February 2012

Accounting Update

(i)    2011/12 Mid-Year Economic and Fiscal Outlook

(ii)   ATO crackdown on PSI and ABNs

(iii)  Tax incentive to encourage immunisation

(iv)  SMSF compliance focus for trustees

(v)   ATO Data Matching Programs

The Government has released its 2011/12 Mid-Year Economic and Fiscal Outlook, which forecasts substantial downgrades to revenue due to "a significant deterioration in global conditions."

The Government will further restrict the Dependent Spouse Tax Offset (DSTO) to those with spouses born before 1 July 1952 (this extends the 2011/12 Budget measure, to phase-out the DSTO for most taxpayers with a dependent spouse born on or after 1 July 1971);

ATO crackdown on PSI and ABNs

November 2011

Keith Compton - Accountant/Director

Highlighted In this month's Keith's Communiqué are the following topics of interest:

(i)    Christmas gifts

(ii)   Small business benchmarks for new businesses

(iii)  Record-keeping for businesses

(iv)  ATO's new property website

(v)   Pacific seasonal worker's tax rate reduced

Christmas gifts

As businesses often provide gifts to clients and staff this time of the year, we thought we would discuss how they are handled "taxwise".

Gifts which ARE NOT considered to be entertainment

These generally include, for example:

       a Christmas hamper, a bottle of whisky, wine, etc.; and

       gift vouchers, a bottle of perfume, flowers, a pen set, etc.  

The general FBT and income tax consequences for these gifts are as follows:

       gifts to employees and family members – FBT is payable (except where the less than $300 minor benefit exemption applies) and a tax deduction is allowed; and

       gifts to clients, suppliers, etc. – no FBT, and a tax deduction is allowed.

Gifts which ARE considered to be entertainment

These include, for example:

       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.

The general FBT and income tax consequences for these gifts are as follows:

       gifts to employees and family members – FBT is payable and a tax deduction is allowed (except where the minor benefit exemption applies); and

       gifts to clients, suppliers, etc. – no FBT and no tax deduction.

Non-entertainment gifts at functions

What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150?

Under the actual method, for employees attending with their spouses – no FBT is payable because the cost of each separate benefit (including the gift) is less than $300 (i.e., the benefits are not aggregated).  No deduction is allowed for the food and drink, but the gift is deductible.

Where the 50/50 method is adopted:

       50% of the total cost of food and drink is subject to FBT and deductible; and

       the total cost of all gifts is not subject to FBT because the individual cost of each gift is less than $300.

         As the gifts are not entertainment, the cost is deductible.

Comment:  Last month we covered Christmas parties and the fringe benefits tax (FBT) and the income tax consequences of holding parties for staff and clients or suppliers. As we said last month, this is very complicated so if you would like a little help, just contact our office.

Small business benchmarks

Benchmarks for new industries

New benchmarks have been published for the following industries:

       Landscape construction;

       Motor vehicle retail – new and used;

       Panel beating and smash repairers;

       Lawn mowing and garden services;

       Tattooing services; and

       Pharmacies.

Over the next 12 months, the Tax office intends to publish benchmarks for a further 30 industries.

Comment:  The Tax Office says that its small business benchmarks have been developed to help taxpayers compare their performance against similar businesses in their industry. 

As you might expect, they also are a guide to the level of income that the ATO will expect from a business in a particular industry. There are now more than 100 benchmarks for businesses with different turnover ranges i.e., small/medium/large, which are on the ATO's website. Not surprisingly, the Tax Office says that businesses reporting outside the benchmarks may attract their attention as it may be an indication that the business is not recording and paying tax on all transactions, especially cash.

When undertaking an audit, the Tax Office is likely to use the relevant benchmark to estimate the income that has not been reported. Clients who may be concerned or who would like to discuss the benchmark for their industry, should contact our office.

Record-keeping for businesses

The ATO expects a retail business to:

       record each individual sales transaction through their cash register or point-of-sales system;

       conduct a daily sales reconciliation between the 'z' total (or end-of-day report if they use an electronic system) and cash in the register, taking into account cash taken from the register for business and personal expenses;

       transfer the daily sales total into a cash receipts book regularly;

       perform bank reconciliations between bank statements and the cash receipts book, at least monthly;

       retain for a period of five years:

       –     the 'z' totals or point-of-sales system end-of-day reports;

       –     daily reconciliations;

       –     bank records and cash receipts book; and

       –     till rolls or end-of-day reports that record details of each individual transaction (if 'z' totals have been reconciled with actual cash sales and banking, detailed till rolls may be discarded after one month); and

       maintain a filing system to keep track of paid and unpaid accounts.

Comment:  With the introduction of benchmarking,  record-keeping has become the name of the game when a taxpayer is audited. Adequate records are necessary to prove that a taxpayer’s figures are correct.

ATO's new property webpage

The ATO has launched a new property webpage which outlines information on property topics including:

       Income Tax;

       Capital Gains Tax (CGT);

       Goods and Services Tax (GST);

       Residential rental properties;

       Property used in running a business;

       Property development; and

       Building and renovating.

The new ATO property guide can be found on their website at ATO website

Pacific Seasonal Workers' tax rate reduced

Legislation has been introduced to reduce the lowest marginal tax rate for Pacific Seasonal Workers to 15% (down from 29%), effective for the 2011/12 year of income. One of the main objectives of the Scheme is to assist Australian farmers/horticulturalists to source seasonal workers.

October 2011

Keith Compton - Accountant/Director

Highlighted In this month's Keith's Communiqué are the following topics of interest:

(i)     Is your loan (or withdrawal of funds) in your SMSF’s best interest?

(ii)    Spring carnival, year-end and other staff parties.

(iii)   Cash economy and the ATO’s benchmark.

(iv)   ATO and GST compliance.

(v)    Fbt treatment of singage on a car.

(vi)   GIC & SIC rates for December 2011 quarter.

Is your loan (or withdrawal of funds) in your SMSF's best interest?

• The Tax Office asks – has your SMSF loaned money? If so, make sure the loan terms comply with the law and are in the best interests of your retirement.

• When a loan agreement is not in the best interest of your SMSF – for example, when you have given discount loan rates or favourable terms – this could have serious consequences.

• In addition to putting your member's benefits at risk, your SMSF could be found to be non-complying and would, therefore, not qualify for concessional tax rates.

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SMSFs and money lending.

• Comment:  The Tax Office has issued an information sheet on their website warning trustees about the perils of lending an SMSF's funds to the wrong person. 

• This includes the practice adopted by some taxpayers of withdrawing funds from an SMSF to temporarily help prop up their business when cash flow is tight.

• This lending practice has apparently become quite prevalent since the global financial crisis.

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Spring carnival, year-end and other staff parties.

• As the Spring racing carnival is upon us, and with the December/January break on the way, many employers and businesses will be planning to reward staff with a celebratory party or event. 

• However, an important issue for our clients to consider is the possible Fringe Tax Benefits ("FBT") and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients... read on

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Cash economy and the ATO's benchmarks

• Recently, the Tax Office discussed its small business benchmarks* that were introduced in October 2009.

• Editor(*):  The benchmarks cover a range of industries that are likely to receive cash such as most building trades, and many small retailers such as pizza shops, takeaways or hairdressers.  If you would like to know if your business has been benchmarked, please call our office.

• The ATO advised that 121 benchmarks have been published covering 101 industries.  The benchmarks are intended to cover the higher risk elements of the cash economy... read on

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ATO and GST compliance

• The Tax Office says that GST cheats are more likely than ever before to be caught out this years, as it plans to increase its audits on GST refund claims by small businesses and investigate cases of serious evasion.

• The ATO will complete an extra 11,500 cases in 2011/12 investigating the systematic or deliberate under-reporting of GST and fraudulent GST refund claims.  Last financial year 28 people were prosecuted for more than $17 million worth of GST-related fraud offences.

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FBT treatment of signage on a car

• The ATO has now agreed that the signage in the form of a removable thin film fitted to a car is not a 'non-business accessory'; and is not included in the cost price of the car. That is, the cost of such signage would not form part of the base value of the car for FBT purposes.

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GIC & SIC rates for December 2011 quarter

• The ATO has released the GIC (General Interest Charge) and SIC (Shortfall Interest Charge) rates for the December 2011 quarter.  They are:

GIC rate                                                    11.86%         GIC daily compounding rate        0.03249315%

SIC rate                                                      7.86%         SIC daily compounding rate        0.02153425%

Please note:  Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances. 

September 2011

Keith Compton - Accountant/Director

Highlighted In this month's Keith's Communiqué are the following topics of interest:

(i)    ATO clamps down on GST fraud and cash income.

(ii)   Meaning of 'cost price' of a car for FBT purposes.

(iii)  ATO Data Matching: Flood and cyclone reconstruction.

(iv)  Is an investment made by a trustee always on capital account?

(v)   Government committed to superannuation reforms.

(vi)  ATO warning about illegally accessing super early

 (i)  ATO clamps down on GST fraud and cash income.

• A key part of the ATO's Compliance Program is increasing their focus on non-complying taxpayers in the GST system, as well as those who fail to report some or all cash transactions.

• To this end... read on

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 (ii) Meaning of 'cost price' of a car for FBT purposes.

• The ATO has set out their opinion on how, for fringe benefits tax (FBT) purposes, various arrangements may affect the 'cost price' of a car.

• This is relevant for the purposes of determining... read on

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 (iii) ATO Data Matching: Flood and cyclone reconstruction levy

• The ATO will request and collect names and addresses of approximately 735,000 individuals who received the Australian Government Disaster Recovery Payment, and New Zealand citizens holding a special category visa who received an ex-gratia payment from Centrelink.

• This information will be electronically matched... read on

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 (iv) Is an investment made by a trustee always on capital account?

• Some people are under the impression that any investment made by a trust will be a capital investment, meaning that any capital gain made on selling that investment may be able to access the 50% capital gains tax (CGT) discount.

• However, this may not always be the case... read on 

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(v)  Government committed to superannuation reforms.

• At a recent speech commemorating the twentieth anniversary of the introduction of the superannuation guarantee regime, the Assistant Treasurer reaffirmed the Government's commitment to increasing the minimum superannuation guarantee percentage from 9% to 12%.

• The Government first announced this policy on 2 May 2010. Although it has yet to be legislated, the plan is to increase the super guarantee by 0.25%in 2013/14, and progressively increase it in small increments until it reaches 12% in the 2019/20 income year... read on

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 (vi)  ATO warning about illegally accessing super early

• The ATO is concerned about the number of illegal schemes being promoted that offer people access to their super savings early.

• In addition to paying excessive fees or commissions (sometimes in excess of 30% of their super balance) a fund member could be taxed at rates as high as 46.5%, even if the amounts are repaid to the fund.

• The ATO also warns people to be wary of identity theft and fraud, as these thefts can go unnoticed for some time and cause long term problems for the individual in obtaining finance in the future.

• Fund members may access their super early if they are experiencing financial hardship or have strong compassionate reasons.

          Please speak to us if you wish to access your super.   

August 2011

Keith Compton - Accountant/Director

Highlighted In this month's Keith's Communiqué are the following topics of interest:

(i)    ATO benchmarks

(ii)   Audit insurance

(iii)  Can your self managed investment fund (SMIF) buy artwork and collectables?

(iv)  The 'Flood Levy'

(i)    ATO benchmarks – what you need to know for your business.

• The ATO now uses industry benchmarks to assess business performance and takes a much closer look at businesses that fall outside of these benchmarks. These benchmarks are readily accessible on the ATO website. Of course not every business falls neatly into these benchmarks. What happens if you have a niche business or have unusual trading conditions that mean you almost never fall within these benchmarks? This of course doesn’t include natural disasters.

• Unusual conditions are a major problem with the current benchmarking approach adopted by the ATO... read on

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(ii)   Audit Insurance

• What happens if the ATO carries out an audit of your tax matters or your business? Irrespective of the result of the audit, whether favourable or unfavourable, costs will be incurred by you. Our professional costs may be significant in relation to our normal accounting fees relating to your usual quarterly and annual tax compliance.

• We never know who the ATO may select for an audit... read on

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(iii)  Can your self managed investment fund (SMIF) buy artwork and collectables?

• We mentioned in our Budget Report earlier this year that the Government was introducing tighter legislative standards for investments in collectables and personal use assets held by SMFS investments from 1 July 2011. Further, all collectables and personal use assets must comply with the new requirements by 1 July 2016.

• The Government has released draft regulations that guide what and how SMSFs may buy, sell, and manage collectables. The regulations seek to ensure... read on

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(iv)  The 'Flood Levy'

• The Government now has now introduced its ‘Flood levy’ legislation that will assist in the payment for the flood recovery process in Queensland. The levy is applicable for the 2011/2012 income year. The flood levy of 0.5% will apply to all clients with a taxable income of $50,000 or more and 1% for all those with an income above $100,000. Those below the income threshold or who are in receipt of an Australian Government Disaster Recovery Payment for a flood event that occurred during the 2010/2011 income year will be exempt from paying the flood levy. The levy is intended to apply to the 2011/2012 income year only.

• Employers should already have adjusted their pay scales to take this levy into account.

   

         Crest Accounting

         News at a glance

       - February 2012

           February 2012 (PDF)

         - November 2011

           November 2011 (PDF)

         - October 2011

           October 2011 (PDF)      

         - September 2011

           September 2011 (PDF)

         - August 2011

           August 2011 (PDF)