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Some employers, especially at Christmas time or for birthdays, give small gifts to their employees or the employee’s associates (i.e. spouses). These gifts typically take the form of bottles of wine, movie tickets, gift vouchers etc.

The tax treatment of these gifts from an employer standpoint, depends upon a range of factors including:

• To whom the gifts are provided (e.g. employees or clients?)
• Whether the gifts constitute entertainment
• The dollar value of the gifts, and
• The frequency with which they are provided.

Use the following steps as a guide:

1. Does the gift constitute entertainment?

• If yes…go to 2
• If no…go to 3

(gifts that constitute entertainment include: tickets to the movies/plays/theatre, restaurant meals, holiday airline tickets, admission tickets to amusement parks etc.)

(gifts that do not constitute entertainment include: Christmas hampers, bottles of alcohol, gift vouchers, perfume, flowers, pen sets)

2. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, no deduction, no GST credit
• If no…FBT applies, is deductible and can claim any GST

3. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, deduction can be claimed as can any GST credits
• If no…FBT applies, deduction can be claimed as can any GST credits

All told, from a tax standpoint it’s best to buy employees and their associates non-entertainment gifts that cost less than $300. That way, no FBT is payable yet a deduction and GST credits can be claimed. Alternatively, you can put the tax burden back on the employee and pay them a cash bonus, in which case the amount will be assessable to the employee, and deductible to the employer.

Touch base with us if you require further clarification.

For the first time, many Australians are finding themselves in a position where they are being told they owe the ATO money after completing their tax return this year.

A significant number of taxpayers in this position are those that are still paying off their HECS/HELP debts – many of them young Australians. Following are some myths and facts around why this may be the case.

We also tackle the LMITO myth.

1. When PAYGW is deducted from salaries and wages to take account of HELP liabilities, the withheld amount is not applied against the HELP debt until after the end of the income year, when the tax return is lodged. This means that indexation is applied to the debt without taking into account any PAYGW withheld during the year.

Fact or myth?

This is a myth.

Indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.

2. Where an employee has salary sacrificed, the lower salary will reduce the PAYGW withheld, but the reportable fringe benefit is included in the repayment income that is used to determine liability to HELP repayments.

This is not likely to be understood or expected by affected taxpayers.

Fact or myth?

This is a fact.

HELP repayment income is the total sum of the following amounts from a person’s income tax return for the income year:

• taxable income
• total net investment loss
• reportable fringe benefits (as reported on their payment summary)
• total net investment loss (which includes net rental losses)
• reportable super contributions (including salary sacrificed contributions); and
• any exempt foreign employment income amounts

3. Negative gearing amounts are added back and included in HELP repayment income. The rapid rise in interest rates will flow through to negative gearing amounts which increase the repayment income.

This is not likely to be understood by affected taxpayers and will have caught them off-guard.

Fact or myth?

This is a fact.

However, this will only affect those engaged in negative gearing which may not be many young Australians with a HELP debt.

4. The high indexation applied to HELP debts this year of 7.1% compared to prior years (3.9% in 2022 and 0.6% in 2021) has caught taxpayers off-guard. Prior to 2022, over the last 10 years, the rate had not exceeded 2.6% and was often around 2%.

Fact or myth?

This is a myth.

Again, indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.

5. The end of LMITO after 2021/22 is only just being realised by taxpayers now, despite two years of talking about this. The message did not get through, or the impact was not fully understood.

Fact or myth?

This is a myth.

For employees, the PAYGW rates were increased to take the LMITO abolition into account, so yes no refund, but there shouldn’t be tax payable as a result of just the LMITO ending.

The recent ATO crackdown on trusts will no doubt have some business owners (and even some advisors) asking themselves the question: Is this structure for business purposes still worth it?

To recap, trust distributions have been under the ATO microscope in recent years. The latest ATO crackdown was in February 2022 when it updated its guidance around trust distributions especially those made to adult children, corporate beneficiaries and entities that are carrying losses.

Depending on the structure of these arrangements, the ATO may potentially take an unfavourable view on what were previously understood to be legitimate distribution arrangements. The ATO is chiefly targeting arrangements under section 100A of the Tax Act; specifically, where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

Despite this new ATO interpretation and the wider crackdown on trusts in recent years, the choice of a trust as a business structure still has a range of benefits including:

• Asset protection – Limited liability is possible if a corporate trustee is appointed. Usually, when a person owes money and cannot meet the repayment requirements, the creditor can access the person’s personal assets to recoup the debt payable. However if a trust is in place, there is no access to beneficiary assets.
• 50% CGT discount – A family trust receives a 50% discount on capital gains tax for profits made from selling any assets the trust has held for more than 12 months. This contrasts with a company structure. Companies cannot access the 50% CGT discount.
• Tax planning – Income that sits in the family trust that is not distributed by year-end is taxed at the highest income tax rate. However, any trust income distributed to the beneficiaries is taxed at the income tax rate of the beneficiary who receives the distribution. The way to definitely get around the ATO’s aforementioned section 100A crackdown is to ensure the distributed money actually goes to the nominated beneficiary and is enjoyed by the beneficiary rather than another taxpayer.
• Carry-forward losses – A trust does not distribute losses to beneficiaries. This means the beneficiaries will not be called upon to contribute money to the trust to meet any loss. Instead, losses from each year can be carried forward to the following year, subject to certain conditions being met.

If you have questions around your trust structure, or your business structure more generally, touch base with us.

The ATO has just announced that the cents per kilometre rate has increased to 85 cents per kilometre for 2023/24.

To recap, there are two methods to claim workrelated car expenses as follows:

1. Cents per kilometre method

This method is easier for record keeping, involves a more simple calculation, and is generally suited to those with less vehicle use.

You simply keep a record of the number of kilometres you’re traveling for work or for business over the duration of the year and you claim these using the set rate.

The drawback of this method is that you are limited to a maximum of 5,000 work-related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you’re using your car a lot for work, you may find that this is method quite limiting.

2. Logbook method

This method can allow for greater claims depending on how much you’re using your car for work or business.

However, there are more recordkeeping requirements – the main one being that you must keep a 12-week logbook that records all of your trips, both business and private, for those 12 weeks.

At the end of the 12 weeks, you calculate your workrelated or business percentage use, and you can claim that percentage for all deductions for your car.

You also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year.

As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business.

Comparison

Summary

As you can see, both methods have their downsides and can have their benefits too depending on your situation. Consider which is best for you, taking into account:

• If you have the time or the ability to save all of your car-related records
• The level of your business-related vehicle use

This tax time, the ATO is introducing the ‘super health check’ initiative. This consists of five simple and important things that individuals can do to get on top of their super, including:

1. Check your contact details.
2. Check your superannuation balance and employer contributions.
3. Check for lost and unclaimed super.
4. Check if you have multiple super accounts and consider consolidating, and
5. Check your nominated beneficiaries.

Individuals are encouraged to complete the check on ATO online services, through myGov or the ATO app at least once a year at tax time. Alternatively, you may wish to contact your superannuation fund to perform this check.

Although the super health check can be done at any time, the ATO is suggesting individuals do it when they prepare their tax return.

This reminder from the ATO is timely given the superannuation guarantee increases to 11% on 1 July 2023.

So make sure you start the new financial year strong and get on top of your super savings.

Since Budget night, the ATO has released more information around the small business lodgment amnesty…which can now be taken advantage of from 1 June 2023!

The amnesty was announced in the recent Budget. It applies to tax obligations that were originally due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.

To be eligible for the amnesty, the small business must be an entity with an aggregated turnover of less than $10 million at the time the original lodgement was due.

During this time, eligible small businesses can lodge their eligible overdue forms and the ATO will then proactively remit any associated failure to lodge (FTL) penalties.

ATO Assistant Commissioner Emma Tobias urged small businesses to take advantage of the amnesty to get back on track with their tax obligations if they have fallen behind.

“The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact. We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations. Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track.

When forms are lodged with the ATO under the amnesty, businesses or their tax professionals will not need to separately request a remission of FTL penalties.

All you need to do is lodge your outstanding tax returns or activity statements and we’ll take care of the FTL penalty remission from our end.

You might see an FTL penalty on your account for a short period of time, but don’t worry, we will remit it.”

Ms Tobias also noted that outstanding lodgements can be an early indicator that a small business is not actively engaged with the tax system, which can be a red flag:

“We encourage all businesses to lodge any overdue forms even if they are outside the eligibility period. Whilst forms outside the amnesty eligibility criteria will attract FTL penalties, the ATO will consider your circumstances and may remit such penalties on a case-by-case basis.

We understand that some small businesses may be worried about paying an amount owing on their overdue lodgment. If you are unable to make full payment of your debt, remember we can work together with you or your registered tax or BAS agent to figure out the right solution for you.

We want to make this process easy and encourage small businesses to do the right thing. If you have a registered tax or BAS agent, now is a good time to reach out to them to make sure you are up to date with your tax affairs.

Taxpayers still have an obligation to lodge overdue forms during the amnesty period and we will continue to work with them to help ensure they meet their obligations,” Ms Tobias said.

The ATO offers a range of support options, including payment plans. Many small businesses are also able to set up their own payment plan online.

Ms Tobias also explained that if a business has ceased trading, they need to advise their registered tax professional, or the ATO directly.

The amnesty applies to income tax returns, business activity statements and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties such as penalties associated with the Taxable Payments Reporting System.

If you are ready to come forward and get your overdue lodgements up to date, we can help you, and hopefully secure the amnesty for you.

Although not related to tax, there are a number of changes on the Fair Work front that employers should be aware of.

MINIMUM WAGE INCREASE

The National Minimum Wage applies to employees who aren’t covered by an award or registered agreement.

From 1 July 2023, the new National Minimum Wage will be $882.80 per week or $23.23 per hour.

The new National Minimum Wage will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Note that if a worker is covered by a registered agreement, the minimum wage increase may apply to them. This is because the base pay rate in a registered agreement can’t be less than the base pay rate in the relevant award. Check your agreement by searching for it on the Commission’s website: Find an agreement

AWARD MINIMUM WAGE INCREASE

The Fair Work Commission has also announced that minimum award wages will increase by 5.75%.

Most employees are covered by an award. Awards are legal documents that outline minimum pay rates and conditions of employment in your industry or occupation. If you’re not sure which award applies to a worker, use Find my award.

This increase will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

SECURE JOBS, BETTER PAY: 6 JUNE CHANGES TO WORKPLACE LAWS

From 6 June 2023, changes also came on stream related to:

• requesting flexible working arrangements
• extending unpaid parental leave
• agreement-making
• bargaining.

For more information, visit, Secure Jobs, Better Pay: Changes to Australian workplace laws.

AGED CARE SECTOR

Direct care and some senior food services employees in the aged care sector will receive a 15% wage increase from 1 July 2023.

For more information, visit, 15% wage increase for aged care sector.

PAID PARENTAL LEAVE SCHEME

From 1 July 2023, the Paid Parental Leave scheme is changing.

From this date the current entitlement to 18 weeks’ paid parental leave pay will be combined with the current Dad and Partner Pay entitlement to two weeks’ pay. This means partnered couples will be able to claim up to 20 weeks’ paid parental leave between them. Parents who are single at the time of their claim can access the full 20 weeks.

These changes affect employees whose baby is born or placed in their care on or after 1 July 2023.

Other changes include:

• allowing partnered employees to claim a maximum of 20 weeks’ pay between them, with each partner taking at least two weeks (except in some circumstances)
• introducing a $350,000 family income limit (indexed annually from 1 July 2024) for claiming paid parental leave pay
• expanding the eligibility rules for fathers or partners to claim paid parental leave pay
• making the whole payment flexible so that eligible employees can claim it in multiple blocks until the child turns two
• removing the requirement to return to work to be eligible for the entitlement.

The new financial year can be a time where business owners look at their operating structure and consider whether it still meets their needs. Choosing a structure is not simply about minimising tax, rather a range of factors should be considered as such as asset protection, establishment and ongoing compliance costs, succession planning, and your understanding of each structure etc.

Most small businesses operate as a sole trader, company, trust, or partnership. The table below is a comparative snapshot of each of the four structures:

You may find that, as your business grows or as your priorities change, your chosen structure no longer serves your needs. For example, a number of people commence businesses as sole traders (often for reasons of simplicity as well as keeping start-up costs to a minimum) but later find that this structure is no longer appropriate. From an income tax perspective, a drawback with sole traders is that income from the business is assessed personally to you at your marginal tax rates. As your business grows and the revenue generated increases, your tax rate also increases.

The take-home message is that you should periodically review your structure to ensure it continues to serve your needs. Be mindful however that changing structures can have CGT and stamp duty consequences – these one-off costs need to be taken into account when making the decision whether to change. Also note that under the small business rollover provisions, it may be possible for you to change your structure without incurring CGT.

Talk to us if you are contemplating changing your business operating structure.

*subject to the Personal Services Income (PSI) rules

Another key Federal Court case may have a bearing on whether you owe certain workers you engage superannuation guarantee or not.

For background, early last year the High Court made a game-changing decision in determining whether a worker is an employee or contractor at common law. It ruled that this is determined by the employment contract / agreement and whether it contains the usual indicators that tend toward a finding that a worker is an employee at common law including:

• Does the business have control over the worker (e.g. what hours they work and how they do the work)?
• Must the worker perform the work personally (rather than having the ability to delegate or subcontract the work to an outside party)?
• Is the worker paid like an employee (e.g. hourly rate)?
• Does the business supply the tools and equipment for the worker?
• Does the business bear the risk and liability to outside parties for any defects in the work?

Where the answer to most of those questions is yes, then the worker is an employee at common law.

Up until the High Court’s decision, lower courts were looking at how individual work arrangements were playing out in practice when answering the above questions. The High Court however ruled that you should instead look at the rights and obligations set out in the respective contract between the parties rather than how the situation plays out after the contract is signed. This is provided that the contract was not a sham.

With this new approach in mind, in early June 2023 a case came before the Full Federal Court where it was asked to determine whether a worker was an employee or contractor. Adopting the High Court’s new approach, the Full Federal Court examined the contract and found that the answers to some of the above questions were yes, while the answers to others were no. However, ultimately it found that because the worker had the ability to delegate/ subcontract the work (although a limited ability subject to the approval of the business) the worker was not an employee for superannuation purposes at common law:

… if a person engaged to perform work has a contractual right to have someone else perform that work, that is a matter which at the very least tends against a conclusion that the person is an employee. The existence of the right is inherently inconsistent with an employee relationship. In the absence of significant countervailing considerations, how can you be an employee if, within the scope of the contract, you can lawfully get someone else to perform the entirety of your contractual obligations, whether for a short period, or for a longer period?

Because the worker had the ability to delegate, he was also not entitled to superannuation under the wider definition of “employee” in the superannuation legislation either which provides that if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. The ability to delegate meant that this test was not met.

The take-home message for employers is that the terms of the written agreement will determine whether a worker is owed superannuation at common law (but that contract cannot be a sham).

However, where the worker has the ability to delegate, this will generally be decisive – no superannuation will be owed at common law or under the superannuation legislation.

All told, this is a complex area. Reach out to us if you are unsure of whether a superannuation obligation is owed to a worker.

The increase to the superannuation guarantee (SG) rate from 1 July 2023 will see more employees (and certain contractors) entitled to additional SG contributions on their pay. But what happens when income earned before 30 June is paid after 30 June 2023 – will employees be entitled to the higher SG rate of 11%?

SG is based on when an employee is paid

On 1 July 2023, the SG rate increased from 10.5% to 11%. In some cases, an employee’s pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all ordinary time earnings (OTE) that are paid on and after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

Example
Nicholas is an employee of ABC Pty Ltd. If Nicholas performed work:

• In June (or partly in June and partly in July) but he was paid in July, the SG rate is 11% on his entire payment and contributions, totalling 11% of his OTE for the September 2023 quarter. This must be made to his superannuation fund by 28 October.
• In July, but was paid in advance (before 1 July), the SG rate is 10.5% and contributions totalling 10.5% of his OTE for the June 2023 quarter must be made to his superannuation fund by 28 July.

SG rate will continue to rise

Employers should prepare for ongoing, annual increases to the SG rate over the coming years. The following already-legislated increases to 12% by 2025 will proceed as follows:

Basis of SG

SG is only payable on a workers’ OTE. OTE is the amount you pay employees for their ordinary hours of work, including things like commissions and shift loadings, but not in relation to overtime hours (being those outside the ordinary hours stated in a worker’s award or other employment agreement).

More information?

If you are still uncertain around the application of the new SG rate or need guidance on which payments constitute OTE, reach out to us.