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 firstname.lastname@example.org. 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 email@example.com. 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 firstname.lastname@example.org. 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 email@example.com.
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