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MARCH 2010
End of the 2009/10 FBT Year
The fringe benefits tax (FBT) year runs from 1 April until 31 March, which means it is time to get those records in order.
This means collecting and collating relevant FBT records relating to all benefits provided, such as:
- motor vehicles, for which you may need year end odometer readings, declarations concerning expense payments borne by employees and log books
- car parking, for which you may need usage log books;
- entertainment for which you may need usage log books;
- expense payments; and
- living away from home allowances for which you will need employee declarations.
FBT rate
The FBT rate of tax for the year ended 31 March 2010 is 46.5% which is applied to the grossed up value of the benefit provided. Where the employer is entitled to a GST input credit in respect of the benefit provided, the gross up value is 2.0647. Otherwise, the gross up value is 1.8692.
Minor benefits exemption
Fringe benefits with a taxable value of less than $300 may be exempt from FBT if they are provided on an irregular and infrequent basis.
For a benefit to qualify for this exemption, the benefit must have a GST-inclusive taxable value of less than $300.
Entertainment – what is it and when are you caught for FBT?
Entertainment always creates problems in relation to tax, whether it is income tax, FBT or GST. As an employer, if you do any of the following activities, you need to assess the tax consequences.
- Christmas parties
- Business lunches with clients
- Golf days or other promotional events
- Product release functions
- Celebrations for achieving sales targets
- Birthday parties, farewells and reward and recognition functions
- Memberships to gyms and sporting clubs
An employer who has provided meal entertainment fringe benefits may work out the taxable value of their meal entertainment under one of these three methods:
- 50/50 split method;
- 12 week register method; or
- actual expenditure incurred on meal entertainment method.
Contractors v employees
The taxpayer has appealed to the Federal Court against the decision of the Administrative Appeals Tribunal in Roy Morgan Research Pty Ltd and Comm of Tax. This important decision has been reported previously in this newsletter and concerns superannuation guarantee default assessments being issued to the taxpayer after finding that its market research interviewers were "employees" for superannuation guarantee purposes, and not independent contractors.
Personal services income
The PSI provisions look through arrangements whereby companies and trusts (or other entities) are contracted to provide services which are properly referable to the person who carries out the work. The provisions assess the individual who carries out the work on the income derived and not the entity that was contracted to deliver those services.
Taxpayers can escape the PSI provisions if they operate a personal services business which means they either have a determination from the Commissioner granting the personal services business status or they pass tests which qualify the taxpayer to self assess as a personal services business.
In some circumstances, the outcomes can be dire. In Russell’s Case, a taxpayer operating through a New Zealand company could not pass the PSI rules and was held to be assessable on certain income derived. Then the company through which he operated was assessed by New Zealand authorities on the same income with no allowance for Australian tax paid because the tax was not paid by the company.
In another recent case, Yalos Engineering Pty Limited had a PSI determination granted by the Administrative Appeals Tribunal returned by the Federal Court on the grounds that it did not obtain income as a result of the company making invitations or offers to the public at large for its work.
If you are operating a consultancy through a company, trust or partnership and you have only one major source of income for that business in any financial year, we recommend that you talk to your contacts at ESV. The risks involved in cross-border transactions are even higher.
Taxpayer gets no deduction for misappropriated funds
The Full Federal Court in Lean v Comm of Tax, has held that the taxpayer was not entitled to a deduction of nearly $3.3M in respect of money from the sale of shares which was subsequently misappropriated even though the taxpayer was assessed on the profit on sale of the shares.
In his 2002 return, the taxpayer included a net capital gain of $2.3 million from the sale of Microsoft shares. In July and August 2001, he had instructed a US stockbroker to sell those shares and transfer the proceeds to a Hong Kong bank nominated by a Mr Heffernan, a supposedly reputable and highly successful securities trader and fund manager.
The funds were misappropriated and in his 2002 return, the taxpayer claimed deductions including the sum of $3,287,749 being the amount misappropriated from the monies received from the sale of shares.
Income tax law does allow taxpayers to claim a deduction for money that has been stolen or misappropriated. However, the money must have been included in the taxpayer's assessable income in that year or an earlier year.
In this case, the monies (the proceeds from the sale) were transferred from the stockbroker to another person as a totally separate investment. According to the Court, the link between the money that was stolen and the money returned as assessable income was broken when the funds left the stockbroker's hands. On that basis, the Court disallowed the deduction.
Residential land and GST
Taxpayers and the ATO are still trying to resolve the riddle of what constitutes residential land for GST purposes. The issue is a concern because that fact determines whether or not a taxpayer is entitled to input credits for GST paid in relation to a property.
The central issue in the Federal Court case Sunchen Pty Limited v Comm of Tax was the meaning of the expression "residential premises to be used predominantly for residential accommodation". After analysing the expression grammatically, Justice Perram concluded that, in his view, the words "to be used" did not involve assessing the state of mind of purchaser, but the rather the apparent purpose of the premises at the time of the supply.
However, his Honour noted that it was not without doubt, the Tribunal was correct to apply the 'likely future use' test.
The Court was satisfied that the Tribunal had made no error of law and that the taxpayer had failed to discharge the onus of proving that the premises were not to be used predominantly for residential accommodation.
Rental properties – travel expenses
The Australian Taxation Office continues to scrutinise landlord's expenses, particularly travel expenses. Domestic travel requiring an overnight stay Sophisticated 'phishing' scam alerts
What travel expenses can taxpayers with a rental property claim?
Taxpayers can claim:
A rental property may be located so far from where a taxpayer lives that it would be unreasonable to expect them not to stay near the property overnight when making an inspection.
If this is the sole reason for the trip, they are entitled to claim a deduction for travel expenses incurred in travelling to the rental property.
Where an overnight stay is involved, they would be entitled to claim for meals and accommodation.
The scams are increasingly sophisticated. However, the Australian Taxation Office are vigilant for these types of schemes and post examples of fraud emails on their website.
It's the ATO's party and they'll cry if they want to
The Assistant Treasurer has announced that the Royal Australian Mint will produce a commemorative 20 cent coin to mark the Centenary of the Australian Taxation Office in 2010.
The ATO's 100th anniversary since foundation is on 11 November, however, Senator Sherry said that, in deference to the fallen and to war veterans, the ATO will mark its anniversary on the day after Remembrance Day, 12 November.
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The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability.
If you have any queries regarding the information contained in this
update please do not hesitate to contact us.
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