Archive for December, 2009

Last week we covered the cost of having a Christmas Party on business premises and discovered that although no Fringe Benefits Tax is payable, there is no tax deduction allowed.

So what happens if the party is held at a local restaurant? Well this again depends upon the generosity of the boss. If he is too generous then the cost of the party can increase significantly because of the addition of fringe benefits tax.

Christmas party held off business premises

The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.

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

Now what if the Boss also gives you a pressie?

Gifts provided to employees at a Christmas party

The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.

Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Confused? Well this is why you need an accountant to advise on how various types of expenses are recorded and reported to the ATO.

Many thanks to the Australia Tax Office for this timely reminder that no matter what we do we can be taxed on it.

As an employer I try to ensure a safe and happy work environment for my staff. One of the benefits provided is a thank you at Christmas time. Of course if the staff turn up to the “thank you” party then I can be taxed (a second time) on what I spend on my staff. This applies to all employers so be easy on them if they cut back a little this year.

For the benefit of employers and we give a brief review of information provided by the ATO in relation to Christmas parties.

Tax deductibility of a Christmas party

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.

Christmas party held on the business premises

A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit. This is all calculated on the cost per head to attend.

Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

This is a brief introduction to Christmas Parties held on business premises, next week we will look at Christmas parties held at a restaurant, function centre or somewhere else not on the business premises.

It is interesting to note that the Medicare Levy we all pay is not a tax, it is a levy, therefore if any Government promises not to raise taxes they can still raise the Medicare Levy and not break a promise. Then again when has a politician ever broken a promise.

Everyone paying tax pays the 1.5% Medicare Levy. There are some exceptions for low income earners. As to the higher end of the income scale, if your income is over $70,000 for a single person or $140,000 for a couple (read Family) and you do not have appropriate Private Patient Hospital Cover then you can be liable to an additional 1% Medicare Levy. This tax, sorry Levy, is to encourage taxpayers to opt out of the Public Health system and go private.

Now some Health Funds will reduce their fees if you agree to pay an excess if you are admitted to Hospital. This can be a problem as we found out with one of our clients. If the excess, according to the Tax Office, is excessive then you will be deemed by the ATO to not have Private Patient Hospital Cover and even though you have paid the Health Fund thousands of dollars you still have to pay that extra 1%.

The ATO guidelines state:

Private patient hospital cover is cover provided by an insurance policy issued by a registered health insurer for some or all hospital treatment provided in an Australian hospital or day hospital facility. However, an insurance policy for hospital cover taken out after 24 May 2000 that has an ‘annual front-end deductible’ amount or excess of more than $500 in the case of a policy covering only one person, or more than $1,000 for all other policies, does not provide private patient hospital cover for MLS purposes. The same applies to an insurance policy for hospital cover with a high front-end deductible amount or excess that was taken out before 24 May 2000 if the policy either ceased to provide continuous cover after that date or has provided continuous cover but has increased the front-end deductible amount or exces

Now what does all this mean?

If the Hospital excess is, say $1,000 per admission and is capped at $2,000 per year, then according to the ATO you do not have Private Patient Hospital Cover. It is therefore very important that you read the statement of information provided by your health fund to ensure that you are really covered. Your excess may be $750.00 per admission but if both you and your spouse are required to pay this then the total excess is $1,500 and you may be liable for the Medicare Levy Surcharge (an extra 1% tax). What does you policy say about children? Is every member of your family liable or is the total hospital excess capped at $1,000 per calendar year irrespective of the number of hospital admittances. This is the result you need.

The other problem here is if you get married during the year. You may have single cover, but if the spouse does not have Hospital cover, and your combined income is over $140,000 and you do not change your cover to family cover, then the ATO deem that neither of you have Private Patient Hospital Cover and slug you with an extra 1% tax.

This is another example of the intricacies of the tax act and how you can get caught out.

As mentioned in last weeks article, only a registered tax agent can charge a fee to prepare and lodge your tax return. Remember you are ultimately responsible for your own tax return — if you use an unregistered agent you could find yourself with a large tax bill, penalties, or even worse, the potential for your identity to be used for unauthorised purposes.

A list of registered tax agents can be found at the Tax Agents’ Board website www.tabd.gov.au or you can check with the Board on 1300 362 829.

The total number of returns attracting upfront scrutiny or under investigation represent a tiny fraction of the total returns already lodged with us. This work does not impact on our normal service standards for processing other refunds.

Where we find a return to be suspect, we will contact the taxpayer directly. If contacted, I encourage you to make a full disclosure.

We owe it to the vast majority of taxpayers who wilfully do the right thing to use the full force of the law against those who do the wrong thing and to deter others.

We have and will continue to work with partner agencies in conducting investigations that lead to successful prosecutions.

As I said before, while it is important that we bring people who commit tax fraud to account, the best way to protect Australia’s revenue is through prevention.

Preventative measures – a reminder for all of us

Unfortunately scams are a fact of life, particularly in the internet age, and take many other forms apart from attempts at refund fraud.

While the work we do to deter, detect and deal with fraud helps protect the community, it is very important that individuals take steps to protect themselves from scammers and fraudsters.

You can help us protect you and others in the community by referring any information you have about these matters to us on 13 28 61.

Apart from blatant and increasingly sophisticated attempts to cheat the system and therefore the community, scammers and fraudsters cause havoc for the people they’ve stolen from or cheated.

Identity theft is a particular problem. If your identity is stolen it can take years to put things right. Your tax file number (TFN) is a unique identifier and should be kept safe. Only certain people can ask for your TFN including the Tax Office, Centrelink, your super fund, bank or financial institution, and your employer (who can do so only once you have started working for them).

There are a few things people can do to protect themselves.

First of all, scams can take many different forms from bogus emails to people door—knocking claiming to be from the Tax Office. Most are designed to trick you into giving away your money, passwords and/or personal details.

Be alert to cold calling by email, phone or suspicious door knockers. If an email, phone call or suspicious door knocker does not look or sound right don’t offer any information and call the Tax Office on 13 28 61.

Just as a final and general reminder, even if someone, including a tax agent, helps prepare and lodge your return, the information in the return remains your individual responsibility. You still need to make sure the information is accurate before you sign off on it and that you can prove any claims for deductions if required.

Michael D’Ascenzo
Commissioner of Taxation