Christmas Parties and Fringe Benefits Tax by dpb88747

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									                                                                  Tax Talk – October/November 2009
                                                                  In this issue:
                                                                             Christmas Parties and Fringe Benefits Tax
                                                                             Economic Focus – A Slow Recovery
                                                                             Super Focus – Cost of Excess Contributions
                                                                             Happy Holidays and more

CRM Business Advisors Pty Ltd                                     www.crmbusinessadvisors.com.au


Christmas Parties and                                               needs to be considered separately to
                                                                    determine if they are less than $300 in
Fringe Benefits Tax                                                 value. If both the Christmas party and the
                                                                    gift are less than $300 in value and the
                                                                    other conditions of a minor benefit are
Are Your Celebrations Tax Deductible?                               met, they will both be exempt benefits.

As we approach the festive holiday
season, the ATO has put out a reminder                              Tax deductibility of a Christmas party
about the FBT and tax deduction
implications for company Christmas                                  The cost of providing a Christmas party is
parties. How is your organisation                                   income tax deductible only to the extent
affected?                                                           that it is subject to FBT. Therefore, any
                                                                    costs that are exempt from FBT (that is,
Exempt property benefits                                            exempt minor benefits and exempt
                                                                    property benefits) cannot be claimed as an
The costs (such as food and drink)                                  income tax deduction. The costs of
associated with Christmas parties are                               entertaining clients are not subject to FBT
exempt from FBT if they are provided on                             and are not income tax deductible.
a working day on your business
premises and consumed by current                                    Christmas party held on the business
employees. A taxable fringe benefit will                            premises
arise in respect of an associate of an
employee who attends the party if not                               A Christmas party provided to current
otherwise exempt under the minor benefits                           employees on your business premises or
exemption.                                                          worksite on a working day may be an
                                                                    exempt benefit. The cost of associates
The provision of a Christmas party to an                            attending the Christmas party is not
employee may be a minor benefit and                                 exempt, unless it is a minor benefit.
exempt if the cost of the party is less than
$300 per employee and certain conditions
are met. The benefit provided to an                                 Example
                                                                    A small manufacturing company decides to have a party
associate of the employee may also be a
                                                                    on its business premises on a working day before
minor benefit and exempt if the cost of the                         Christmas. The company provides food, beer and wine.
party for each associate of an employee is                          The implications for the employer in this situation would
less than $300. For the FBT year                                    be as follows.
beginning 1 April 2006 and prior years, the                         If…                        Then…
minor benefits threshold was less than
$100 rather than less than $300.                                    current employees          there are no FBT implications as
                                                                    only attend                it is an exempt property benefit.
                                                                    current employees            there are no FBT implications
Gifts provided to employees at a                                    and their associates          as the minor benefit
                                                                    attend at a cost of           exemption applies.*
Christmas party                                                     $180 per head

The provision of a gift to an employee at                           current employees,           for employees – there are no
Christmas time may be a minor benefit                               their associates and          FBT implications as it is an
                                                                    some clients attend at        exempt property benefit
that is an exempt benefit where the value
                                                                    a cost of $365 per           for associates – a taxable
of the gift is less than $300.                                      head                          fringe benefit will arise as the
                                                                                                  value is more than $300
Where a Christmas gift is provided to an                                                         for clients – no FBT payable
employee at a Christmas party that is also                                                        and no income tax deduction.
provided by the employer, the benefits are
associated benefits, but each benefit
                                                            -1-
Source content courtesy of PKF Australia and Ato.gov.au. The information provided in this publication is a guide only and
should not be relied upon as advice specific to your particular situation. For more details please contact us at
crmbusinessadvisors.com.au. To subscribe or unsubscribe to Tax Talk, please email us at taxtalk@crmbusinessadvisors.com.au.
                                                                  Tax Talk – October/November 2009
                                                                  In this issue:
                                                                             Christmas Parties and Fringe Benefits Tax
                                                                             Economic Focus – A Slow Recovery
                                                                             Super Focus – Cost of Excess Contributions
                                                                             Happy Holidays and more

CRM Business Advisors Pty Ltd                                     www.crmbusinessadvisors.com.au


* Where the benefits are indicated as qualifying
for the minor benefits exemption, it is on the
                                                                    Economic Focus
basis that the necessary conditions have been
satisfied.                                                          A Slow Recovery

                                                                    Economic data during the September
Christmas party held off business                                   quarter confirmed that a global economic
premises                                                            recovery is underway but the strength and
                                                                    sustainability of that recovery remains
The costs associated with Christmas parties                         questionable.
held off your business premises (for example, a
restaurant) will give rise to a taxable fringe                      Volatility returned to share markets during
benefit for employees and their associates
                                                                    October after inconsistent data created
unless the benefits are exempt minor benefits.
                                                                    nervousness amongst investors. Markets
                                                                    are often vulnerable to negative surprises
Example
                                                                    when expectations are high and there is a
Another company decides to hold its
Christmas function at a restaurant on a                             feeling that they have got ahead of
working day before Christmas and provides                           themselves.
meals, drinks and entertainment.
The implications for the employer in this                           The US economy grew in the September
situation would be as follows.                                      quarter for the first time in a year but this
                                                                    news was negated by a sharp fall in
If…                   Then…                                         consumer confidence and an unexpected
                                                                    decline in new home sales. Other data
current               there are no FBT
employees only        implications as the minor                     such as retail sales and manufacturing
attend at a cost      benefits exemption                            surprised on the upside but continues to
of $195 per head      applies.*                                     lag the levels seen during robust economic
                                                                    times.
current               there are no FBT
employees and         implications as the minor
their associates      benefits exemption                            The sceptics claim the economic growth in
attend at a cost      applies.*                                     the September quarter has been distorted
of $180 per head                                                    by government stimulus such as the 'cash
current                 for employees – a                           for clunkers' scheme and that the US
employees, their        taxable fringe benefit                      needs more real, organic growth before a
associates and          will arise                                  recovery can be properly established.
clients attend at       for associates – a
a cost of $365           taxable fringe benefit                     The key factor is a sustained increase in
per head                 will arise, and                            consumer spending and this will be hard to
                        for clients – there is no                   achieve while unemployment remains at
                         FBT payable and the                        current levels.
                         cost of providing the
                         entertainment is not
                         income tax deductible.                     Most other developed economies
                                                                    recommenced growth in the last quarter,
                                                                    led by Germany, France and Japan.
                                                                    However, deteriorating labour markets and
* Where the benefits are indicated as qualifying                    only slight increases in domestic demand
for the minor benefits exemption, it is on the
                                                                    point to a very slow recovery.
basis that the necessary conditions have been
satisfied.
                                                                    The UK economy continues to contract
                                                                    and may be in for another miserable
                                                                    winter. In contrast, China's economic
                                                                    growth is on target to reach 8% for the
                                                                    year.

                                                            -2-
Source content courtesy of PKF Australia and Ato.gov.au. The information provided in this publication is a guide only and
should not be relied upon as advice specific to your particular situation. For more details please contact us at
crmbusinessadvisors.com.au. To subscribe or unsubscribe to Tax Talk, please email us at taxtalk@crmbusinessadvisors.com.au.
                                                                  Tax Talk – October/November 2009
                                                                  In this issue:
                                                                             Christmas Parties and Fringe Benefits Tax
                                                                             Economic Focus – A Slow Recovery
                                                                             Super Focus – Cost of Excess Contributions
                                                                             Happy Holidays and more

CRM Business Advisors Pty Ltd                                     www.crmbusinessadvisors.com.au


                                                                    taxed at a further 31.5%. Your
Due to stronger economic conditions,                                superannuation fund can release money to
Australia is the first developed economy to                         pay this excessive contributions tax or you
raise interest rates (closely followed by                           can pay with monies outside
Israel and Norway). Most economic data                              superannuation. The excessive amount
released during October supports this                               also counts towards your non-
decision with the sharp improvement in                              concessional contributions cap.
economic growth surprising even the most
positive economists.                                                The non-concessional contributions cap is
                                                                    $150,000 per annum and those under 65
The Reserve Bank has promised to return                             can bring forward two years worth of
rates to more normal levels and how                                 contributions, giving them a cap of
aggressively they implement the tightening                          $450,000 over three years. Where an
cycle will be seen in the next few months.                          excess non-concessional contributions
                                                                    event occurs, the excess amount is taxed
The seven month rally on major global                               at 46.5%.
share markets finally met with some
resistance by the end of October. The                               But the real sting occurs if you
general consensus is that shares have                               simultaneously breach both the
moved from being ridiculously cheap to                              concessional and non-concessional caps.
fair value.
                                                                    Case Study
We may be looking at a period of
consolidation as the market waits to see                            Harry, 64, is self-employed and plans to
how the economic recovery affects                                   retire next year so he is trying to get as
corporate profits in the next six months.                           much money into superannuation while he
                                                                    is still eligible to contribute. Last year he
                                                                    made a non-concessional contribution of
Superannuation Focus                                                $450,000 so he cannot make further
                                                                    contributions this year without exceeding
                                                                    the cap. However, he can still make
Excess contributions can cost you                                   concessional contributions this year.
                                                                    Unfortunately, Harry is not aware that the
As a result of the changes to the                                   concessional cap has been halved to
superannuation contribution caps, now is                            $50,000 for the 2009-10 year and
an appropriate time to review your                                  proceeds to make a $75,000 contribution.
contributions strategy for this financial
year. Making excessive contributions                                Harry has exceeded the concessional
could cost much more than you realise.                              contributions cap by $25,000. Therefore,
                                                                    he will pay the 15% contributions tax
Concessional contributions made to                                  ($3,750) and another 31.5% ($7,875)
superannuation are subject to an annual                             because he has exceeded the
cap of $25,000. Concessional                                        concessional cap. The excess
contributions include employer                                      concessional amount also forms part of
contributions and personal contributions                            the non-concessional amount. As he has
claimed as a tax deduction by a self-                               maximised the amount of non-
employed individual. Until 30 June 2012, a                          concessional contributions he can make
transitional concessional contributions cap                         this year, a further 46.5% ($11,625) in tax
of $50,000 applies to people aged 50 or                             is payable. This means that he pays 93%
over.                                                               ($23,250) of the excessive $25,000 in
                                                                    taxes.
Your fund is taxed at the rate of 15% for
concessional contributions up to the cap
but, in excess of that cap, the member is
                                                            -3-
Source content courtesy of PKF Australia and Ato.gov.au. The information provided in this publication is a guide only and
should not be relied upon as advice specific to your particular situation. For more details please contact us at
crmbusinessadvisors.com.au. To subscribe or unsubscribe to Tax Talk, please email us at taxtalk@crmbusinessadvisors.com.au.
                                                                  Tax Talk – October/November 2009
                                                                  In this issue:
                                                                             Christmas Parties and Fringe Benefits Tax
                                                                             Economic Focus – A Slow Recovery
                                                                             Super Focus – Cost of Excess Contributions
                                                                             Happy Holidays and more

CRM Business Advisors Pty Ltd                                     www.crmbusinessadvisors.com.au


Insurance Focus
                                                                    The most common type is the cross-sell
                                                                    agreement where upon the death or
Business Insurance                                                  serious illness of the owner, the other
                                                                    business owner(s) purchase the share.
People own life insurance to provide
financial support to their spouse and/or                            The agreement is often linked to an
family in the event of their untimely death.                        insurance policy on each partner's life and,
Life insurance is easily the most popular                           therefore, becomes part of the partner's
form of risk insurance in Australia because                         estate planning. In most cases, legal
most people consider their family as their                          advice would be required.
most important asset.

For many, their second most important
                                                                    Happy Holidays!
asset is their business as this dictates the
type of lifestyle that their family can have                        Whatever your holiday plans this season,
now and in the future.                                              whether you are planning to celebrate
                                                                    here in the local area or travel elsewhere,
Therefore, it would make sense to insure                            the entire staff of both offices of CRM
against an event that may prevent that                              Business Advisors wish you and your
business from functioning properly. There                           families the happiest of holidays.
are three types of business cover which
appear similar but can be differentiated                            Our offices will be closed for the holiday
                                                                                                             th
when closely examined.                                              season from 12pm on Thursday the 24 of
                                                                    December until 8:30am on Monday the
                                                                      th
Business expense insurance covers the                               11 of January.
fixed costs of running a business if the
insured cannot work due to sickness or                              The next issue of Tax Talk will be
injury. It is generally designed for the self-                      published in mid-January.
employed but some providers will cover
small partnerships as well. It is paid as a
                                                                    Merry Christmas!
monthly benefit for periods up to a year
and has a waiting period as well.
Key person insurance is a life insurance
policy that a company can purchase to
insure against the death or incapacitation
of a key executive or employee. The
principle is that the proceeds go back into
the business to help it survive the loss of
the key person. The proceeds of a key
person insurance benefit would ordinarily
go towards offsetting the costs of hiring a
temporary replacement or recruiting a
successor. In this transitional phase, there
will often be a temporary loss of
production as well.

Buy-sell agreements are binding contracts
between owners/partners about the future
ownership of the business. It involves one
partner being bound to buy out the other
partner's share in the business should a
specific event occur e.g. death, divorce,
disability or retirement.
                                                            -4-
Source content courtesy of PKF Australia and Ato.gov.au. The information provided in this publication is a guide only and
should not be relied upon as advice specific to your particular situation. For more details please contact us at
crmbusinessadvisors.com.au. To subscribe or unsubscribe to Tax Talk, please email us at taxtalk@crmbusinessadvisors.com.au.

								
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