December 2017

Are you?
– An employer planning a Christmas party for your staff?

At a glance:
– During the festive season, businesses may want to consider the operation of Fringe Benefits Tax (FBT) when organising Christmas functions for employees and their associates

You should: 
– Recognise that FBT exemption may apply to your staff Christmas Party.
– Contact us if you require any clarification or advice.

The Tax Office guide ‘Fringe benefits tax and Christmas Parties’ may assist employers in ascertaining if any FBT repercussions will arise from a Christmas party. The Tax Office explains that there is no distinct FBT category for Christmas parties and numerous circumstances may be encountered when providing these events to staff.

The Tax Office outlines general principles which apply to entities that do not use the 50-50 split method for meal entertainment when determining their FBT liabilities associated with Christmas parties.

The costs attributable to a Christmas party are exempt from FBT if they are provided on a working day on business premises and consumed by current employees. However, a taxable fringe benefit may arise if an associate of an employee attends the party.

The provision of a Christmas party to an employee may be a minor benefit and exempt from FBT if the cost of the party is less than $300 per employee and prescribed conditions have been satisfied. Furthermore, the benefit provided to an associate of an employee may also be regarded as a minor benefit if the cost of the party for each associate is less than $300.

Lastly, the guide emphasises that expenditure incurred in providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore any benefits that are exempt from FBT cannot be claimed as an income tax deduction.

To access the guide click here.

Remember:
– The Tax Office guide is a valuable resource that facilitates employers’ understanding of their FBT liabilities this festive season.

This article was published on 30/11/2017 and is current as at that date

Are you?
– A trustee or director of a corporate trustee of a trust?

At a glance:
– Certain trusts may decide to make a family trust election (FTE) in order to access a wider range of potential tax benefits.

You should: 
– Consider whether making a FTE would be beneficial for your trust.
– Contact us if you require any clarification or advice.

A family trust election (‘FTE’) is a choice made by a trustee to specify a particular individual (the test individual) around whom a family group is formed.  This family group then sets the maximum range of beneficiaries amongst whom the trustee can distribute to without triggering significant adverse tax outcomes, such as family trust distributions tax.

Where a trust makes an FTE, distributions may only be made to eligible beneficiaries who are within the family group. Any distributions outside the family group will be subject to Family Trust Distributions Tax calculated at the highest marginal rate applying to individuals plus the Medicare levy.

Choosing who will be the test individual is important, so as to include the more appropriate family members within the family group.

Generally the family group includes:

• the specified individual and their spouse;
• any parent, grandparent, brother or sister of the specified individual or their spouse;
• any nephew, niece or child of the specified individual or their spouse, including any lineal descendents; and
• the spouse of any individual mentioned above.

Companies, partnerships and trusts may also be members of the family group, provided that the family members listed above are entitled to all the capital and income of the relevant entity.

Although a FTE can effectively decrease the range of beneficiaries the trustee can distribute profit to, it does provide increased taxation benefits, when:

• The trust receives franked dividends;
• The trust has losses;
• The trust owns shares in a company with losses; and
• To bring the trust within the family group of another trust.

Although a person may be a beneficiary of the trust because of a FTE, the trustee will still need to refer to the trust deed to ensure distributions can be made to this family member.
For more information, click here.

Remember:
– Ensure that the trust deed as well as the FTE allow a distribution to a particular individual or entity.

This article was published on 30/11/2017 and is current as at that date

Are you?
– Cancelling your GST registration?

At a glance:
– If you cancel your GST registration and still have business assets for which you previously claimed GST credits, you may need to repay some of those credits.

You should: 
– Determine the adjustment period for each asset retained after the sale of the business.
– Contact us if you require any clarification or advice.

If you cancel your GST registration and still have business assets for which you previously claimed GST credits, you may need to repay some of those credits. You do this by making an ’increasing adjustment’ on your activity statement.

For example, if you sold your business you would cancel your GST registration and sell most of your business assets with the business. But some business assets, such as a work vehicle, may be kept.

If you have held a business asset for a certain period of time you do not need to adjust the GST credits – for example, you usually would not need to repay GST credits on a car held for more than five complete financial years.

For each asset you retain you need to:

• Determine if its adjustment periods expired before you cancelled your GST registration; and
• If the asset adjustment periods have not expired, calculate the adjustment amount and include it on your activity statement.

You do not have to make adjustments for retained assets if the GST registration cancellation relates to a deceased estate and the cancellation is due to either:

• The death of a sole trader, after which the executor or trustee of the estate immediately continues the deceaseds business and is registered for GST; or
• The executor or trustee not carrying on the deceaseds business but one or more of the beneficiaries immediately continues that business and is registered for GST.

Each business asset retained will have a different adjustment period length depending on various factors including its original purchase value.

For more information, click here.

Remember:
– In most circumstances, your June tax periods are your adjustment periods.

This article was published on 30/11/2017 and is current as at that date

Are you?
– A partner in a partnership.

At a glance:
– If you are a partner in a partnership, you may be able to offset your share of a partnership loss against your other income, provided you meet specified conditions.

You should: 
– Check non-commercial loss rules and other relevant requirements to ensure you are eligible to offset the loss of the partnership against your other income.
– Contact us if you require any clarification or advice.

Firstly, partners need to ensure the partnership business is carried on with a significant and manifest commercial purpose or character rather than as a hobby or lifestyle choice.

The partnership loss may be offset from the members’ other income if one of four tests are satisfied.

Generally, to satisfy the assessable income test, a partnership that has individuals as partners requires assessable income of at least $20,000 to enable the members to deduct the loss from their other income.

Partners assessable income derived from the business activity outside the partnership can also be included as assessable income for that individual member only.

The profit test generally requires that your income from the business activity is higher than your tax deductions for the activity for at least three years of the last five years. You must consider both your income from the partnership and any income you may have earned in your own right from that business activity.

If all the partners of a partnership are individuals, to satisfy the real property test, the value of the real property used in the partnership business must be at least $500,000 before the individual members can deduct losses.

If a partnership’s members consist of companies or trusts, the value of real property attributable to them must be excluded when using the real property test.

The forth test is the other assets test.

For more information about Partnership loss offset, click here.

Remember:
– Members of a partnership may be affected differently when assessing their eligibility to claim a deduction for a partnership loss.

This article was published on 30/11/2017 and is current as at that date