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The FBT Grinch that Stole Christmas

With Christmas carols and decorations popping up in every shopping centre, you know the festive season is just around the corner. That means it's time to celebrate another year of hard work with your colleagues by taking time out to have a little fun.

For most organisations, however, the lavish parties and restaurant meals of holiday seasons past are now but a fond memory due to the modern-day Grinch of Christmas - the fringe benefits tax (FBT). FBT applies wherever an employer provides a benefit to an employee other than their regular salary or wage, with employers required to pay FBT at a rate of 49% on the grossed-up taxable value of these benefits. Unfortunately, the tax mean deems Christmas parties to be an 'entertainment benefit' because food and drink are provided in a social situation and the aim is for employees to enjoy themselves.

When does FBT apply?

Although it's hardly something that brings on a bout of seasonal good cheer, it's important to understand the tax rules if you intend to hold a work Christmas party. The key points to consider are who is attending, where the party is going to be held and how much it will cost on a per head basis (including GST). The ATO uses these factors to determine whether there will be FBT implications for the business hosting the function. To show the ATO doesn't want to spoil Christmas completely, it does allow some tax exemptions when an employer hosts a Christmas party. The first is the FBT exemption for 'minor' and 'infrequent' benefits valued at less than $300 (including GST). This is a catch-all exemption covering low value benefits provided to current employees and their family on an infrequent or irregular basis. The other key exemption is the exempt property benefit. This covers food and drink consumed by employees at a Christmas party provided it is held at the employer's premises on a business day. Additionally, there is an exempt transport benefit if the employer decides to pay for an employee's taxi ride home after a Christmas party held on the business premises.

Parties on your premises

If the Christmas party is held on a working day on your business premises and the food and drink is consumed by current employees, it is exempt from FBT as it is assumed to be a minor and infrequent benefit to your employees. To qualify for this exemption, the cost of food and drink must be less than $300/head. The minor benefit exemption also applies to the partner of an employee or any of their family attending the function, provided the cost per head is also less than $300. If the cost per person exceeds $300/head, there are still no FBT implications for employees or clients attending, but a taxable fringe benefit arises for any partners or family members who join the party.

Going off-site

If you decide to hold your Christmas function off-site there's no FBT payable for employees and their family if the cost per head is under $300. If, however, the cost per head goes over $300, then a taxable fringe benefit arises for employees and any family members attending the function. For clients invited to attend, there's no FBT payable.

Watch for other taxes

It's also important to note that the cost of work Christmas parties is not tax deductible for the business unless the expenditure is subject to FBT. To further dampen the fun, most of the entertainment cost of a work Christmas party does not qualify for GST input credits. Employers can only claim input tax credits for the GST paid on the component of the entertainment that is subject to FBT. This situation only occurs when the cost is more than $300 per person and the party is held off-site from the business premises.

 
Tax implications for work Christmas functions
 Attendees assets Tax implication for employer Tax deduction & GST claimable? 
 Party held on your business premises (all costs GST inclusive)
 Current employees only  No FBT - exempt property benefit  No
 Current employees & family - cost <$300/head  No FBT - exempt minor benefit*  No
 Current employees, family & clients - cost >$300/head  Employees: no FBT - exempt property benefit
 Family: taxable fringe benefit
 Clients: no FBT
 No
 Party held off your business premises on working day (all costs GST inclusive)
 Current employees only - cost <$300/head  No FBT - exempt minor benefit*   No
 Current employees & family - cost <$300/head  No FBT - exempt minor benefit*  No
 Current employees, family & clients - cost >$300/head  Employees and family: taxable fringe benefit
 Clients: no FBT
 Yes
 No
 * Minor benefit exemption only applies if necessary conditions are met

 

Backyard Building Boom

With house prices rising and well-located land becoming scarce in cities, many Australian are looking for creative ways to tap into the value of their own backyard. Some subdivide, while others take the knock-down and rebuild route.

But like most things in life, the tax man takes a close interest when it comes to redeveloping your property, so it's important to get professional advice to ensure you don't end up with a big tax bill.

If you sell a property bought on or after 20 September 1985, you are liable for capital gains tax (CGT) on any capital gain you make. One bright spot is that you are generally eligible for a full exemption on your CGT liability when you sell your principal place of residence (PPR) if you satisfy the conditions for a main residence exemption.

Demolish and rebuild

If you demolish your home and rebuild, the new property will not be subject to CGT provided you occupy the new residence. Otherwise, the ATO may deem the development was for commercial gain and a subsequent sale will be liable for tax as it is viewed as a new dwelling construction. You don't lose your main residence exemption while you are building, as you can elect to treat the vacant land as your PPR from the time the demolished house was last occupied to when you begin living in your new home, provided the gap is not more than four years.

Be aware though that there is a trap if you sell your newly vacant land as a development site, or subdivide it into vacant lots. For the PPR exemption to apply, there must be a dwelling on the land. If you demolish and then sell, the main residence exemption will only apply if the sale occurred when there was a dwelling on the land.

Subdivide and sell vacant block

A common strategy for homeowners with a large property (under 2ha), is to subdivide. In this situation there is no CGT payable if you retain ownership of both blocks, as you may not have made a capital gain or loss. Subdividing does not trigger a CGT liability, but if you later decide to sell the vacant second block, then the tax man will want his share of the profit. However, the 50 percent general discount for the CGT liability can be used if you have retained ownership of the block for at least 12 months.

In this situation, the ATO also generally takes the view that selling the second block is not a profit-making undertaking, but rather a 'mere-realisation' of an asset for income tax purposes. Also, the regulator will not usually consider this type of sale an 'enterprise' for GST purposes.

Subdividing, building and selling

A less common and more complex situation is where you decide to subdivide your property, retain your existing family home, build a new dwelling on the other block and sell it off.

Although this can be profitable, it does come with some challenges. The main challenge being that it you build a new dwelling on the second block and then sell it the PPR exemption for CGT does not apply to that property. The PPR exemption can only be applied  to one property (the one you live in), so any capital gain on the second dwelling is liable for CGT, even though it was part of the property originally eligible for the PPR exemption. To make things worse, if you continue to use your original home as your main residence, the ATO is likely to deem the second dwelling was build with the intention of making a profit, no neither the PPR exemption or the CGT 50 percent general discount apply when the second property is sold.

The cost base for the CGT liability is calculated by dividing the original property cost on a 'reasonable basis'. Building costs and fees for the second dwelling are then added to the split land cost to create the cost base for calculating the capital gain. GST could also apply to the sale price if you build a new residential premises for sale (even if this is a one-off transaction), although you can generally claim GST credits for your construction costs and any purchases related to the sale.

The tax rules in this area are complex, so call us to discuss how the tax legislation could affect your property subdivision plans.

In July 2017 Symes Accountants hosted Lucy Tiller for a week of work experience. Below is her personal overview of her experience with our team.

On the 17th – 21st of July I went on my year 10 work experience for the SACE subject Personal Learning Plan (PLP). I decided to do this at Symes Accountants as this is the career path I would like to endeavour, and thought it would be beneficial for myself. When I first arrived, I was nervous and didn't really know what to expect. I was greeted by Jodie Grantham who is on the Business Support Team. She gave me my induction and introduced me to all the staff who were friendly which put my nerves to ease. I received a timetable of my week which included working with a lot of different people so I can get an understanding of how the industry is run in the short time I had for my work experience.

My first day was mainly spent in the reception office to see the first stage of the "production line". I witnessed the connection the admin had with the clients, who attended to their services, and offered clients coffee and tea. Working with the admin made me realise that they do a lot more than meets the eye and they help to try and make everyone else's job a lot easier so they don't have to waste their time. Towards the end of the day I sat down with Peter Caddy (one of the Partners) and had a talk about the industry and the career paths available. This was insightful as it broadened my knowledge and understanding of the different areas/types of accountants, and the importance of each role.

On the second day, I was fortunate enough to be included in four meetings. These meetings help the accountants/staff know what they are doing for the day and it sets them a goal, which motivates them with healthy competition with themselves and others. One of the meetings was with all the staff members in which they talked about the statistics of the work they achieved. This really put into perspective how big the business is and how much work is done on a yearly basis. My next task of the day was working/talking with Onnley Singleton who runs Operations. She showed me the schedule of work for the year, and taught me how important deadlines are to meet otherwise it unbalances the schedule. The last activity on my timetable was to work with Kateena Jenkin who oversees the Marketing. She showed me the new layout for the website which personally suited my generation a lot better and was more functional/practical.

On my third day, which was the 19th of July, I started with two meetings with both the teams of Accountants. I was fortunate enough to sit through a BAS appointment with Shavone Schedewy, under the permission of the client. I was able to witness how Shavone interacted with the client and understand the programs that she used throughout the appointment. For the rest of the day I was with the Accounting Manager Michelle Hennessy, where we she talked me through what a day in her life is like. During this time we also achieved someone's tax return. It was interesting to learn the procedure of how it is down on the business and the ATO's behalf.

On my last day, because I was unwell and didn't show up Friday, I started the day with a training they run every week, with each week being a different topic. This was a learning experience for me as the topic that week was deceased estates. I may not have fully understood it but it was engrossing to know how the process works. During the morning of each day I had a review with Rob (one of the Partners) to just talk over what I did the day before, what I was doing that day, and what I would like to get out of my experience. This was helpful as I had a time to express my thoughts and ask any questions I had. All in all, my work experience at Symes Accountants was an eye opener for myself and gave me a real taste of the industry, the roles within and the work life in general.

MYOB Cloud Accounting

Are you on a crash course with rear-view mirror driving?

To a large extent, your books act as a rear view mirror. They tell you where you've been, but not where you're going. But if you stay on top of the bookkeeping, you won't be looking so far back down the road - you'll be a lot closer to "where you are" than "where you've been". So what do you need to help you get to this point.

If your books are computerized, any reports you need can be generated with very little effort. We've raised previously the emergence of Cloud Accounting and the use of technology in the Accounting world. The last 12 months has seen substantial growth in this area and no longer is it discussion about the existence of Cloud Accounting but more so how to better utilise and leverage from it.

However there are still some that remain hesitant to embrace the new technology and better utilise their time. Maybe this is about trusting the provider more than the technology. So why not explore and trust MYOB to put you in the Cloud.

Compliance with no paper receipts

Compliance with no paper receipts

We've raised previously the emergence of Cloud Accounting and the use of technology in the Accounting world. The last 12 months has seen substantial growth in this area and no longer is it discussion about the existence of Cloud Accounting but more so how to better utilise and leverage from it.

Many people often ignore or are quick to say "No" when asked if they want a receipt, but not small business owners. One wonders if these small business owners have a love for boxing up all this            information and handing it over to their   Accountant. It seems more like they have been driven to this thinking that keeping a hard copy of their receipts is the only way that they can meet their compliance       requirements with the Australian Taxation Office. Well move over shoe boxes there's a myriad of programs hitting the market that make you and paper obsolete. What's more these programs are just as friendly on your mobile phone devices and fully integrate with your Cloud Accounting program. What does this all mean - small business owners can get an extra 2 hours a day back into their lives!!!

Cloud Accounting

Is your 'head in the Clouds?'

It seems like every day there is new technology being released to meet consumer demand. The Accounting world is not immune to this. "Cloud Accounting" continues to be hot topic within the world of business. Cloud Accounting serves the same function as accounting software that you would install on your computer only it runs on a provider's server and you access it using your web browser, over the internet. Your data is securely stored and processes on a provider server "in the cloud."

Accessing your business financial information from anywhere, using any device (as long you are connected to the internet" is extremely convenient and efficient for your business. Benefits of Cloud Accounting include:

  • Flexibility with accessing data
  • No need to install software
  • Automatic update
  • Arguably high levels of security

Call us if you would like to discuss accounting in the cloud.