the prosecution to disprove than for the defence to establish.

 

Where to now?

Apart from ensuring that your identity is safe, we can help if you think you may inadvertently be a director of a company and no longer wish to be. Otherwise, if you’re the director and want to understand more about this potential change including the timeline, contact us today.

Are You Getting the Most from Your Investment Property?

 

Whether it’s a story about rising prices, interest rates or the housing affordability crisis, the property market dominates our media, particularly for those of us who live in major cities. Even with talk of bubbles bursting and budget-time reforms, property remains a popular choice for investors. An investment property can bring more savings at tax time through property depreciation deductions than many people – particularly new investors – realise.

 

Property depreciation claims
Just as with other assets linked to income-producing activities, you can claim depreciation on your investment property through low value asset pooling. Depreciation works to lower your taxable income, meaning that you pay less tax, which can help boost your return.

 

What are depreciable assets?
Depreciable assets for an investment property include both items within the building, classed as “plant and equipment”, and the “building” itself. Plant and equipment covers items such as ovens, air-conditioners and carpets, and building includes construction costs for items such as brickwork and concrete. Common property, for example stairways and gardens, can also be included as part of the building.

 

How to determine asset values
Before we can help you assess your claim, you will need to have your property valued by a qualified quantity surveyor. As construction and property depreciation is a specialised field, accountants are unable to make estimates on construction costs.

 

As part of the valuation, the surveyor will need to conduct a site inspection and photograph and log all items in a report. The optimum time to do this inspection is after settlement, and before your tenant moves in. Note, too, that it may take a couple of weeks for the surveyor to prepare the report.

 

The surveyor’s report will allow us to work out the depreciation type and schedule. The good news is that surveyor fees are tax deductible too!

 

Even with talk of bubbles bursting and budget-time reforms, property remains a popular choice for investors. An investment property can bring more savings at tax time through property depreciation deductions than many people – particularly new investors – realise.

 

 

Factors to consider for the depreciation schedule
Age of building
How old is the building? This will determine which costs can be included in your depreciation schedule. If it was built post-1985, then plant and equipment and building costs can be depreciated. If it was built before 1985, then you can only claim for plant and equipment.

 

Property purchase date
Did you buy the property a few years ago? This doesn’t mean you have to miss out on the depreciation savings – if deductions are available, we can go back and amend your previous tax returns.

 

Renovations and repairs
Renovation expenses can be included, but we’ll need to know the amount of these costs. You’re also entitled to claim depreciation even if the renovations were completed by the previous owner. But as with the primary valuation, if you don’t know the cost of the renovations, then a quantity surveyor will need to make that estimation.

 

Keep in mind that repairs and improvements made to the property before it is leased can’t be claimed in the depreciation schedule, because the costs are incurred before the property is generating income.

 

Also, some items which you might think are fixtures, such as cupboards, are actually classified as part of the building, and so the expense of replacing them can’t be claimed as a depreciable asset under Div 40 of the Income Tax Assessment Act 1997. However, a percentage of the cost of installation by a tradesperson can be claimed as capital expenditure. The claimable amount will be influenced by the tradeperson’s profit margin.

 

Contact us
If you own an investment property or are in the process of purchasing – speak to us and let’s make sure we are getting the most for you at tax time.

Deemed Dividends: Changes Are Coming

Div 7A or deemed dividend payments may be familiar to you if you’re the shareholder or associate of a private company. It generally applies to treat a benefit provided by a private company to the shareholder or associate as a deemed dividend, which is then taxed at the recipients’ marginal tax rates. The government has now proposed to make changes to Div 7A after a review found the rules may be too complex and place an unnecessary administrative burden on taxpayers.

 

If you own a private company, deemed dividend payments or Div 7A may be familiar to you. In short, it is designed to ensure that income is not inappropriately sheltered in corporate structures at the corporate tax rate. It usually applies when a private company provides a benefit to a shareholder (or their associate), and treats the benefit as a dividend paid by the company, which is then taxed at marginal tax rates in the hands of the recipient.

 

There are a number of exceptions to the deemed dividend rule, most notably, Div 7A will not apply to a loan on commercial terms (eg adheres to maximum loan terms, minimum interest rates, minimum annual yearly repayments of principal and interest) or is fully repaid within a required timeframe (ie a complying loan). A review into Div 7A found that the rules may be too complex and place an unnecessary administrative burden on taxpayers.

 

To that end, the government has now proposed to enhance Div 7A by making a number of changes including simplifying loan rules, implementing a self-correcting mechanism and safe harbour rules, as well as clarifying that unpaid present entitlements (UPE) come within the scope of Div 7A.

 

Simplifying loan rules involve the consolidation of the current 7-year and 25-year loan models with a single 10-year maximum term loan model. The annual benchmark interest rate used will be the small business variable overdraft indicator lending rate published by the RBA. While there will be no requirement for a formal written loan agreement, there must be evidence to show that the loan was entered into by the lodgement date of the company tax return.

 

Further, the principal component is a series of equal annual payments over the term of the loan and the interest component is the interest calculated on the opening balance of the loan each year using the benchmark interest rate. If the minimum yearly repayment has not been made in full, the shortfall will be the deemed dividend for the year. For those companies with current 7-year or 25-year loans, the proposal provides transitional measures.

 

In relation to the self-correcting mechanism, the proposed changes will allow qualifying taxpayers to self-assess eligibility for relief, by converting the benefit into a complying loan agreement and make catch-up payments of principal and interest. In certain cases, the concept of self-correctly may also include other appropriate action considered “reasonable” by the Commissioner based on the circumstances.

 

The introduction of the safe-harbour rules will establish a formula for calculating the arm’s length value for the use of the asset by the shareholder (or their associate). A deemed dividend can be avoided where the arm’s length amount for usage is paid. This formula can generally be used for the exclusive use of all assets excluding motor vehicles.

 

In addition to all the above, the proposed changes will also make it clear where an UPE remains unpaid on the lodgement of the company’s tax return, it will be a deemed dividend. This situation only applies where a trust makes a private company entitled to a share of its income/profits for the year and does not actually pay the amount. The change will ensure the deemed dividend will be assessable at the marginal tax rate of the beneficiaries of the trust or the top marginal tax rate (if assessable to the trustee).

 

All too complicated?

If you’re a shareholder or an associate of a private company and currently have Div 7A loans in place, we can help you figure out the transitional measures which may need to be implemented in the future. If you’re unsure whether the private company benefits provided to you currently fall under Div 7A, we can help you work that out. Contact us today for more information on these potential changes.

ATO Continues Its Blitz On The Sharing Economy

The sharing economy is booming in Australia with a large proportion of the population either making it their full-time job or making a little extra money on the side. However, with the boom comes the all-seeing-eye of the ATO which is now firmly focused on the sharing economy. Its latest target are those people who rent/hire their car out in car sharing arrangements, but this is by no means its only focus, and comes on the back of a data-matching program on online accommodation platforms.

 

The sharing economy has become a big disrupter in the Australian market, particularly in the areas of accommodation, transport, food delivery, or car sharing. It seems like everyone is getting in on the action of making a little extra money on the side whether it be renting out a spare room, driving for a ride sharing service, or even sharing their cars. It is no surprise then that the ATO is keeping a close eye on the participants in this sector.

 

In the latest round of salvos against people in the sharing economy that may be flouting tax laws, the ATO is turning its attention to car sharing platforms. This interest has been prompted by the growing popularity of third party services such as Car Next Door, Carhood and DriveMyCar Rentals.

 

If you receive income from sharing your car, no matter how little, you need to include it in your tax return, and cannot avoid tax by calling it a hobby.

 

However, the flip-side is that you are entitled to claim deductions directly related to renting, hiring or sharing of your car. These expenses can include: platform membership fees, availability fees, cleaning fees, and car running expenses. The deductions you can claim depends on the car sharing agreement you have. For example, different agreements require either the car borrower or car owner to bear the costs of refuelling the car. Therefore, you can only claim expenses if you actually paid for them.  Another thing to keep in mind is keeping accurate records and retaining all your receipts to back up any expense claims should the ATO come knocking.

 

If you participate in car sharing arrangements you should also be aware that deductions for running expenses may differ depending on the vehicle that’s being shared. Cars designed to carry a load of less than one tonne can use the cents-per-kilometre method or the logbook method, but motorbikes and vehicles designed to carry more than one tonne or more than 8 passengers cannot use the cents-per-kilometre method.

 

Other pitfalls of car sharing include situations where you jointly own a car, in which case, all income and deductions need to be apportioned based on your share of ownership. In addition, if your car sharing activities amount to more than occasionally renting out your own car (ie you’re considered to have an “enterprise” of renting or hiring your car), you may be required to register for GST. In those instances, you will have to pay GST on the payments you receive, but will be able to claim GST credits provided you use them in carrying on your “enterprise”.

 

This focus on car sharing comes on the back of an ongoing data-matching program on online accommodation platforms which will collect data to identify people providing accommodation through online platforms during the 2016-17 to 2019-20 income years. Details collected from this data-matching program include: listing owner and property details (name, residential address, phone number, date of birth, rental property address etc), financial transactions per listing (bank details of owner, gross rental income, nights books etc), property activities (listing date, conversion rate, host/owner block out dates, price per night etc). The program will also obtain various information from financial institutions of the platform providers.

 

Need more information?

Contact us if you would like more information on the ATO’s blitz on car sharing, online accommodation or the sharing economy in general. We have the expertise to help you get it right whether you’re renting out your home or car occasionally, or whether you’re running an enterprise.

FBT On Work Christmas Parties and Gifts

With Christmas fast approaching, the ATO has reminded employers and business owners about the potential FBT implications of providing office Christmas parties and gifts to employees. Whether or not the party or the gift attracts FBT depends on a number of factors including how much it cost, where the party is held, or the type of gift that is given. One of the essential things to remember is to keep good records so if you’re unsure about your FBT implications down the track an experience professional can help.

 

Ahead of the holiday season, the ATO has reminded employers about the potential FBT implications of providing Christmas parties and gifts. When planning Christmas parties, the ATO says employers need to check how much it will cost and where and when it is held. This is because a party held on business premises on a normal work day is treated differently to an event outside of work. The ATO said it is also necessary to keep good records and consider who is invited – is it just for employees, or are partners, clients or suppliers also invited?

 

The ATO noted that Christmas presents or gifts may also attract FBT, so employers should consider:

-the value of the gift;
-the type of gift (noting that gifts of wine or hampers are treated differently to gifts like tickets to a movie or sporting event); and
-who the gift is given to.

 

There are different rules depending on whether gifts are given to employees and clients or suppliers, the ATO said.

 

FBT exempt benefits – minor benefits

Minor fringe benefits with a taxable value (if subject to FBT) of less than $300 are (with certain exceptions) exempt benefits under s 58P of the Fringe Benefits Tax Assessment Act 1986. According to Ruling TR 2007/12, exempt minor benefits (which are valued at less than $300) are likely to include Christmas gifts and a Christmas party.

 

The ATO’s FBT guide for employers says a single gift at Christmas time to each employee of, say, a bottle of whisky or perfume would be an exempt benefit, where the value was less than the $300 threshold for exempt minor benefits. However, if the gift is provided at a Christmas party, the ATO says the gift needs to be considered separately to the Christmas party when considering the minor benefits threshold.

 

Need help with your FBT obligations?

The silly season is fast approaching, if you’re planning the office Christmas party of getting gifts for your employees, your business may be subject to FBT. If you’re unsure of how to manage your FBT affairs, get in touch with us today, we have the expertise to help.

Government Debts And Your Travel Plans

The government has started a crackdown on individuals who owe welfare debts by preventing them from leaving the country, even for a holiday, until either the debts have been paid or they enter into a repayment plan. Some of the welfare debts are as small as $10,000, so is this the start of the government using Departure Prohibition Orders (DPOs) more frequently as a tool to pressure individuals from paying their government debts, including money owed to the Tax Office?

 

Departure Prohibition Orders (DPOs) have long been used as a tool by the government as a way to stop those who owe debts from leaving the country before they pay their debts, even if they are just going on a holiday. It has been used successfully for more than a decade in the enforcement of child support payments, and by the ATO as well.

 

Now the government has started applying DPOs to prevent former welfare recipients from leaving the country over debts as small as $10,000.

 

So far, more than 20 DPOs have been issued and the Department of Human Services is looking to increase the use of DPOs to help recover more than $800m owed by more than 150,000 who are no longer in the welfare system. Those that are currently receiving a welfare benefit will not be caught under this measure and those that are experiencing genuine hardship can have their repayments deferred.

 

The Department has made it clear that they will only issue DPOs in cases where the individual has consistently refused to repay their debts and have ignored multiple warnings. In addition, those who are subject to a DPO will also continue to have interest charged on their debt until they take action to repay the money they owe. The real question is whether this increased used of DPOs as a way to exert pressure on individuals to pay their debts will spread to other areas such as ATO debts.

 

The ATO guidelines on DPO indicate that the Commissioner can issue a DPO where an individual has a tax liability and the Commissioner believes on reasonable grounds that it is desirable to issue a DPO to ensure that the individual does not depart Australia without wholly discharging the tax liability or making arrangements for the tax liability to be discharged. This is regardless of whether the individual intends to return. In addition, DPOs can apply to both Australian citizens and foreign nationals who are liable to pay Australian tax.

 

In deciding whether to issue a DPO, the ATO will take into account all relevant facts and circumstances, including whether: the debt can be recovered; disposal of assets had occurred; information to suggest concealment of assets exists (eg AUSTRAC reports); the individual has sufficient assets overseas to maintain a comfortable lifestyle; transfer of any assets overseas; the actual need for travel; recovery proceedings or audit activity in progress; and involvement in criminal activity.

 

It should be noted that the issuing of DPOs will only be pursued after initial collection activity which involves issuing a notice calling for payment and then having the debt referred for collection activity. While the ATO acknowledges that a DPO imposes significant restrictions on normal rights of individuals and deprives them of their liberty, it needs to be balanced with the protection of revenue.

 

Therefore, the Commissioner already has a wide remit to issue DPOs in circumstances he considers to be appropriate. Data from past years indicate that the majority of DPOs were issued in relation to tax fraud/evasion on an international scale, related to wealthy or high-net-worth individuals or their related entities. Even then, the fact that the ATO has issued relatively few DPOs in the past few years may be an indication that it will not be applying this method to pressure individuals with smaller tax debts.

 

Need help with a tax debt?

Even though the ATO is unlikely to stop you from going on holidays because you have a tax debt, it may still be prudent to take care of any debt you may have outstanding with the ATO, even if it’s a small one. We can save you money in interest charges and potentially get penalties remitted. Contact us today.

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