Are you having a staff Christmas Party? With the festive season just around the corner, the ATO has reminded employers to consider the fringe benefits tax (FBT) implications of the party or other event. So what are the FBT implications of the office Christmas party?

This will depend on a number of factors:

• The amount you spend on each employee
• When and where the event is held
• The value and type of gifts you provide; and
• Who attends – is it just employees, or are partners, clients or suppliers also invited?

It is important to keep all records relating to the entertainment-related fringe benefits you provide, including how you worked out the taxable value of benefits.

You need to be sure you really understand how FBT works, otherwise you could end up with a heft FBT liability.

Christmas parties constitute “entertainment benefits” and to the extent that the expenditure relates to employees or their associates attending the function, the expenses may be subject to fringe benefits tax (FBT) unless an exemption (eg, the “minor benefits” exemption) applies.

A minor benefit is one that is provided to an employee or their associate (eg, spouse) on an “infrequent” basis, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”.

Entertainment expenses are not tax-deductible unless they are subject to FBT. This means that expenses incurred in providing a Christmas party are not generally deductible where the minor benefit FBT exemption applies.

Non-entertainment benefits provided to employees at the Christmas party, such as a hamper, are considered separately when applying for the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.

Tax Implications of Employee Gifts

If the business gives employees non-entertainment type gifts that cost less than $300 (inclusive of GST) per employee, then the cost is fully tax-deductible, with no FBT payable and GST credits can be claimed. The gifts at Christmas parties are usually exempt from FBT because they are not provided on a regular basis, and the gift is not provided to the employees wholly or principally as a reward for their services rendered.

Unlike non-entertainment gifts, gifts classified as entertainment, including recreation, are non-deductible and GST credits cannot be claimed. A tax deduction and GST credits can only be claimed on entertainment or recreation gifts where Fringe Benefit Tax applies. This means that while the minor and infrequent exemption could still apply for entertainment and recreation gifts costing less than $300 (GST inclusive), tax deductions and GST credits can only be claimed where FBT applies to entertainment and recreation gifts.

The costs (such as food and drink) of a Christmas party are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. If spouses or other guests of employees are entitled to attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption.

This is general information above, but for specific FBT implications and tax advice, please talk to the team at MGI.

Australian Government Grant Opportunity G06557 – Aged Care Registered Nurses’ Payment to reward clinical skills and leadership – Round 2

In Round 2, payments up to $6,000 (GST not applicable) will be available per eligible Registered Nurse working in aged care.  This round will accept applications for Registered Nurses who were employed by the same eligible employer during the entire eligibility period of 1 November 2022 to 31 October 2023. Applications for this grant opportunity must be submitted by the employer. Employers should discuss this grant opportunity with their employees prior to the submission of the application.

To be eligible to receive a payment under this grant opportunity, Registered Nurses must hold general registration with the Nursing and Midwifery Board of Australia (Nursing and Midwifery Board of Australia – Nursing (www.nursingmidwiferyboard.gov.au)) as a Registered Nurse (Division 1).

Registered Nurses must have been employed by the same eligible employer for the full period of 1 November 2022 to 31 October 2023 to receive the 12-month payment or have been employed by the same eligible employer for the full eligibility period of 1 May 2023 to 31 October 2023 to receive a 6-month payment.

Applications for Registered Nurses eligible for either 12-month or 6-month periods can be lodged at the same time.

Successful applicants must make full payment of grant funds to eligible Registered Nurses within 8 weeks after receiving the grant funds.

Aged Care Registered Nurses – Round 2 Eligibility and Submission Instructions

Close Date: 20th of December, 2.00pm ACT time.

If you have any questions or need assistance with your application, please contact the team at MGI.

The Government has released draft superannuation legislation for the proposed new tax on members with more than $3m in super – known as “Division 296 tax”.

The Federal Government hasn’t moved from its original direction and so the unpopular elements remain:

• The mechanism for calculating the “earnings” that will be taxed is based on movement in a member’s total superannuation balance. By default, that will include unrealised capital gains.
• No refunds in years when earnings are negative.
• No indexation of the $3m threshold

With regard to earnings

Earnings is essentially movement in a member’s total superannuation balance adjusted for net contributions and withdrawals.

Earnings will be specifically adjusted to reflect the fact that increases in a member’s balance arising from inheriting super pensions, receiving transfers from a partner or ex partner’s superannuation (under a contribution split or family law split) and insurance payouts are not earnings and shouldn’t be subject to the tax. Interestingly, even some amounts allocated from reserves will be excluded from earnings.

The Government will not chase deceased members for Division 296 taxes that would otherwise be incurred in the year of death. A member who dies before the end of the year will be deemed to have a $nil tax regardless of what’s happened to their super during the year. If their balance has been left in super but transferred to a spouse (for example, a reversionary pension or a death benefit pension) it will be counted in the inheriting spouse’s $3m. So, this is only relevant for people whose super is still waiting to be dealt with at the end of the year.

How much of the earnings will be taxed?

The Bill reduces the tax concessions for individuals with a total superannuation balance (TSB) above $3 million by imposing an additional 15 per cent tax on certain earnings under Division 296 of the Income Tax Assessment Act 1997.”

When and how it’s paid

The tax will be levied on individuals but can be paid from a super fund using the usual release authority mechanism.

What can we expect next?

Treasury has invited responses to the draft legislation, but there’s a very short turnaround required (18 October 2023), suggesting major changes are not expected.

MGI SQ will provide further updates in due course on the legislation. In the meantime if you have any queries please don’t hesitate to contact us.

What is the Small Business Technology Investment Boost?

The Small Business Technology Investment Boost by the ATO, is a tax incentive program designed to provide financial support to small businesses seeking to invest in technology to improve their operations and productivity. The scheme allows eligible businesses to claim an additional 20% tax deduction for technology-based expenses up to a threshold.

Eligibility For The Technology Investment Boost

For an entity to be eligible for the boost it must be “carrying on a business” with an aggregated annual turnover of less than $50 million. The boost can apply to sole traders, partnerships, companies, and trusts.

Business expenses that have a close connection with the entity’s digital operations or digitising its operations are eligible for the bonus deduction. As the legislation is very broad in its definition a large variety of expenses may be eligible.

Eligible Period

• Eligible Expenditure must be incurred between 7:30pm AEDT 29 March 2022 and 30 June 2023.
• If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for taxable purpose by 30 June 2023.

Eligible Expenditure

• Digital Enabling Items – computer and telecommunications hardware and equipment, software (such as Xero or MYOB subscriptions), internet costs, systems and services that form and facilitate the use of computer networks.
• Digital Media & Marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design.
• E-Commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth.
• Cyber Security – cyber security systems, backup management and monitoring services.

Depreciating Assets

• Expenses eligible for the boost can also apply to depreciation on assets that relate to digital operations, such as computer equipment.
• Many small businesses have been utilising Temporary Full Expensing depreciation rules over the last few years, allowing them to immediately claim full depreciation on assets. As such, many of the assets purchased before the boost started (29 March 2022) will not be eligible for the bonus deduction as they have already been fully depreciated. However, Temporary Full Expensing will also allow for eligible new assets purchased and “ready for use” during the boost’s eligible period to be immediately depreciated and the bonus boost deduction to be calculated on the full depreciable value.

What You Can’t Claim As Part of the Technology Investment Boost

• Salary & Wages
• Phone Expenses
• Capital Works Costs
• Financing Costs
• Training or Education Costs (they may be eligible for the Small Business Skills and Training Boost)
• Expenses that form part of your trading stock costs

How to Claim The Tax Deduction

The bonus deduction for the boost will be taken up by us as a tax adjustment when we prepare the 2023 Income Tax Returns. The 2023 Income Tax Returns will include the tax adjustment for eligible expenses incurred during the 2023 financial year, as well as eligible expenses incurred during the eligible period within the 2022 financial year (29 March 2022 to 30 June 2022).

The boost is capped at $100,000 of expenditure per income year, resulting in a bonus deduction of $20,000. Therefore, since the eligible period covers one full financial year (2023) and part of another financial year (2022), the total bonus deduction claimable is $40,000.

What You Need to Do

• If we have already prepared your 2023 Tax Return, we have already included the boost in your returns if you are eligible.
• Ensure expense information provided to us has sufficient details so we can identify what they relate to. Where possible also attach tax invoices in your bookkeeping software.
• Ensure single payments for multiple goods and services that include eligible and non-eligible expenses are recorded as separate amounts.
• Separate out internet costs from phone costs so the internet can be included in the boost.
• Separate out any private portion of expenditure, in particular technology expenses.
• Email or call your MGI contact if you have any questions.

FAQ’s about the Small Business Technology Investment Boost

• Does the boost only apply to new technologies, or also existing technologies?
  Although the scheme is focused on incentivising businesses to adopt new technologies, the legislation does not exclude existing technologies.
• Are social media advertising expenses eligible?
  While ATO guidance isn’t particularly clear on this area, we believe this expenditure falls under the grouping of Digital Media & Marketing and would be eligible for the boost assuming the advertising has a direct link to the business’ digital operations.
• What if I started digitalising my business before the boosts eligible period?
  The boost exclusively looks at the date the expenditure has been incurred. Therefore, on-going monthly digital expenses paid during the eligible period would qualify, but any prior expenditure would not. However, if the prior expenditure related to depreciable assets the expenditure may still be eligible depending on the depreciation method.

For further details on the Small Business Technology Investment Boost please click on this Australian Tax Office link.

Please contact the team at MGI if you have any questions or require further information.

With it being tax time, be wary of fraudsters

The Australian Taxation Office (ATO) has estimated more than $800 million of fraudulent refund claims have been made, with fraudsters relying on the self-assessment process in the BAS lodgement system to claim and be paid for false GST refunds, all before the fraudulent return is picked up by the ATO.

The attempted fraud involves an individual, often with stolen ID:

• inventing a fake business
• lodging a fraudulent Australian business number (ABN) application, and
• submitting fictitious business activity statements (BAS) to attempt to gain a false GST refund

As part of this increased scrutiny and investigation, the ATO has introduced protocols to closely review all GST refund claims, both legitimate and false, and are putting extra controls in place, such as reviewing bank accounts and requesting further information on specific BAS statement items, to ensure the legitimacy of the claims being made.

For businesses that may rely on the GST refund claim coming in to purchase goods, pay other bills or otherwise be reliant on the cash flow for business purposes, this fraud activity is understandably causing some concern.

If you are concerned about a potential impact on your cashflow or see anything suspicious that may indicate GST refund fraud, please reach out to the MGI team.

Recently, The Fair Work Commission (FWC) announced the decision to increase the minimum wage and Modern Award pay rates by 5.75% as a result of the Annual Wage Review 2022-23.

The new Modern Award pay rates are to be paid from the first full pay period on or after 1 July 2023.

There is no obligation to increase the salaries of employees who are already paid more than the new Modern Award. However, no employee covered by a Modern Award should be paid less than the new Modern Award minimum rates.

Enterprise Agreements – Employee

Employers have an obligation to employees to ensure that those covered under an Enterprise Bargaining Agreement are not paid under the base rate of the Modern Award. As a result, some employers may need to increase their base rate to employees to match the base rate in the relevant award. Employers need to ensure they review their EBA’s against the Modern Award Rates to ensure legal requirements are met.

Superannuation Guarantee Charge (SGC) – Employer

From 1 July 2023, employers must increase the minimum employer superannuation contribution for their employees from 10.5% to 11%.

This increase applies to any salary or wages payment made on or after 1 July, including where the salary or wages payment covers the period of work undertaken before 1 July 2023.

Further Information on the Annual Wage Review 2022-23

Visit the website to find out more about the FWC determinations for the Annual Wage Review 2022-23 including updated wages tables for the modern awards.

If employers are unsure about the modern award changes and how to apply them, please contact the team at MGI for assistance.

The ATO is paying increased attention to checking the validity of trust distribution minutes.

Points of interest by the ATO include:

1. Profit distribution is made to beneficiaries that are included beneficiaries under the trust deed.
2. If particular categories of income are allocated to different beneficiaries, this streaming of the different categories of income is allowable under the trust deed.
3. Decision is made by the appropriate parties who are actually the trustee/s of the trust or directors of the trustee of the trust.
4. Decision is made in time in accordance with trust law and the trust deed for that particular year. This is normally by 30 June each year unless there is some unusual wording in the trust deed.

To assist us with ensuring that the decision is documented by the trustees and that it is in time, we have this year introduced the drafting of the minutes through the CAS360 software. This software is what we use for maintaining the electronic updating of corporate registers for our client’s companies and trusts.

The CAS360 software also allows us to utilise sending out most of our client’s trust distribution minutes for electronic signing via FuseSign. FuseSign is an electronic method of signing of documents based on each signing parties’ unique email address or mobile. Essentially it means that the trustees will each receive a message with a link to review the documents and if they are in agreement to the distribution minute, it can be approved on the screen with a few clicks.

For our clients whom are receiving trust distribution minutes, please watch out for emails from asic@mgisq.com.au to access these distribution minutes. Please note if you have multiple trusts, you will be receiving a separate email for each trust.

Once all trustees or the sole trustee have signed via FuseSign, we are instantly advised that the trust distribution minutes have been signed for our records.

FuseSign (using the email address noreply@fusesign.com) also sends a signed copy via email to the trustee/s for their records.

Both MGI and the trustee/s will receive a detail report from FuseSign which advises per signing party the exact time and date they confirmed their acceptance to the trust distribution minute. It will mean that we will have these details available if the ATO requests it.

We ask that if you do receive emails from asic@mgisq.com.au that you attend to them promptly to ensure that your trust/s distribution minutes are completed on time.

If you have any questions, please do not hesitate to contact our MGI team at (07) 3002 4800 or asic@mgisq.com.au

As the end of tax year approaches, the Australian Taxation Office (ATO) has announced its 3 key areas of focus for Tax Time 2023. Landlords, those working from home and capital gains tax (CGT) will all be the subject of an ATO crackdown when it comes to tax returns this year. According to ATO Assistant Commissioner Tim Loh, the areas being targeted are due to the high number of common mistakes being made in these areas. With access to the financial information of 1.7 million rental property investors from 17 of the countries largest banks and mortgage lenders, the ATO will be able to use new data matching techniques to crosscheck claims made by landlords in 2023.

The ATO Targets For Tax Time 2023

Rental property deductions

As landlords (and homeowners) feel the pinch from mortgage interest rate hikes, many have been trying to push the boundaries with their claimed deductions. While there are a number of legitimate deductions available on rental properties, it’s vital that you stay within the law and understand what is acceptable and what’s not. As many as 9 out 10 rental property investors made mistakes on their annual tax returns and incorrectly claimed expenses.

The ATO is particularly focused on interest expenses and ensuring owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with some private purpose).

“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Mr Loh said.

Work-related expenses

From March 1st taxpayers claiming working from home expenses are required to provide more detailed documentation and calculations. This means you can’t do a copy-paste from last year’s annual return. Previously you could choose from a number of different methods to calculate how much you could claim when working from home. However, as the working landscape changes and more people are working back in the office more frequently, the methods of calculation have changed and there are limits on what you can claim.

The ATO crackdown is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims.

“Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time,” Mr Loh said.

Capital gains tax

Do you rent your home out for example on AirBnb or Stayz? Then you may need to pay capital gains tax (CGT). CGT is generally incurred when you dispose of assets such as shares, crypto, managed investments or properties.

The ATO wants to make sure that taxpayers have considered all their assets when calculating capital gains tax as well as apportionment of the main residence exemption if taxpayers have used their property to earn income.

It’s important that you have kept records of the income-producing period and the portion of the property used to produce income to calculate your capital gain.

“Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply,” Mr Loh said.

Avoid an ATO Crackdown

By announcing it’s focus areas in advance, the ATO aims to promote fairness, transparency and greater compliance with tax laws through increasing awareness of the issues and providing guidance on how to avoid them.

Outside of these 3 main areas of focus, it has also been reported that income earned from the ‘gig economy’ or side hustles would attract greater scrutiny. This includes ride-share drivers and even social media influencers.

“If you’re running bootcamp sessions in addition to your nine-to-five job, well this is a side hustle and you need to declare this income to the ATO. If you’re an online content creator earning money or receiving gifts, you’re also likely to be running a business and there are tax obligations you need to comply with.” Mr Loh said.

A hobby crosses over to a business when there is an intention to earn a profit and the activity is planned and organised to achieve that goal.

The best way to avoid the issues highlighted as a focus in this ATO crackdown is to work with experienced tax accountants. Please contact the team at MGI if you need any assistance.