Net ‘Present’ Value

It’s the silly season again, when we all eat and drink way too much, party too hard, and then return to work in the new year still in need of a proper relaxing holiday. The team here at Lidgerwoods are no different to this, with some of us perhaps needing a longer holiday than most!

Celebrating the silly season can be team-building and just plain fun, but a well-prepared business owner will also know that a little tax planning can help to make sure that no tax issues arise later on. Our first article (of many) attached to this newsletter outlines the somewhat complicated situation of giving gifts, we just wish the ATO would ‘gift’ us all a little more simplicity in this area.

We’d be glad to see you at THE KITCHEN BENCH anytime…….

The Team at Lidgerwoods – Marc, Sophie, Louise, David & Kylie

Christmas Gifts

It is important to understand how gifts to staff and clients, etc., are handled 'tax-wise'. Not a very simple exercise however:

Gifts that are not considered to be entertainment 

These generally include, for example, a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc. 

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible; and
• gifts to clients, suppliers, etc. – no FBT, and tax deductible.

<strong">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.

Briefly, the general FBT and income tax consequences for these gifts are as follows:

• gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible (unless they are exempt from FBT); and
• gifts to clients, suppliers, etc. – no FBT and not tax deductible.

Non-entertainment gifts at functions

Editor: What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150?

Actual method used for meal entertainment

Under the actual method, for employees attending with their spouses, no FBT is payable, because the cost of each separate benefit (being the expenditure on both the Christmas party and the gift) is less than $300 (i.e., the benefits are not aggregated). 

No deduction is allowed for the food and drink expenditure, but the cost of each gift is tax deductible.

50/50 method used for meal entertainment

Where the 50/50 method is adopted:

• 50% of the total cost of food and drink is liable to FBT and tax deductible; and
• in relation to the gifts:
  • the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and
  • as the gifts are not entertainment, the cost is tax deductible.

Editor: We understand that this can all be somewhat bewildering, so if you would like a little help, just contact our office to discuss further.

Inactive ABNs will be cancelled by the ATO

The ATO has recently confirmed that, in an effort to maintain accurate data, the Australian Business Register (or ‘ABR’) periodically checks its records for Australian Business Numbers (‘ABNs’) and automatically cancels those that appear inactive.
Ultimately, a taxpayer’s ABN may be cancelled if they:

• have told the ATO they stopped their business activity;
• declared no business income in the last two years; or
• have not lodged a BAS or an income tax return in more than two years.

To avoid cancellation, the ATO has reminded taxpayers that they need to bring their lodgments up to date, and have reminded sole traders that, regardless of their income, they need to lodge the individual tax return including completion of business schedule where an ABNo is held.

Editor: We have had many circumstances here at Lidgerwoods with the above occurring, so if your ABN was cancelled, and you need it reinstated, please just contact our office and we can help you do this.
 

ATO guide to the 5 most common
Tax Time mistakes

The ATO has profiled the five most common mistakes they see, including taxpayers who are:

• leaving out some of their income (e.g., forgetting a temp or cash job, capital gains on cryptocurrency, or money earned from the sharing economy);
• claiming deductions for personal expenses (e.g., home to work travel, normal clothes or personal phone calls);
• forgetting to keep receipts or records of their expenses (around half of the adjustments the ATO makes are because the taxpayer had no records, or they were poor quality);
• claiming for something they never paid for – often because they think everyone is entitled to a ‘standard deduction’; and
• claiming personal expenses for rental properties – either claiming deductions for times when they are using their property themselves, or claiming interest on loans used to buy personal assets like a car or boat.
• ATO Assistant Commissioner Kath Anderson reiterated the three 'golden rules' for work-related expenses: "You must have spent the money yourself and not have been reimbursed, it must be directly related to earning your income, and you must have a record to prove it."

Editor: Accountancy Insurance premiums were recently sent to all existing clients inviting them to be covered for professional fees to defend or assist in cases found by the ATO for breaches with such situations as those above. It’s not too late to take up the cover (that commences at the start of December each year). If you’d like to be involved, just pay the invoice we recently sent you, or if you’d like to know more about this policy, please urgently contact Kylie at our office.

Increase in Private Health Insurance excesses

Legislation has been passed by Parliament to implement the Private Health Insurance (‘PHI’) reforms announced by the Government in October 2017.

The measures are designed to simplify PHI and make it more affordable for consumers by improving the value of PHI either in the form of lower premiums and/or improved cover for certain benefits.

Of particular interest from a tax perspective is the increase in the maximum voluntary excess levels for products providing individuals with an exemption from the Medicare levy surcharge.

The increased levels of voluntary excesses that insurers can apply are:

• $750 (up from $500) in any 12-month period for singles; or
• $1,500 (up from $1,000) in any 12-month period for couples/families.

These increases will apply from the 2019 income year, with private health insurers permitted to offer products with the new higher excesses from 1 April 2019.

Editor: This is a positive change, as the excess levels have not changed since 2000. Whilst there is no requirement for consumers to move to products with higher excesses, it is expected that more affordable PHI will encourage more people to take out cover.

Proposed expansion of STP
to smaller employers

Single Touch Payroll (‘STP’) commenced on 1 July 2018 for approximately 73,000 employers who have 20 or more employees.

Parliament has recently passed the legislation to expand STP to all employers from 1 July 2019 and it is estimated that there will be more than 700,000 employers who will enter STP as a result.

The ATO recommends that smaller employers consider voluntarily opting-in to STP early and we do here at Lidgerwoods have some clients doing this, but on the bulk most will begin on 1st July 2019 (start of the 2019/20 taxation year).

The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently use a payroll product and has indicated that they are not looking to force them to take up a product to do STP.

Efforts are being made to work with industry to look at some alternate reporting mechanisms and listings have recently issued by the ATO of participating software suppliers offering ‘cheaper’ alternatives.

Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.

The ATO is currently consulting with focus groups to look at flexible options to transition micro-employers to STP over the next couple of years.

Assuming the relevant legislation passes, the ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake.

Editor: This is a very positive message from the ATO, particularly for micro-employers. Hopefully, together with the relevant software developers, they are able to come up with a low-cost and simple alternative for those who do not currently use payroll software to comply with their STP obligations.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Lastly we welcome your feedback.  If you found this E-Newsletter very useful (or not?),
we’d appreciate your feedback either way.

'The Team' at Lidgerwoods Accountants