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NOVEMBER 2009


 

 

 

 

ATO warns processing of 2009 Returns will be slow


We have been contacted by the Australian Taxation Office to tell us that their computer systems will be unavailable from Friday, 22 January until Wednesday, 27 January 2010 while they implement a new IT system. They have also told us that they will need to suspend some processing in the weeks leading up to the implementation.

This will lead to processing delays in the weeks following the implementation as the new system gradually returns to full processing levels. We expect these delays may continue during February 2010.

ESV will be implementing procedures such as strategic back-ups to minimise disruptions that could occur as a result of the system changes at the Australian Taxation Office.



Bamford Case
High Court grants leave to appeal

On 3 November 2009, the High Court granted special leave to appeal in Bamford. The Court will consider the meaning of the expressions "income of the trust estate" and "share" of the income of the trust estate in s 97 of the ITAA36.

Regular readers of this newsletter will be aware that we have been keeping a close eye on developments in this case which could affect a large number of ESV clients. In August the ATO issued PS LA 2009/7 outlining its approach to the issues noted above, pending resolution of the decision in Bamford on appeal. In that statement, the ATO said that they will ignore the latest Court decision in respect of the expression “income of the trust estate”.


More Tax Office audits with
New Small Business Benchmarks

The Tax Office has released a number of new "Small business benchmarks" in October.  According to the ATO, these benchmarks provide a snapshot of what, on average, is happening in businesses operating in particular industries by comparing various business costs to sales.

The ATO use benchmarks to identify businesses that may be avoiding their tax obligations. The benchmarks can also be used by you to assess how your business compares to your competitors.

Two types of benchmarks have been developed for the small business (micro-market) sector:

  • Performance benchmarks are based on information small businesses report to the ATO on income tax returns and business activity statements. Examples of this type of benchmark include:
  • The cost of goods sold to turnover
  • Labour to turnover
  • Rent to turnover
  • GST-free sales to turnover
  • Motor vehicle expenses to turnover
  • Input benchmarks show an expected range of income for tradespeople based on the labour and materials they use. They apply to taxpayers who work with household (domestic) customers rather than commercial customers and are based on information industry participants and trade associations provide.

Selected Industries

There were 38 benchmarks issued for businesses operating in the following industries:

  • Manufacturing (Bakeries, hot bread shops, cake shops and patisseries);
  • Construction (Extensive range including electrical, bricklaying, painting, plumbing, roofing, flooring);
  • Retail trade (Extensive range);
  • Accommodation and food services (Pubs, bars, restaurants, various takeaways);
  • Transport, postal and warehousing (Couriers, taxis and towings);
  • Rental, hiring and real estate services;
  • Administrative and support services (Such as pest control); and
  • Other services (Such as barbers, hairdressers and nail salons).

This list of industries will grow over time.

ESV use the ATO data to identify clients that may be at risk of a tax audit and to develop strategies to mitigate risk or outcomes.



Christmas/year end parties and gifts

If the financial crisis has left enough in the kitty for a party, don’t forget to consider the income tax, FBT and GST implications of providing parties and Christmas gifts to staff and clients.

This is not a simple task but here are some general rules for typical businesses that should make the job a bit easier. (Special rules apply to not-for-profit entities.)

Entertainment expenses are only tax deductible where they give rise to an FBT liability. If the entertainment expenses are deductible, you can also claim GST input credits on those expenses to the extent that they are deductible.

The FBT liability for meal entertainment can be calculated on:

  • The actual costs of meal entertainment benefits provided to staff
  • An estimate of the actual cost of meal entertainment benefits provided to staff based on a 12 week log or
  • The 50/50 method.

For taxpayers who use the actual method, the costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day at your business premises and consumed by current employees. A taxable fringe benefit arises in respect of associates of an employee who attend the party if the costs per head exceed $300.

In fact, for employers who use the actual method, any party where the cost per head is less than $300 is exempt from fringe benefits tax.

The Tax Office now accepts that different benefits provided at (or about) the same time are not added together when applying this $300 threshold. This means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300 per person.

Where entertainment benefits are valued at less than $300 per head and no FBT liability arises, the employer is not allowed to claim an income tax deduction in respect of those benefits. In addition, the employer will not be entitled to claim input credits in respect of GST paid on those entertainment expenses.

This minor exemption is not available to employers who use the 50/50 method or the 12 week register method to calculate the fringe benefits tax on meal entertainment. Those employers must bundle all meal entertainment and apply the appropriate percentage to that aggregate amount. There is no carve-out for FBT exemptions that may otherwise apply.

Those employers that pay FBT in respect of entertainment expenses incurred will be entitled to claim tax deductions for 50% (or the appropriate percentage) of those expenses. They will also be entitled to claim input tax credits on 50% (or the appropriate percentage) of GST paid in respect of those expenses.

While party expenses will generally be entertainment expenses, gifts are not necessarily entertainment.

Gifts which ARE NOT entertainment – generally include:

  • Goods to be consumed away from the work place for example a Christmas hamper, a bottle of whisky or wine, and
  • Gift vouchers, a bottle of perfume, flowers, a pen set, etc.   

Provided the value of the gifts is under $300 per person, there will be no FBT in respect of a gift to an employee, the expense will be tax deductible and you will be entitled to claim back the GST paid.

Gifts which ARE entertainment – generally include:

  • Tickets to attend a theatre, live play, sporting event, movie or the like; and
  • A holiday airline ticket or admission ticket to an amusement centre.

Where these entertainment type gifts are valued at under $300 per person, there will be no FBT even if it is provided to an employee. However, there will be no tax deduction available in respect of the gift nor will you be entitled to claim the GST paid.



FBT – Donations made under salary sacrifice arrangements

The FBT law has been amended to ensure that, from the 2008/09 FBT year, FBT will not apply where a salary sacrifice arrangement involves a donation to an organisation that is a deductible gift recipient (DGR).

Employees who make donations under such a salary sacrifice arrangement are not entitled to claim an income tax deduction for the donation in their own tax return.



Temporary investment allowance and demonstrator vehicles

Be careful if you are considering buying a demonstrator car to access the temporary investment allowance. We have been made aware of dealers incorrectly advising customers that they are entitled to the investment allowance. While demonstrator vehicles are clearly in the ambit of the investment allowance, the car must be able to fit the description of "new".

The Commissioner set out his views on this matter in relation to a vehicle used by a car dealer for almost 12 months before its sale to the taxpayer. The sale price of $30,000 represented a discount of $10,000 on the new vehicle price. At the time of sale the odometer reading was 10,500 kilometres and two years of the original three year manufacturer's warranty remained. In that case, the Commissioner held that the car was not "new" and that the taxpayer was not entitled to claim the 50% investment allowance.

In assessing whether a vehicle is new and, therefore eligible in relation to the investment allowance, the Commissioner identified the following factors as important:

  • The period over which the vehicle was used for testing and trialling.
  • The number of kilometres travelled.
  • The discount to the market value of a similar new vehicle and
  • The balance of the manufacturer's warranty remaining.


If you are in any doubt, call ESV. While the car dealers may be acting in good faith, it is important to get your tax advice from taxation professionals.


Tax Office considers new anti-tax evasion strategy


The Tax Office is considering options to increase the attractiveness of voluntary disclosure following the success of the Offshore Voluntary Disclosure Initiative (OVDI), according to a media release by the Assistant Treasurer, Senator Nick Sherry.

Senator Sherry said that strategy aimed at stamping out tax evasion is reaping dividends for the Australian community. He pointed out that the OVDI had raised more than $50m in new tax liabilities

The OVDI offers taxpayers, who make voluntary disclosure before they are the subject of an audit, reduced tax shortfall penalties. If their additional taxable income is $20,000 or less for a year, they will not have to pay a shortfall penalty for that year. If the additional income exceeds $20,000, the taxpayer will be entitled to a reduced shortfall penalty of 5% of the additional tax liability.

With many new Exchange of Information agreements either negotiated or in the process of being negotiated, clients should ensure that they have disclosed income from all sources.  If you have undisclosed offshore assets, we recommend that you speak to the tax team at ESV as soon as possible.



Warning: Another tax refund email scam 


The Tax Office is warning people about another bogus email circulating that claims to offer a tax refund.  The email claims to be from the ATO, and shows a Tax Office email address as the sender.

The email uses the Tax Office logo and includes the words 'You are eligible to receive a tax refund of $250.50' in the subject heading and the following text (though there may be variations):

Dear Australian Taxation Office customer,

After the last annual calculation of your fiscal activity we have determined that you are eligible to receive a tax refund of $250.50 AUD.

Please submit the tax refund and allow us 3-5 business days in order to process it.

The email asks you to complete a refund form by clicking on a link in the email which directs them to a bogus Tax Office Website and asks for personal and credit card details.

If you have entered your credit card information into the bogus site, you should report the matter to your credit card provider as soon as possible.

 


 

 

Liability limited by a scheme approved under Professional Standards Legislation.

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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