Tax Planning

Businesses

Trust Distributions

For the 2013 year rules apply which make it critical that your true resolution to distribute income is effective as at 30 June. Tax planning for Trusts will be critical in the 2013 year and should be conducted as soon as possible.

Bad Debts

Bad debts for the year must be written off prior to 30 June.  You should also prepare a minute documenting the write-off.  GST adjustments can be taken up for any GST charged on the original invoice.

Maximise Year-end Allowable Deductions

Expenses incurred before 30 June 2013 can reduce your taxable income.  Consideration should be given to upcoming liabilities and whether it is worthwhile incurring them before year-end:

• Paying director’s fees and bonuses
• Minor repairs on assets
• Scrapping assets
• Purchasing consumables required in the business

Superannuation Contributions

To be deductible, superannuation contributions must be paid and received by the relevant fund before 30 June irrespective of which tax quarter they apply to.  You should consider paying all superannuation liabilities for your staff before 30 June.  In addition, family business should consider maximising concessional contributions for key individuals.

Also note, all individuals have a concessional contributions cap of $25,000 for the year ending 30 June 2013.

Timing of Income

Consideration should be given to the timing of income near 30 June 2013 including:

• Timing of sales income
• Time of billing work in progress
• Date of entering into contracts for sales of CGT assets.

Trading Stock

A stocktake must be conducted before year end to identify any obsolete stock items and calculate an accurate year-end closing stock figure.

The methods of valuing stock are:

•  Cost
• Sales value
• Lower of market value or replacement cost.

Prepayments

Expenditure incurred for things to be done in a later income year is deductible over the service period, being the time the thing is to be done be under agreement.

For small business entities, an immediate deduction can be claimed under the 12-month rule for prepaid expenditure if the payment is incurred for a service period not exceeding 12 months and the service period ends in the next income year.

Certain prepayments required by law and amounts less than $1,000 are not subject to the prepayment rules and are deductible as incurred.

Shareholders Loans & Unpaid Present Entitlements

Any money that shareholders or their associates borrowed from a company can cause Division 7A to apply to you as a taxpayer.  Please consult your tax advisor.

Personal Use Assets

The use of company-owned assets outside of the business by shareholders or their associates can give rise to Division 7A issues and result in the payment of an unfranked dividend to the shareholder.  If you have company assets which are available for personal use please contact your tax advisor.

Depreciating assets & motor vehicles

Depreciation is calculated from the date of purchase (not year of purchase).  As a result business should consider delaying the acquisition of assets costing more than $6500 until after 30 June 2013.

Also note, from 1 July 2012 an accelerated depreciation deduction applies of $5,000 on top of the standard claim for motor vehicles in the year of acquisition.

PAYG Payment Summaries

Payment summaries for all employees must be provided to them by 15 July 2013 and lodged with the ATO by 14 August 2013 (unless you have an extension).

Individuals

Medical Expenses Rebate

The minimum threshold for the year has increased such that net medical expenses must exceed $2,120 to qualify for the 20% tax offset.

Maximising Year-End Allowable Deductions

Expenses that are incurred before 30 June 2013 can reduce taxable income.  Consideration should be given to upcoming liabilities and whether it is worthwhile incurring them before year-end.

Medicare levy surcharge

If you do not have private health insurance hospital cove, the thresholds for Medicare Levy Surcharge are:

• Singles (no dependants) - $84,000
• Families - $168,000 (plus $1500 for each dependent child after that)

Prepayments

A deduction may be available for certain prepaid expenditure (e.g. interest on investments) if made before 30 June 2013. 

Bonus Income

If you are in receipt of a bonus in the 2013 year it may be worthwhile considering salary sacrificing the bonus into superannuation to effectively manage your taxation.  You should consult your advisor if this is applicable to you. 

Superannuation:

         Income
         individuals aged over 60 will pay no tax on payments from their 
         superannuation

         

         Non-Concessional Contributions

A non-concessional contribution cap of $150,000 applies in the 2013.  The bring forward rule allowing a non-concessional contribution of $450,000 over a 3-year period can also be utilised depending on your circumstances.  It is important you contact your advisor if you are considering making substantial non-concessional contributions to ensure you will not breach the cap amounts.

Concessional Contributions

A personal deduction is available to certain taxpayers in the following amounts:

•  maximum concessional contribution is $25,000

There are a number of considerations to make to ensure you are able to claim a personal tax deduction for superannuation including:

Any earnings you make as an employee must be less than 10% of your combined assessable income, reportable fringe benefits and reportable superannuation contributions 

             

You must be under 75 years of age

Salary Sacrifice

Salary sacrifice can be an effective method of accessing lower tax rates as long as the benefits received are taxed at a lower rate than your salary under fringe benefits tax rules.  Please contact your advisor to discuss available strategies. 

Motor Vehicle Expenses

If you use your motor vehicle for business purposes it is worthwhile including this use as a deduction.

There are 4 methods of claiming a deduction as follows:

• The cents per km method
• The log book method (a log book should be kept for over 12 weeks)
• The one third actual costs method
• 12% or original value method

A log book should always be kept if making a substantial motor vehicle claim and is the most effective way of maximising your deduction when receipts and costs records are also maintained.

Australian Charities and Not-for-profits Commission Regulations, 08 March 2013

 The Australian Charities and Not-for-profits Commission Regulation 2013 and the Australian Charities and Not-for-profits Commission Amendment Regulation 2013 (No 1) have been registered on the Federal Register of Legislative Instruments.

Australian Charities and Not-for-profits Commission Register

The Australian Charities and Not-for-profits Commission Regulation 2013 (ACNC Regulation) specifies additional information that the Commissioner must include on the Australian Charities and Not-for-profits Commission (ACNC) Register.

The Register serves as a single source of public information on the not-for-profit (NFP) sector covered by the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). It is maintained electronically by the ACNC Commissioner and includes specified information about each registered, and each formerly registered, entity.

The ACNC Act already requires the Commissioner to maintain certain information on the Register (s 40-5(1) of the ACNC Act). The ACNC Regulation adds the following types of information to the requirements, if the relevant conditions are satisfied:

• size of a registered entity, whether small, medium or large or a basic religious charity

• countries (other than Australia) in which the registered entity operates

• states and territories in which the registered entity operates

• other names by which the registered entity may be publicly known

• categories of benefit recipients

• annual reports and joint or collective reports

• date of establishment

• links to the registered entity’s website, and

• details of lodgement of reports with the ACNC.

The ACNC Regulation commences on 6 March 2013.

ACNC governance standards

The Australian Charities and Not-for-profits Commission Amendment Regulation 2013 (No 1) amends the above ACNC Regulation to specify the following governance standards:

• purposes and NFP nature of a registered entity — the entity must be able to demonstrate its

purposes and its character as an NFP entity, make this information public and act in accordance

with its purpose and character

• accountability to members — this only applies to entities that have members as defined in ITAA

1997 such as companies limited by guarantee and incorporated associations 

• compliance with Australian laws

• suitability of responsible entities — entities responsible for control and/or management of the

registered entity such as a trustee or director must not be disqualified from managing a corporation

or disqualified by the Commissioner, and

• duties of responsible entities — a registered entity must ensure that its responsible entities

comply with the duties as set out in this standard.

Registered entities must comply with these governance standards to become registered and maintain their registration under the ACNC Act. How an entity meets these standards may differ according to their size and circumstances. Guidance as to how to meet the standards will be released by the ACNC Commissioner.

This regulation commences on the later of the commencement day referred to in s 45-20 of the ACNC Act and 1 July 2013. Section 45-20 specifies that the commencement of the regulation begins on the earlier of the day that both Houses of Parliament resolve to approve the standards or the last day on which the regulation can be disallowed in either House (there is a 15 sitting day disallowance period).

Source: Australian Charities and Not-for-profits Commission Regulation 2013 (SLI No 22 of 2013), registered on the Federal Register of Legislative Instruments as F2013L00401 and Australian Charities and Not-for profits Commission Amendment Regulation 2013 (No 1) (SLI No 23 of 2013), registered on the Federal Register of Legislative Instruments as F2013L00402 on 5 March 2013.

Tax > Australian Tax Week > 2013 Tax Week > ISSUE 9, 8 March 2013

Christmas Party Tax Rules

Contributed by Ed Carr, CCH senior tax writer

The festive season looms and we look forward to some good cheer, compliments of the boss. But as you enjoy the fare at the office Christmas party, spare a thought for your finance people who must work out how

the tax rules apply.

If you want to keep it simple, have the party in the office, staff only. Costs, including serving food and drink, at a Christmas party in the office are exempt from FBT. Oh, and it must happen on a working day. But the FBT exemption applies, regardless of the cost, so you could hire Jamie Oliver and Nigella Lawson to do the

catering.

If you invite an employee’s partner or other family along, FBT is payable on their costs, unless the minor benefits FBT exemption applies. Minor benefits are free from FBT if they have a value of less than $300 per person and meet certain other conditions. Broadly, a benefit is minor if it would be unreasonable to collect FBT because the benefit is provided infrequently and not regularly. There is no FBT if the per-head cost of inviting partners to the office Christmas party is a minor benefit.

The FBT exemption for minor benefits is not straightforward. Technically, all benefits that are associated with each other must be considered together. An example is an event that involves several costs: a restaurant meal, transport, maybe accommodation, with entertainment or a gift. Unrelated benefits given to the individual at other times in the FBT year are part of considering whether any particular benefit is really minor.

Christmas party venues are big business these days. If you hold a party at a restaurant or other venue, FBT is payable on the costs of wining and dining employees as well as their partners or kids, unless the minor benefits exemption is available. So the per-head cost of these events, including the meal, transport, entertainment and so on, must be scrutinised. It is fairly safe to say that if the total per-head cost of a Christmas party is less than $300, it will be a minor benefit and FBT-free. It can still be exempt if the total cost is more than $300 but probably not if the restaurant is in Vanuatu.

What about gifts — the hamper, the bottles of wine or spirits, or the gift voucher? These are free from FBT if the value is less than $300. However, the Tax Office says that if the boss gives a present at the staff Christmas party and both the meal and the gift cost less than $300 each, both will be free from FBT as minor benefits, even if together they cost more than $300, providing the other relevant conditions are met.

Is any of this tax deductible? The general rule is the employer can get a tax deduction for the cost of providing a Christmas party to the extent that it is subject to FBT. But costs that are not subject to FBT are not tax deductible. That includes the costs for which the employer can get the minor benefits exemption.

So, if you plan a frugal employee-only Christmas party in your office this year on a working day, there will be no FBT to pay, regardless of the cost of the feast. Forget claiming a tax deduction. If the party is at a restaurant or a big entertainment venue, no FBT, so long as the per-head cost of separate fringe benefits is under $300 — for both employees and partners.

If you invite business customers or clients to your Christmas party, the costs of entertaining them with food and drink are not subject to FBT and not tax deductible. The $300 threshold does not apply to them. All this makes for a fairly complicated matrix that will keep the finance person responsible for accounting for it in a state of some stress, even after the third glass of Merlot.

Note that different rules apply to tax-exempt employers and those who use the 50/50 split method to work out the taxable value of meal entertainment. They are not dealt with here.

ATO to data match motor vehicle purchases

The ATO will request and collect details from state3 and territory motor vehicles registries or individuals and businesses that purchased a motor vehicle for more than $10,000 in the 2011/12 and 2012/13 financial years.

The data will be electronically match with ATO data to identify non-compliance with tax obligations, particularly to identify high risk non-lodgers, those with undeclared income and support regarding luxury car tax, fringe benefits tax and fuel tax compliance activities.

Reminder to be vigilant with trust distribution minutes

The Commissioner of Taxation recently released a Taxation Determination (TD 2012/22) that reaffirms the ATO’s view that a beneficiary’s share of net income is worked out by reference to the proportion of the income of the trust estate to which the beneficiary is presently entitled. 

The ATO has stated that the application of the proportionate approach will depend on the facts and circumstances of each particular case including the terms of the trust deed and any resolution made by the trustee to appoint the income of the trust.

Ineffective trust minutes that do not comply with the terms of your trust’s particular deed will not be accepted by the ATO as a means of working out each beneficiary’s share of income and could result in the ATO issuing assessments to the trust itself by retaining profit in the trust and imposing tax at 46.5%.

This determination highlights the importance of ensuring accurate and effective trust minutes are drafted in relation to the distribution of trust income on an annual basis. 

Be ready for audits

Being targeted by the taxman can be a scary experience, but business owners who take the right steps to prevent it can minimise much of their fear.

The Australian Taxation Office released a guide in August to make it easier for small-to-medium enterprises to understand how its compliance works, a move that has been welcomed by accountants.

The ATO says it will “use the full force of the law” for businesses deliberately not complying but will “make it easy” for those opting to do the right thing – a threat designed to encourage early compliance.

Deloitte’s head of tax controversy, Ashley King says business owners are now better informed about how the ATO goes about checking and reviewing tax returns.

If you are being targeted by the ATO, its first contact is often a letter or phone call seeking extra information. That can then lead to a review or audit of your tax return where a team of ATO experts may “pick it apart”, King says.

“If you know their approach you are better prepared.”

Tax Commissioner Michael D’Ascenzo says this is the first time that the ATO has published detailed information about its approach to tax compliance for SMEs.

“By publishing information on how we assess our attention, we intend to provide more practical certainty for taxpayers,” D’Ascenzo says.

“Risks that attract our attention include things like where tax performance varies substantially from business performance,” he says.

King says if you are in the ATO’s sights, you should first identify the issue it is concerned about and review your tax papers and calculations.

“Seek advice from an experienced accountant or lawyer,” he says.

“It is never too late to ask questions and reorganise your business affairs so that you have greater confidence.”

“Talk to the ATO. Consider making a voluntary disclosure to adjust a tax position you have previously taken.”

“You might receive a lower penalty payment.”

King says business owners must remember that Australia has a self-assessment system.

“This means it’s the responsibility of each small business owner to get their tax return right,” he says.

“Even if you have your tax adviser or a lawyer, you can’t pass the responsibility on.”

“You are always accountable. When preparing your return, you have to be confident in your process and your adviser.”

QLD Payroll Tax

Queensland Payroll Tax

The annual payroll tax exemption threshold in Queensland will increase to $1.1 million from 1 July 2012.

Queensland employers should review their wage costs and assess whether their taxable Queensland wages will be less than $1.1 million in the 2012-13 financial year.  If so, they are exempt from payroll tax and either do not need to register or can de-register for payroll tax where they had previously been required to register with the Office of State Revenue.

For more information contact your IPS Adviser on (07) 55 813 200